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Sage Tactical ETF Strategies 4Q20 Market Review & Outlook

Sage Advisory Services market review for the fourth quarter ended December 2020, discussing what contributed to and detracted from performance for the Sage Tactical ETF Strategies. Q3 2020 hedge fund letters, conferences and more Sage Tactical ETF Strateg

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Sage Advisory Services market review for the fourth quarter ended December 2020, discussing what contributed to and detracted from performance for the Sage Tactical ETF Strategies.

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Q3 2020 hedge fund letters, conferences and more

Sage Tactical ETF Strategies: Equity Allocation

What Helped:

  • U.S. Small Cap
  • U.S. Cyclical Industries
  • International Equities
  • U.S. Value

What Hurt:

  • None

Risk assets ended the year with a flurry, powered by positive developments of a Covid-19 vaccine as well as additional fiscal stimulus from Congress. While virus cases ticked higher all over the world, the continued encouraging readings from consumption data and industrial activity highlighted the continuing recovery. The move in equities was more broad-based than during the summer, with small-cap and value equities joining mega-cap tech in the rally. Overall, equities markets had a stellar fourth quarter, with returns of 12% for the S&P 500, 16% for EAFE, and 19.7% for EM.

The equity allocation posted a positive quarter. The portfolio was and is currently positioned for a continued recovery, which should include a broadening of the rally in style, sector, and region. The rotation into those segments occurred in November in full force and continued into the end of the year, which resulted in solid outperformance of the equity allocation for the quarter.

Notable Portfolio Adjustments During The Quarter:

  • Added cyclical segments, such as mining, transportation, and small-cap equities
  • Increased allocation to emerging markets Asia
  • Trimmed core U.S., EAFE allocations

Fixed Income Allocation

What Helped:

  • Corporate Bonds (HY and IG)
  • Emerging Market Debt
  • Bank Loans

What Hurt:

  • Long Treasuries

Fixed income was a mixed bag in the quarter, with an increase in yields counter-balanced by the outperformance of credit spread sectors. Treasury yields moved into a higher range, catalyzed by fiscal stimulus expectations and positive vaccine news. Those same factors resulted in credit spreads compressing to near-historic lows. Consequently, spread sectors such as corporates, high yield, preferred stocks, and emerging market debt outperformed safer sectors, such as Treasuries and MBS.

The fixed income allocation turned in a positive quarter both on an absolute basis and relative to the benchmark given its lower interest rate sensitivity and overweight to non-core fixed income and investment grade corporate bonds. Corporate bonds, both high yield and investment grade, were the largest contributors to positive performance, while the strategy’s small allocation to long Treasuries was the main detractor.

Notable Portfolio Adjustments During The Quarter:

  • Added Long Treasuries allocation
  • Initiated TIPS allocation
  • Trimmed short corporate bonds

Outlook And Current Positioning

Our view is that for the first half of 2021, the continued economic recovery, supportive policy, and effective vaccines should drive further upside in risk assets, sustain some upward pressure on long rates, and keep reflationary pressures alive. On the economic front, the winter virus surge will no doubt dampen growth out of the gate, but we expect this to be short-lived and for robust global growth of close to 5% for the year.

In addition to major macro risks tied to the virus and the shifting political landscape, the primary return-limiting risk going into 2021 may be valuations, which are less favorable across most asset classes, especially fixed income. Given our views, we enter the first half positioned for upside across our strategies, overweight equities vs. fixed income in our balanced allocation, and overweight credit and higher-yielding fixed income in our fixed income allocation.

The post Sage Tactical ETF Strategies 4Q20 Market Review & Outlook appeared first on ValueWalk.

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Commodities

Dollar edges lower, BoJ inflation jumps

Last week, the Japanese yen recorded a winning week, but the currency is back to its old habits and is down for a second straight day. USD/JPY is currently trading at 113.91, up 0.18% on the day. Japan inflation on the rise For years, inflation in Japan..

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Last week, the Japanese yen recorded a winning week, but the currency is back to its old habits and is down for a second straight day. USD/JPY is currently trading at 113.91, up 0.18% on the day.

Japan inflation on the rise

For years, inflation in Japan has hovered below zero. Governments have tried and mostly failed to generate inflation, which has refused to budge higher. Japan has been mired in a deflationary period since 2011, but this trend may be over. CPI was unchanged in August and rose 0.1% in September (Y0Y). This marked the first gain since March 2020, at the start of the Covid pandemic. BoJ Core CPI, which is the Bank of Japan’s preferred inflation gauge, rose 0.6% in September, its fastest pace since July 2019.

The main driver behind the upswing in inflation is higher energy costs, as crude oil prices are at multi-year highs. Higher inflation is a new fact of life all across the globe, and wholesale inflation in Japan jumped 6.3%, its highest level since 2008. This has not translated into higher consumer inflation, however, as businesses have been reluctant to pass on higher costs to consumers. That means that the BoJ’s inflation target of 2 percent will continue to remain a ‘pie in the sky’ dream for quite some time.

A new election poll indicates that the ruling LDP party, led by the new Prime Minister Fumio Kishida will easily hold onto its majority in the Lower House of parliament. Japan goes to the polls next week, and Kishida is expected to implement additional monetary easing and spending in order to push inflation higher. Further easing will likely push the yen lower, as other central banks are in a tightening cycle, which has raised the yield differentials between Japan and the US, as well as other G-10 nations.

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USD/JPY Technical

  • There is weak resistance at 114.32. Above, there is resistance at 115.14
  •  There is support at 113.05, protecting the 113 line. This is followed by 112.60

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Spread & Containment

Ivermectin: misuse against COVID risks undermining its use for other diseases

Ivermectin is vital for controlling a number of neglected tropical diseases, but mixed messaging and reported side-effects from its misuse against COVID could turn patients off it.

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rafapress/Shutterstock

If you live in a western country, prior to the pandemic you probably hadn’t heard of the medicine ivermectin. It’s a very effective treatment for a number of neglected tropical diseases (NTDs). These are a group of debilitating infections that can cause chronic illness and death. They disproportionately affect the world’s most vulnerable and deprived people.

Examples of NTDs include lymphatic filariasis and onchocerciasis, two worm-based infections that are spread by mosquitoes, and scabies, which is spread by the infestation of the skin with mites. All of these can be treated with ivermectin.

Hundreds of millions of ivermectin doses are administered every year, mostly across lower-income countries. In 2020, the World Health Organization (WHO) published a new roadmap for bringing cases of NTDs down worldwide over the next decade, with ivermectin being integral to this. It will be used to prevent and treat NTDs across many countries, including through mass drug administration.

But during the pandemic, ivermectin has also been touted as a COVID treatment. Despite a lack of good evidence to back this up, some countries have recommended ivermectin as part of their pandemic response. Panama and other parts of Latin America, for example, have endorsed using the drug. So too did India, before the Indian Council of Medical Research specified that the evidence isn’t there to support its use.

A Cochrane Review – a reliable wide-ranging piece of research that analyses the results of many separate pieces of research on a topic – has concluded that the evidence available so far on using ivermectin to treat COVID patients, both inside and outside of hospital, is of low quality.

Other wide-ranging reviews have suggested that the drug is beneficial against COVID, but scientists have flagged that some of the papers covered by these reviews use data inappropriately, with some of the research possibly even being fraudulent. Because the research these reviews are assessing isn’t rigorous, any suggestions they make about benefits aren’t robust.

The WHO has therefore advised that ivermectin shouldn’t be used as part of routine clinical practice when treating COVID. The drug’s manufacturer, Merck, has added that there’s “no meaningful evidence for clinical activity or clinical efficacy in patients with COVID-19 disease”.

But this hasn’t dampened support for ivermectin. There are many online groups calling for it to be used against COVID, and people around the world are buying the drug directly for this purpose.

Confusion undermines trust

This, my colleagues and I argue, leads us into a dangerous situation. Any health intervention depends upon high trust and uptake for success. If people consider ivermectin to be a COVID treatment, then there is a risk that these perceptions may lower trust in the drug as a way of treating NTDs.

For instance, people taking the drug without medical supervision to try to treat or prevent COVID have experienced vomiting, diarrhoea, seizures, dizziness and rashes. This may be because they have overdosed – so wouldn’t indicate a problem with the drug – but nevertheless risks undermining ivermectin’s perceived safety.

Reports of illness after taking ivermectin could have dangerous consequences. Even before the pandemic, in the UK there were rumours about ivermectin that have proven hard to dispel. These concerned the safety of using the drug to treat scabies infections in the elderly. Despite these claims being unsubstantiated, they still deter clinicians from using the drug. Fake news can be hard to fully correct, and could be even more so if negative perceptions build.

A french protester holding a placard that says 'Ivermectin: release the treatments'
Protesters have campaigned for ivermectin to be made available for treating COVID, despite insufficient evidence that it works. DEspeyrac/Shutterstock

Conflicting messaging can also be a problem. Its use for COVID being disputed, and it being endorsed by the WHO as an NTD treatment but rejected as a COVID treatment, could lead to doubts and misinformation surrounding the drug. Once misinformation is released, it can easily spread. It then takes resources to address and correct false claims that are made. In lower-income settings, such resources will be in short supply.

High uptake is key against NTDs

If there’s significant mistrust in public health programmes that use ivermectin, then the targeted elimination of some NTDs becomes very unlikely. These programmes often revolve around mass administration of the drug, and so are only highly successful in reducing the burden of disease when there’s high uptake.

Success can be limited if there is frequent non-adherence to treatment programmes. This can be an issue when rumours (typically around side-effects) are common.

The WHO’s NTD roadmap has a target to globally eliminate lymphatic filariasis as a public health problem by 2030. There are 17 countries – including Togo, Malawi and Sri Lanka – that have so far used mass administration of ivermectin to successfully eliminate the disease. Other countries are probably going to need to use the drug the same way – but could struggle to stamp the disease out if reports of side-effects or seemingly conflicting advice about the treatment deter people from taking it.

Ivermectin is an excellent medicine. Appropriate use of it will be vital to lowering the burden of NTDs and hitting the targets within the WHO’s roadmap. But to make sure its usefulness isn’t undermined, trust in the drug must not be threatened – and this means its misuse as a COVID treatment needs to end.

The Conversation

Michael Head has received funding from the Bill & Melinda Gates Foundation and the UK Department for International Development.

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Government

Tesla And Hertz – Whatever Next…

Tesla And Hertz – Whatever Next…

Authored by Bill Blain via MorningPorridge.com,

“Democracy is absolutely the worst form of government, except for anything else…”

Tesla’s rise into the $1 trillion club is extraordinary – proving…

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Tesla And Hertz – Whatever Next...

Authored by Bill Blain via MorningPorridge.com,

“Democracy is absolutely the worst form of government, except for anything else…”

Tesla’s rise into the $1 trillion club is extraordinary – proving that listening to what the momentum crowd is buying, while suspending disbelief and fundamental analysis is one road to success. Hertz is a lesson in seizing the moment – its stock gains and free publicity from its new EV fleet will likely exceed the cost of the cars!

As I write this morning’s Porridge I am going to try and not sound like a bitter and twisted old man….

I suppose today’s lesson today might be: “Don’t over think it.” Every morning I wake up and try to make sense of the market noise to discern the big forces acting on markets, the underlying rationales, what the numbers really mean, the potential arbitrages, and the direction of trade flow. But I wonder if I’m doing it wrong.

It’s not what I think that matters. The only thing that’s important is what the market thinks.

The market is simply a voting machine where suffrage is simply the price of a stock. If the market believes Donald Trump’s sight-unseen social media empire is worth billions, so be it. If the market believes Meme Stocks are worth trillions, so be it. Whatever the market believes.. so be it.

As so many clever economists and traders have spotted before me.. it’s the madness of crowds that matters. Over the last few years understanding Behaviours has proved far more useful than forensic accounting skills when it comes to stock picking.

I make the mistake of calling out the inconsistencies of the “drivers” like Adam Neumann, Cathie Wood, Elon Musk and the Eminence Noirs driving SPACs and funds – rather than understanding what makes them look so attractive, clever, clearsighted and intuitive to so many market participants. Promise most people you are going to make them unfeasibly rich – and they will listen.

I make the schoolboy error of asking.. how?

Life is full of regrets. If we let them define us – we truly would be miserable.

Do I regret dumping Tesla in the wake of the cave-diving comments scandal? I reckoned it was massively overpriced around $70. Ever since I have pontificated why it’s not worth a fraction of even that valuation. I don’t regret selling, but I acknowledge I’ve been wrong about the price. But not because I got the fundamentals wrong – I misread the crowd. Failing to understand the momentum was my failure. I am less wealthy than I could have been.

Tesla is worth a Trillion dollars plus. Elon Musk is the richest guy on the planet. These are facts.

Tesla, remarkably, has become a great auto-company. It makes good cars. It understands the logistics of super-charging networks. It has front-run the switch from ICE to EVs, making them mainstream, leading a massive industrial shift, and forced the rest of the sector to play catch up. It changed the perception of EVs from milk-carts to desirable luxury status symbols. It will successfully open new plants and sell more cars. It’s the number one selling car in Europe this quarter – possibly because no one else can get hold of chips!

Perversely, Tesla’s success demonstrates momentum can take a company to fundamental strength. For much of Tesla’s life, sceptics like myself predicted it would stumble and fall, brought down most-likely by apparently insurmountable production problems, its debt load, or regulation. It didn’t happen. Instead it survived, thrived and has been able to reap the momentum and build a strong balance sheet on the back of its extraordinary stock price gains. It could potentially acquire whole swathes of its rivals and supply chain.

It’s been an extraordinary climb from likely disaster to undeniable success – and the one constant has been the support of dedicated Tesla fans. Frankly, it flabbergasts me just how Elon got away with it… but he did.

At this point you are expecting a But…

But…. What would be the point?

In the mind of the crowd facts like how 10-year old Telsa only just started making profits on selling cars don’t matter. Its consistently made profits for the last 2.25 years – largely from selling regulatory credits. Prior to that… Tesla racked up losses. It has consistently failed to deliver so many promises on deliveries, automation and new models. None of these facts matter.

It’s what the market believes that matters.

So, there is no point looking at Tesla this morning and trying to explain how it’s worth a trillion – a multiple of the much larger and more profitable Toyota. Let’s not wonder  why many analysts reckon its going higher. There is no point trying to fathom why a $4.2bn order from newly out-of-bankruptcy Hertz caused the stock price to ratchet up $110 bln yesterday.

This morning analysts are predicting Tesla stock will go higher, building from the “breakthrough psychological level of $900, right through the key $1200 milestone level, and then the next level is $1500.” There was nary a mention of its PE, fundamentals, margins or such irrelevancies… just that its going higher.

Meanwhile…

The Hertz trade is fascinating – Hertz has generated tremendous publicity for its re-launch, and enough stock upside to pay for the cars! It steals a march on any other hire firm wanting to build a fleet of EVs. Hertz went bust early in the pandemic and sold its whole fleet. But, as signs of economic recovery first appeared it became the perfect recovery play. After a bidding war, it was bought out from bankruptcy and restarted with a clean sheet. It now has its very own army of meme stock proponents. Its stock price has more than doubled to $12 on the OTC market.

The fact car hire firms are vulnerable businesses in a highly competitive market, or there are now literally hundreds of new EV makers, in addition to the incumbent ICE auto-manufacturers – all now competing in the EV space for Tesla’s lunch – doesn’t matter.

For now.

Always bear in mind Blain’s Market Mantra no 1: The Market has but one objective: to inflict the maximum amount of pain on the maximum number of participants.

Tyler Durden Tue, 10/26/2021 - 08:00

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