Hi @MarsC When you get a spare moment, would you mind reading my...

  1. 3,478 Posts.
    lightbulb Created with Sketch. 98
    Hi @MarsC

    When you get a spare moment, would you mind reading my thoughts below and providing a sanity check? Any thoughts or comments would be appreciated.

    Ken Fisher always says the market preprices all widely know facts, fears and opinions in a dynamic band between 3-30months (0.25 to 2.5 years). And that dynamic band is governed by market anxiety/uncertainty levels. When its high and rising, the market looks to its feet. When its high but declining, the market starts to raise its eyes towards the horizon again.

    One reflection of that collective prepricing is the yield curve. It gives us a glimpse into what the market is thinking. The yield on the 2yr gov bond being close to Fishers 30 month horizon line.

    As can be seen in the graph in the following post, the 2yr yield has risen sharply in recent months to be up near the 10yr. The gradient of that rise is notable. Ken Fisher is saying the 2yr to 10yr spread is irrelevant. He says its the 3m to 10yr spread that matters in terms of banks incentives to lend and fuel the expansion. But I think Ken is missing the point. The cash rate soon enough follows the 2yrs path. Given the near vertical gradient of the 2yr, the 3m to 10 year spread is rendered less important, as it will soon enough shrink and invert.

    Even though all my traffic lights are green, there is a nagging doubt in my mind that the market may actually be starting to preprice a US recession now. The decline from the recent peak is within the 2 to 3% band per month that Ken Fisher says is typical for a bear market. Ken is saying this is just a correction, but he also says the market is the great humiliator.

    What probability do I assign to the market already being at the early stage of a bear market?

    All I know is that it is no longer zero in my mind. Maybe 5%.
 
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.