Welcome

 Welcome to the Stay Vigilant blog. It is still under construction but I will start posting about the economy and the markets in 2022. I look forward to seeing you then!    Rich

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The first of the three bodies - Fundamentals

 FUNDAMENTALS The first component of the three body problem is the Fundamentals. Rarely will an investment work for anything measured more than in days if there are not good fundamentals. Yes, there are some that have persisted (I am looking at you GameStop), but the first metric that an investor and not just a trader must concern themselves with is the fundamentals. In macro investing, the fundamentals are not just for a single investment but for the market overall, for the risky market overall. I have found that the major drivers of the market can be categorized into four areas: relative valuation (of equities relative to other market beta), the economic trend (primarily in the US but I consider the globe too), the liquidity in the market (has always been important but has become increasingly so after the Great Financial Crisis) and the velocity (there can be tons of money but if no one uses it who cares).  I am a visual person. I like pictures. They tell a big story. As the...
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Pulling it all together

 The last few weeks I have embarked on showing you the three stages to my investment process - the three body problem - in which I look at the Fundamental and Behavioral drivers of the financial markets and what Catalysts may be out there to change investors minds.  In order to remind you of the summary of the data, let's go quickly back through the data. In the Fundamental section we look at the strength of the economy and the liquidity that is still in the financial system. The economic trend continues to be strong. Yes, everyone expects the US economy to cool off this year. It has been running at historically strong levels. This should be expected. We identified a few potential problems areas, with inventories building and with weaknesses overseas, namely in China. Since we discussed this, we have seen companies such as Lululemon and Peloton both discuss the excess inventory and the steps they needed to take going forward. In fact, the forward outlook from many companies re...
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The Three Body Problem of the Markets

  In my thirty years in the financial markets, I had the great fortune of investing across almost every asset class. I was on the ground investing in Asia, Europe and the US. I point this out because one's investment process is, and should be, a function of their experiences. A fully developed investment process is really never complete, because one must be adaptable while still remaining disciplined. However, in an ideal world, we should all look to add the best parts of what we learn along the way to build the most robust process that we can. This is what I have tried to do.  The process consists of three parts. From my days in equity long/short, one of the key issues we always faced was how to size an investment decision. As I studied this more, I determined the best way to do so was to break the decision into three parts - the fundamentals, the supply & demand and the catalyst. If an investment had all three things in its's favor, it should be a full-sized position. If...
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