From my favorite analyst- on expectations and things being “priced in.”


Yesterday’s FT provided a classic case in point: Inflation Fears Lead Investors to Bet on Rate Rises

Inflation is on everyone’s brain. Everybody is braced for it. Everyone expects it. It’s already priced in. So by definition, this is not where the surprise will be and it is surprises that move markets. This is very good news for the bond market from a contrarian stand point.

Also have a read of Higher Prices Are Looming, Companies Say

on the front page of today’s NYT. When anything makes it to the cover, you know it’s priced in.

Obama Needs to Rise Above the Politics of Austerity

What isn’t being discounted is the degree of fiscal austerity that is coming down the pike, and likely sooner rather than later. While fiscal, as well as monetary policy, was the goose that laid the golden egg for the rally in risky, high-beta, low quality securities from the 2009 lows, it would be totally appropriate to start expecting a reversion to the mean. Again, this is great news for bonds, not to mention long-short baskets.

And when we see articles like this dot the front page of the WSJ: Mideast Unrest Spreads as well as Rising China Bests a Shrinking Japan …

… we know that there are: (i) geopolitically strategic reasons, and (ii) a fundamental economic reason to be focused on resource companies with proven and probable reserves in the ground. Industrial commodities in general, oil in particular.

In fact, when we saw this in the WSJ as well — Threat Builds on the Margins: Companies’ Profitability Comes Under Pressure From Rising Commodity Prices it was a reminder that a core exposure to raw materials would provide a strong hedge against the  prospect that we see. Profit growth in the remainder of the market disappoints under the weight of higher resource-related expenses.

And, there was this in the USA Today — Despite Stock Gains, Investors Still Buying.

Yes, the bull-run is entrenched and fully discounted to the point where“performance chasing” has become in vogue.

When you see headlines like this, you know you are at the point of the cycle where selectivity is crucial. A lot of good news is priced in right now.

Seriously, this dude could be teaching my 327 class.