In today’s briefing:
- Global Monetary Easing Cycle Becomes More Idiosyncratic
- Equity Return Expectations Under An Alien Invasion
- The Darker Side of the Hindenburg Omen
Global Monetary Easing Cycle Becomes More Idiosyncratic
- The Swiss and Canadian central banks cut their respective policy rates by 50 basis points. The former faces currency appreciation and deflationary risks. Canada faces higher unemployment and deteriorating growth.
- The European Central Bank is taking a gradual policy easing path in 2025. Policy outlooks for the Reserve Bank of Australia and Bank of England are more data dependent.
- The Fed cut its policy rate by 25 basis points as expected, but fewer reductions are now expected in 2025 due to a more robust economic outlook compared to September.
Equity Return Expectations Under An Alien Invasion
- We are subscribers to Occam’s Razor, or the simplest explanation is the most satisfactory, and recent UFOs sightings are of terrestrial origin.
- It’s nevertheless a worthwhile exercise to consider asset return expectations under the scenario of an extra-terrestrial alien invasion.
- Our study of an alien invasion opens the door to discussing return studies. Standard assumptions about returns to bonds and equity risk premiums are useful only up to a point.
The Darker Side of the Hindenburg Omen
- Current market conditions are characterized by a strong S&P 500 that’s near its all-time high and weak breadth.
- The closest template to these circumstances is August 1972, which is just before the final Nifty Fifty top.
- As the market undergoes its inevitable bounce due to oversold conditions, investors should monitor technical conditions for negative divergences, which could be the signal for a long-term cyclical top.
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