Terry Grennon

Strategy (revised)

Strategy was revised May 11 to reflect a bear wave trend in bonds.

For more information on the strategy methodology, please read:
“A Dynamic Asset Allocation Approach to Investing II”

Trend – Stocks

Prices appear to have topped but remain bullish.

High Stock Valuations = 0-2% Expected Returns in Coming Decade

The math is as simple as buy low / sell high.

Cyclically Adjusted Price to Earnings (CAPE)

Has Only Been Higher Once Before

Stocks maintain a bearish wave pattern

Since the market bottom on March 23, 2020 and June 2020, the wave pattern of prices has oscillated lower, while volume has oscillated slightly higher.

Are we on the cusp of another Roaring Twenties?

The historical pinnacle of P/Es (P/E 10 YE) points to a bear not the start of a secular bull.

Professional investors turn bearish

The NAAIM index of professional investors, aka “smart money” turns notably bearish.

Where are we

An apropos quote for today’s asset allocation environment.

It’s only when the tide goes out that you learn who has been swimming naked.
Warren Buffet

Stock Returns, P/Es, and GDP

Despite the general contention that the economy and the stock market are inexorably connected, the facts get in the way of confirming common wisdom.

This chart presents the average stock market return and average GDP growth by decade and by secular bull/bear market cycle. Economic growth is not the primary driver of stock market returns; instead, returns are driven primarily by a cycle In the P/E ratio.

Although economic growth does increase the denominator in the P/E (earnings), actual returns are generally the result of trends in the P/E ratio.