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Fear rules the day

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14-Sep’22, Pessimism Rules the day: Pessimism has practical implications, as asset managers are heavily underweight equities. As growth improves and inflation falls, this can lead to sharp rebounds in equities. Only the Fed can spoil the party. The allocation of long-only “slow money” can be very important for the future direction of markets. Asset allocators manage 100x more money than hedge funds and short-term traders, and their positioning can drive markets for quarters when it reaches extremes. Currently these investors are underweight equities in aggregate. IF (and a big IF) inflation cools off, the chances of a snap back in equities are considerable. US markets will be range-bound into 2023. A goad time to sell options on assets with PE>15, and keep dividend paying REITS and Oil/Gas explorers.

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