Skip to content

Paulsen's Perspective

Apr 22 2019

‘Wall Of Worry’ Taller Than Trump’s Border Wall!

  • Apr 22, 2019

Compared to post-war norms, the contemporary economic expansion has been odd in many ways. Persistent sub-par economic growth, a lack of normal lending and borrowing activities, declining labor-force participation rates, a stubbornly high underemployment rate, an inflation no-show, negative yields, and bizarre economic policies (e.g., TARP, cash for clunkers, stress tests, and quantitative easing). 
 

Apr 18 2019

Cyclicality is Scarce?

  • Apr 18, 2019

Better economic reports in the U.S. and about the globe are slowly reducing imminent recession worries. For example, today’s favorable reports on U.S. retail sales, unemployment claims, and the Leading Economic Indicator reinforces the likelihood the expansion perseveres. 

Apr 15 2019

Exposed To ‘Margin’ Investments?

  • Apr 15, 2019

U.S. profit margins have widened significantly in the last couple decades. Total U.S. corporate profits as a percent of GDP averaged only about 8% in the 20 years leading up to 2000, but has since risen by almost 30%, averaging 10.5%. Similarly, the overall profit margin among S&P 500 companies has increased steadily in this recovery to record highs! 

Apr 08 2019

Embrace Your New Sugar Daddy!

  • Apr 8, 2019

Many believe the contemporary bull market has been nothing more than a Sugar High produced by massive and unprecedented monetary easing. In the last couple years, however, the Federal Reserve has raised interest rates and allowed its balance sheet to run off, weaning the markets from its sugar. 
 

Apr 02 2019

A Rally With Fundamental Foundations?

  • Apr 2, 2019

A legitimate concern facing investors is how quickly, and how much, the stock market has recovered while economic and earnings fundamentals have deteriorated. Without improving fundamentals, this rally appears overdone—based on hope—and increasingly suspect.

Mar 28 2019

Has The Yield Curve Been TRUMPed?

  • Mar 28, 2019

The U.S. yield curve has inverted (at least the 10-year Treasury yield to either the 3-month T-bill or the Fed funds rate) and captured the full attention of investors. Rightly so, since a yield curve inversion has historically been an excellent indicator of a pending recession. However, a condition that has always existed in the post-war era when the yield curve has inverted is absent today.

Mar 25 2019

How SWEET It Is!

  • Mar 25, 2019

Stocks do best in times of general price stability. In the post-war era, the stock market has provided investors with significantly higher returns and lower risk whenever the annual rate of consumer price inflation has been between 1% and 3%. However, when outside this “Sweet Spot”—when the porridge is either too hot or too cold—investment results are far less hospitable. 

Mar 18 2019

Growth & Inflation?

  • Mar 18, 2019

U.S. economic growth has recently slowed and may weaken further in coming months. Moreover, inflation still lingers—commodity prices have bounced, both core consumer and producer price inflation remain near recent highs, and wage inflation is steadily rising. Investors face two big questions.

Mar 11 2019

Bond Market Message?

  • Mar 11, 2019

The stock and commodity markets have been messaging confidence in the future of this economic recovery since the December stock swoon. The S&P 500 has surged by about 10% so far this year on strong breadth led by economically-sensitive small cap stocks and cyclical sectors, while traditional defensive equities have lagged. 

Mar 04 2019

‘Betting To Beat’ The Market?

  • Mar 4, 2019

The macro-investment environment can be simply described by two dimensions—the directions of real growth and inflation. Since the performance of both the stock and bond markets are highly responsive to these two factors, investors need to be mindful of their macro bets. 

Feb 25 2019

Balance Sheet Recession Risk?

  • Feb 25, 2019

Arguably, the biggest risk facing the stock market is a recession. Currently, traditional recession gauges are mostly comforting and a key indicator—balance sheet health—is remarkably strong. Often, recessions occur when financial health deteriorates, limiting household or business capabilities and lowering confidence.

Feb 19 2019

Make RISK Great Again!

  • Feb 19, 2019

Economic growth in the contemporary expansion has been perpetually weaker than any in the post-war era. Many explanations have been offered for why the U.S. is stuck in low gear, including aging demographics, overextended balance sheets, overused and increasingly ineffective economic policies, and a tech-boom-induced world awash with excess capacity. 

Feb 11 2019

Nothing But Noodling?

  • Feb 11, 2019

Just some noodling over an array of issues including:

  • What private sector confidence currently suggests about the stock-bond allocation tilt?
  • Is the fuel for Populism fading? 
  • Will winning the trade war cause U.S. stocks to lose?
  • How have stocks performed once the unemployment rate bottoms?
  • What does a 2019 U.S. economic slowdown imply for the 2020 election?
  • A nice revaluation refresh for stocks!
     
Feb 04 2019

‘EMERGING’ For The Finish?

  • Feb 4, 2019

Emerging Markets (EM) are not generally considered defensive investments and, therefore, investors do not often turn toward these economically-sensitive stocks near the end of a bull market cycle. However, as Chart 1 highlights, if the current economic expansion/bull market is in its late innings, perhaps you should consider “Emerging for the Finish.”
 

Feb 01 2019

Here Comes The Cavalry...

  • Feb 1, 2019

During the December carnage many Bulls were killed on the battlefield and others badly wounded. This year, although the skirmish has quieted, most remain on edge. However, investors may just now be jumping out of their foxholes because the Cavalry has recently been sighted coming over the hill with bugles blaring!

Jan 29 2019

Supportively ‘Sour’ Sentiment?

  • Jan 29, 2019

While many factors will determine how the stock market ultimately does this year (e.g., the pace of economic and earnings growth, valuation, policy support, and technicals), a few indicators show “sentiment” remains supportive for the stock market. 

Jan 22 2019

Policy Paralysis

  • Jan 22, 2019

The next recession, whenever it is, could face an unusual headwind. Normally, recessions are about liquidating fundamental excesses. Restoring health to balance sheets which were abused in the last expansion, purging bad business decisions, restoring liquidity, replenishing savings, and restarting the profit, job, and income creation cycles. 
 

Jan 16 2019

A Recovery Refresh?

  • Jan 16, 2019

In 2018, the U.S. recovery was on a path toward recession. It couldn’t last much longer growing above 3% in real terms and 5.5% in nominal terms, with an unemployment rate below 4%. Wages, consumer, producer, and commodity prices were rising and the Federal Reserve (Fed) and bond vigilantes were tightening.

Jan 08 2019

A Few Encouraging Signs...

  • Jan 8, 2019

Amongst the carnage and ongoing financial market volatility are a few encouraging signs the stock market may eventually regain its footing. As the pictures below illustrate, a proprietary U.S. economic momentum indicator suggests that recession fears may lessen by the spring, valuations have now fallen well below levels justified by bond yields, investor mindsets are quickly shifting away from overheat fears, and the U.S. dollar may finally be breaking down.

Jan 03 2019

Some 2019 Market Musings?

  • Jan 3, 2019

Welcome to 2019! As we begin the New Year, volatility (the stock market’s VIX volatility index spiked above 30 last week) and uncertainty (Bear Market, Recession?) reign. Amongst all the chaos, and with much personal trepidation over what may actually happen this year, here are some observations and a few guesses for 2019.

Interested in Investing in a Model?

Contact us if you are interested in investing in our ETF models.