Gavin Baker+ Your Authors @GavinSBaker Husband, Becky Painter. CIO, Atreides Management. Former PM, Fidelity OTC fund. No investment advice, views all my own. gavin-s-baker.com/ Jun. 02, 2020 1 min read + Your Authors

1) Instinct is that risk/reward on the market is deteriorating rapidly, but thought I would highlight parts of the bull case that had struck me recently.

Sentiment and positioning are overwhelmingly bearish. Chart via the superb GS macro/hedge fund specialist team.

2) Valuation for the broader market remains attractive, especially when comparing dividend yield to interest rates and suspect we have seen most of the dividend cuts. Chart via ERP. Goldstein is the 🐐 when it comes to strategists.

3) Liquidity is an overwhelming tailwind. Would ordinarily dismiss “price to liquidity” as prima facie absurd but Darda was one of the few who was bearish going into 2008-2009 and then got bullish towards the bottom. And liquidity always paramount - see Druckenmiller comments.

4) Second derivatives for the economy and earnings will likely be vertical for another few months. At some point first derivatives and absolute results will matter, but unclear when.

5) Cocktail of negative sentiment, reasonable valuations, overwhelming liquity and improving second derivatives has been powerful.

6) *If* no second wave in next few weeks, risks come down to trade tensions and Presidential election.

And of course, it’s rarely the risks that are discussed that hurt the market. There are always “unknown unknowns.”


You can follow @GavinSBaker.



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