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@ammar814
Ammar
Not investment advice
0 following24 followers
Bull Markets
-Average bull market lasts 6.7 years
-Average return is 363%
-Strongest bull market was during post war boom
-Second shortest bull market was post covid
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While the bears celebrate the recent volatility in the market, my quant model has remained neutral since August 14th. It had been bullish all the way from April 1st. The model indicates no panic. However, I do believe that a time to be cautious is approaching, though it's not here just yet $SPY
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Looking ahead to the medium term, I identify two key challenges:
  1. The phrase "locked in" has emerged as a pivotal force, not only bolstering the housing market but also exerting a positive influence on the stock market. Notably, 42% of Americans are currently free of mortgages, while an impressive 92% of mortgage holders have secured rates below 6%. This, coupled with the absence of student loan payments, has significantly contributed to the ongoing strength of the consumer. However, an alternative perspective on the concept of rate locking emerges. While locking in rates at lower levels is favorable for consumer balance sheets, it presents distinct challenges for lenders, encompassing the banking sector and the Federal Reserve. This raises the question of when bank balance sheets might witness improvement. In a high-rate environment, such improvement may come at the expense of damaging borrower balance sheets. My observation is that bank balance sheets are likely to commence an upward trajectory after 2025, particularly as a substantial portion of high-yield debt matures within that timeframe. This challenge holds implications for the present and the future, as a dearth of new debt supply can lead to a sluggish growth rate.

  1. The disinflationary trend observed thus far (from 9.1% to 3.2%) signifies a departure from deflation, thereby supporting the resilience of profit margins. Analyzing the average monthly increase in the Consumer Price Index (CPI) from January 2023 to July 2023, a projection of 4% CPI by December emerges. Concurrently, the real 10-year rate stands at 1.6%. If this rate remains stable, the 10-year rate could potentially approach 5.5%. This dynamic raises a compelling question: How will equities fare against the risk-free rate? In this scenario, a choice between locking in a 5.5% return for a decade or embracing the risk for a potentially higher 9% return arises. I am inclined toward the latter choice, envisioning a best-case scenario of a 9% return. Considering our current valuations, a 5% projection appears optimistic in light of prevailing conditions.

I took help from Chatgpt summarizing!

If people haven’t been exporting AI, it is to their detriment. The worst AI quality AI is going to be able to produce is what it can produce today. It will only get better, faster, and more useful. Chat GPT 5 is rumored to be trained on 17 trillion parameters, compared Chat GPT 3 (first free version) that was trained on 176 billion parameters. Research is showing that using AI can boost creative idea generation. They’ve also found that AI is faster at solving Captcha than humans. Change is afoot. Do yourself a favor and get an understanding of it now.
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US Debt
The last time the US was here on DEBT/GDP (WW2), in the next 25 years (1950-1975) the country was able to bring down debt to GDP to 30%.

During that time (On Avg)
-US GDP grew by 7.3%
-CPI 3.2%
-Debt doubled from $257B to $533B (An increase of 107%)
-S&P500 grew by 9%

Can the US do it again? Mostly all current projections seem to point to higher DEBT/GDP going forward

@heyrico08/11/2023
We certainly need to start taking more medecine
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Weakest rally ever?
The current rally in the stock market is either the weakest recovery for both indexes or the best bear market rally ever. Since 1932, this is the first bottom where financials have had negative returns in the first 7 months of a new bear market. The Bank index has never posted negative returns 7 months after a bottom.
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@charity07/24/2023
Looks like the Russell 2000 is the place to be after a bear market bottom.
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What hurt macro bears the most this year?

1) Ignoring MACRO data
2) Subscription sellers ( YC inversion = Short the market. Absolutely not. Market rallies 20%+ on Avg after YV inversion)
3) SVB (Liquidity came back & financial conditions eased)
4) AI (Well, nobody really saw that coming)
5) Financial engineering (Worst earnings quality in decades)
6) Fiscal spending (Near 10% deficit spending)

Now US NAAIM Exposure Index shows active managers have the highest allocation to equities since 2021. The chase is on!


AI probably hurt the macro bears the most, even though they couldn't have seen it coming.
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Yield Curve
Many bears, particularly sellers of macro subscription services, have argued about the inverted yield curve. While the yield curve is a significant indicator that should never be ignored (with a 100% track record), these subscription sellers have neglected to mention the extent of the S&P 500's rally during an inversion. On average, the index rallies by 22%. Additionally, since 1978, the S&P 500 has even reached new all-time highs on three occasions during such inversions.
Another noteworthy aspect that seems to be overlooked is the Federal Reserve's communication regarding rate cuts in the next 20-30 months. When in history have they ever mentioned rate cuts during a hiking cycle? I couldn't find a single instance. Essentially, the Fed is further inverting the curve through their forecasts. $SPY

Falling effective tax rates, falling interest rates & increased Government spending = Goldilocks for owners of financial assets. Will this continue in the next 10 years? Very unlikely. $SPY
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Valuations may not matter in the short term but its one of the most important indicator for long term investors. $SPY
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From Oct 2014 (Inception) to Feb 2021 (Peak):
$ARKK delivered a CAGR of 37.61%, outperforming $QQQ by 16% annually & $SPY by 25% annually.

From inception to today:
ARKK CAGR: 9.75%
QQQ CAGR: 14.75%
SPY CAGR: 10.83%
YTD Performance: ARKK up 38.5%, QQQ up 37%.

If you invested $1K since ARKK's inception:
ARKK: $2154
QQQ: $3112
SPY: $233.6

ARKK took more than double the risk of S&P500.

Interestingly, the Fed balance sheet increased by 8.13% annually since ARKK's inception. Biggest increase in B/S? 2020. Best year for ARKK? 2020.

At its peak, ARKK's price-to-sales ratio was 67.

According to Morningstar data, Cathy Wood made a staggering $310M since inception. However, investors lost $27B investing with her, mainly due to chasing performance & most AUM coming in or after 2020.

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