However, there’s another momentum that — with other peoples’ fortunes at stake — I feel demands even greater attention/study than does the momentum in price. That would be the momentum in/direction of the underlying fundamentals.

Like O’shea, I equate the price action by itself more to wind than I do tide. The tide being the fundamentals:

“People get all excited about the price movements, but they completely misunderstand that there is a bigger picture in which those price movements happen. Price movements only have meaning in the context of the fundamental landscape.

To use a sailing analogy, the wind matters, but the tide matters too. If you don’t know what the tide is, and you plan everything based on the wind, you are going to end up crashing into the rocks.””

From Part Three: Bubbles, Zombification, the Fed and the Future 

“There’s much more we could dissect with regard to Japan’s post-80s economy — ~zero interest rates in perpetuity, central bank balance sheet, lousy demographics, waning productivity, etc. — but suffice to say that virtually all of it, even to some degree lousy demographics (read immigration policies, and the correlation between wage growth/standard of living and population growth), results from government’s unwillingness to allow markets to clean up the messes government creates.

And, lastly, before we tackle today’s debt bubble, while the above may sound dire, understanding what policymakers will have to bring to bear in their attempts to avert a worse-than-2008 financial market scenario brings clarity (read opportunity) to the portfolio management process…”

From Part Four: The Good, the Bad and the Ugly — And — Lessons of Nature 

“Like no other time in history, stock markets have the support of policymakers.

Years of business cycle manipulation, resulting in persistently low interest rates, have established stocks as the perceived only game in town to capture yield and to beat inflation.

In fact, or in addition, it’s little stretch to say that stocks these days in the eyes of many possess money-like qualities, as people succumb to the allure of ever-rising prices supported by ever-present “money” printing and move their life savings into the market.

The Fed, having boxed themselves (and, alas, the economy) into a place where the world is so heavily-leveraged against stock prices, and, now, everyday folks (in terms of perceived safety) mistake stocks for money, have — in their minds — no choice but to do everything possible to keep the market levitated virtually ad infinitum. 

For the moment, while policymakers’ backstopping stocks is plenty to like all by itself, it would indeed be a stretch to, at this time, confidently expand a list of good reasons to own them — in the aggregate, that is.

On a sector by sector basis, however, absolutely, when, for example, we consider infrastructure spending on the horizon, and, thinking globally, when we branch beyond U.S. borders, there are indeed opportunities in stocks to be thoughtfully exploited going forward.”

From Part Five: Commodities and the Dollar 

“…in that commodities the world over are mostly traded in U.S. dollars, our longer-term weak-dollar thesis makes maintaining some commodities exposure going forward a no-brainer. 

Secondly, the world is in stimulus mode like I personally have never seen it: 

China is on yet another tear when it comes to infrastructure spending within their own economy; gobbling up much of the world’s industrial commodities production in the process. Plus, with their “One Belt, One Road” initiative, they are rapidly expanding across the globe, financing infrastructure projects from East China through Southeast and South and Central Asia all the way to Europe. 

And while there’s much to parse in this massive global outreach — including the potential to provide a huge springboard for China’s own digital currency, which some view as the most credible threat to the U.S. dollar’s global dominance going forward (a serious topic we’ll no doubt broach often and in detail in the months to come) —  make no mistake, with regard to commodities demand, it’s big!

And, as we know, the U.S. is sorely overdue in its own infrastructure ambitions. Hence we look for a trillion or three of fresh government borrowing and spending in that direction over the coming months/years.

Thirdly, given the weak price action over the past decade, commodities producers have notably cut their spending, thus reducing overall capacity. 

Growing demand against reduced capacity of course leads to higher prices… 

Yes, contrary to the opinion of many a pundit, inflation is no small risk going forward…”

From Part Six: Sectors 

“In this part six of our year-end letter I’ll present an overview of how we see the U.S. equity market setup on a sector by sector basis.

First, let’s take a look at how the major sectors stack up in terms of their weightings within the S&P 500 Index (compliments of Bespoke Investment Group).