TBF

Housing prices are rising so aggressively that the market is at risk of offsetting the benefit of lower mortgage rates.Everyone is all in on technology, but a vaccine could accelerate normal economic activity faster than people think and we could see a reversal of winners and losers.Banks have been the ultimate value trap but they may be poised for a turnaround should the long end of the yield curve tighten.

The reality that most small businesses close in failure underlines the risk involved in loaning money to such concerns. Still, it is difficult to deny the importance of small business in the overall economy.The Fed has played a major role in pushing inequality higher. Federal Reserve chairman Jerome Powell admitted it's tough for the Fed to boost lending to smaller businesses.The same policies that dump huge money into larger businesses because it is an easier and faster way to bolster the economy give these concerns a huge advantage over their smaller competitors.

One of my frustration with central banker speeches on this point has been their confusion of announcement, impact, peak, and cumulative effects.Central bankers regard estimates of the announcement or impact effects as estimates of a permanent effect of QE.The huge central bank and international institution research staffs are a much less competitive environment, especially for the ears of policy officials.

From time to time, Austrian economists, gold bugs, and other economists on the saner end of the spectrum warn of the inflationary dangers of modern central bank policies.In order to understand the problem, it is necessary to get clear on the basics of the discussion.During normal times, "helicopter money" handed out to the population, as described by former Fed chief Bernanke, is a better way to stoke inflation than is pumping money into financial markets, and an even surer way is to simply finance government expenditures by the printing press.That they don't do this suggests that their primary objective is not really to increase inflation, but rather to support financial markets and players in the style to which they have become accustomed.

With central banks anchoring official rates at historic lows, investors are understandably concerned that government bonds won't act as an offset to equity risk the way they have in the past.But recent history suggests that low - and even negative - yields don't eliminate the buffer that's provided by government bonds.In fact, amid the dramatic sell-off in risk assets earlier this year as the global pandemic took hold, and again in September when equity markets pulled back, government bonds served as one of the few true offsets to equity market volatility.

The second quarter of 2020 saw the worst quarterly decline in economic terms since the Great Depression of the 1930s.The third quarter of 2020 is the first recovery quarter, and that recovery is extremely sharp because it is coming from such a depressed bottom.Many economists are concerned about the political fight playing out in the Congress around the passage (or not) of a substantial additional fiscal stimulus package.We enter the fourth quarter waiting for well-tested COVID vaccines and safe, proven treatments, and we hold our breath for a peaceful and uncontested election outcome.

While the market is working off some of the more extreme overbought conditions, it remains 2-standard deviations above its 200-week (4-Year) moving average.There can be no such thing as hubris when investments do not go the way you want them.Applying a technical overly to determine the "when" to invest can significantly improve the return and control the capital risk of the "what" fundamental analysis uncovers.

The global market is in the early recovery phase of the business cycle following the COVID-19 recession. This implies an extended period of low-inflation, low-interest-rate growth - an environment that usually favors equities over bonds. But after such a rapid rebound, an equity market pullback would not be surprising.We believe the market looks set for a rotation away from tech/growth leadership toward cyclical/value stocks. This also implies a rotation toward non-U.S. stocks, with Europe and emerging markets likely the main beneficiaries, in our opinion.Our cycle, value and sentiment investment decision-making process scores global equities as slightly expensive, sentiment as neutral and the cycle as supportive. This leaves us neutral on the near-term outlook, but moderately positive for the medium term, with slightly expensive valuations offset by the positive cycle outlook.