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Look At The Big Picture... Buy Equities

Todd Sullivan profile picture
Todd Sullivan


  • The DXY Index and US 10yr Treasury rate have been falling together since mid-Feb 2020.
  • This may signal the beginning of a reversal of global capital flows into the US.
  • In my opinion, we are seeing a wide misreading of the current economic conditions.
  • The Big Picture says buy equities.

The Big Picture

The DXY Index and US 10yr Treasury rate have been falling together since mid-Feb 2020. This may signal the beginning of a reversal of global capital flows into the US. The trigger, which one could not predict ahead of time, appears to be 10yr Treasury rate falling to ~1.5%. A review of the US$ (US Dollar) history monthly from 1973 shows periods of US$ strength as global investors sought out US assets during periods of higher returns or as a safe haven. In the early-1980s and late 1990s, it was the lure of highest global returns. A recent period of US$ strength began with Russia's 2014 invasion of Ukraine and continued as US initiated economic sanctions against "terror states" and moved to renegotiate global tariff barriers to trade. Today may be the early stages of reversal in US$ strength. Understanding this requires some hindsight.

Global capital flows are based on a complex mix of factors which have evolved over decades with the development of Developing/Emerging (23 countries - Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Qatar, Peru, the Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand, Turkey, and United Arab Emirates) through capital flows from Developed Markets (Europe, Australia, Japan, Canada, US). As globalization progressed and global wealth increased, a number of country leaderships shifted towards autocratic governance threatening citizen property rights. In response, business owners and investors with newly liquid capital due to the influx of Developed capital sought safe havens and returned as much capital back to Developed markets as they could.

The evidence comes from REIT (Real Estate Investment Trust) dividend yields, Sovereign Debt history and the Natural Rate Indicator. These reveal that capital flowing into REITs and Sovereign Debt began to push dividend rates and yields lower late

This article was written by

Todd Sullivan profile picture
Todd Sullivan is a Massachusetts-based value investor and Co-Founder and General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer supports his original thesis. His blog features his various ideas and general commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain's NY and others. He has also appeared on Fox Business News and is a RealMoney.com contributor. He has twice presented at Bill Ackman's Harbor investment Conference and is a regular presenter at the Manual of Ideas "Best Ideas" conferences. Visit his sites: ValuePlays (http://valueplays.net/) , Rand Strategic Partners (http://randstrategicpartners.com)

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Comments (81)

efactor profile picture
It's a waste of time to try to predict the very bottom. It's not possible, too many moving parts. Today may be the best time to buy equities, or perhaps yesterday, or even tomorrow. Consider yourself fortunate if you have cash to deploy without selling stocks at a loss.
Moon Kil Woong profile picture
That is because profitability is falling as the public reacts to the virus. Until we know more and there is clarity on revenue streams it is wise to hold back. Clearly fewer people will travel this year. Disney will be hurt by closure of their amusement parks. Etc. Etc. Use this time to change your mix if you know who will benefit from the consumer habits. If you don't know this you shouldn't be increasing your exposure to the market right now.
The whole thing will be mostly over in 2 months and completely over in 3. These viruses completely fall apart at 80 degrees.
Emphasis The Right Equities that is!
For me I've already made my, "Exit Stage Right", as Snagglepuss used to do on The Saturday Cartoons when I was a young lad.
I'm now sitting pretty with a 4 bagger since 2009.
Oh my age, 67.🤪
Its hard not to rush all in on this suckers selloff. I'm going 1 at a time buying BRK/2. I want to back up the truck before it gets closed. 20% cash and airline stocks priced in to go bankrupt.
I'm betting if it gets closed down Uncle SAM will have 2 weeks to print it right and its 2 weeks closer to spring. People are still working and if they get sick they will still get a check. They might not go to a restaurant more often, to make up for the weeks away, but their money will accumulate and cabin fever still creates pent demand.
3 weeks ago I tried to get free shorts @ schw. Everything was out and they wouldn't share them?? They were paying rookie investors to trade free?? You do the math. I just collected the $29.64 knife. They're making money.
Artificial intelligence should grow in demand with automated Exams and testing. I'm adding to my ibm on the worst day in history.
hahaha48 profile picture
there are only 2 restuarants I go to at lease once every 2 weeks that are not closing this months. every one else told me they plan to close within a month. the first one will close on the 16th.
hahaha48 profile picture
that is hundreds of unemployed people for at least 2 months. And most likely longer. Remember the domanial effect. each closing will cause at least another 2 to 3 more unemployment because restaurants use many supplier and services.
hahaha48 profile picture
when gold or gld etf can drop in a bad market day that tell me people are selling things to raise cash. some have no choice already. business owners as a group now need cash.
hahaha48 profile picture
I am not a market timer I am a real world evaluator.

when business is shutting down all over the world that is the real reality.

even when this virus is over where is the money coming from for people to spent?
hahaha48 profile picture
all you need to do is look at the real world
even just in the USA.
pay attention to how many business is shutting down completely
how many is losing more than 30% of their business.
then you decide where the next few months or the next 12 months will be like.
Kudlow has been "advising" to buy every single day for the past 7 trading days.
If you followed his advice to buy, you have lost money.

The market may not have a floor until the coronavirus stops increasing.
Kudlow is Trump. 100% lies.
Looking for the collected wisdom of SA readers. A hypothetical: Let's say you knew for absolute certain that the market today is the bottom. Maybe you have a genie or sold your soul to the devil for this info. It does not matter. Looking at the carnage in pricing, what would you buy?
Lake OZ boater profile picture
@martinu There are not many good market timers. Some things to think about before leaping...

1. The single most important determinant of your long-term success is based on your asset allocation.

To achieve your long-term goals, and not risk abandoning your long-term plan during a market downturn, is to commit to an asset allocation that is best suited to your risk tolerance.

The best advice I have come across about deciding one's stock allocation is offered by investing expert and author, William J. Bernstein. Dr. Bernstein says to simply ask ourselves a very important question:

"How much can I afford to lose?"

Here's a rule-of-thumb table that might help you answer that question:

Asset Allocation % (Stock/Bond) ----- Exposure to Maximum Loss

20 / 80 -------------------------------------------05%
30 / 70--------------------------------------------10%
40 / 60--------------------------------------------15%

50 / 50--------------------------------------------20% <=Panic starts here*

60 / 40 -------------------------------------------25%
70 / 30 -------------------------------------------30%
80 / 20 -------------------------------------------35%
90 / 10 -------------------------------------------40%
100 / 0------------------------------------------- 50%

*Andrew Lo, Ph.D. of MIT has studied small investor behavior, and says most investors begin to panic and "sell low" around the 20% mark of portfolio losses. (Are we kind of seeing that today?)

And while that might not seem like much, don't forget to keep in mind that the market can take YEARS to recover, to get "back to even."

Investing greats Jack Bogle and Benjamin Graham both advocated a 50% S / 50% B for most young and middle- aged investors. Bogle said "there are an infinite number of choices worse than this one."

2. Common knowledge, but worth reviewing: Only 25% of the stock market’s future cash flows accumulate in the first ten years. Yet,
the majority of stock market value (75%) accumulates in fifty years. This is why you should approach stocks as a long-term commitment !

3. You can get 3.21% today from Vanguard's Long-Term Corporate Bond ETF (VCLT). This is "the bird in hand."


You are looking for "two in the bush." Ben Graham (Buffett's professor and mentor) suggested that an earnings yield of 4/3 times the yield on investment- grade bonds would provide long-term stock investors a "margin of safety", and increase the probability of overall positive results.

Desired earnings yield: 4/3 x 3.21% = 4.2%

Thus, you might want to consider starting your due diligence within S & P 500 sectors that have at least a 4.2% cyclically adjusted-earnings yield (C-A E/P, the inverse of the Shiller P/E) .

At the current time those are...

Sector----No. of Stocks---Shiller P/E---C-A E/P--- Regular P/E

Energy-------27----------11.40--------- 8.8%-----19.10

Industrials --72-----------22.90----------4.4%-----19.80

You can find the Shiller P/Es --for all sectors---here:



-These two sectors have higher expected future returns than more expensive sectors. It doesn't mean they are "better" than other sectors. It just suggests they have higher perceived risk, their prices are depressed, and therefore offer higher long- term appreciation potential. You might think of this value-based approach as a way of protecting yourself from "buying high and selling low".

-The inverse Shiller P/E (C-A E/P) is not a good metric for Financials nor REITs.

-With the increased probability of a recession around the corner, you might want to screen for companies with low debt/equity ratios less than 1.5.

That metric can be found for most stocks at Finivz.com. For example, click on link to see AAPL's debt/equity ratio is 1.22.


Hope these provide some starting points as you sift through the rubble.

Good luck with your program!
arthur_bishop1972 profile picture

BUT...if HUGELY undervalued (right now) is what you REALLY, REALLY want, then GLD and some gold stocks (like GOLD) are what you want to be buying RIGHT NOW.
This is just the beginning. Just wait until all those viruses start crawling out of the melting permafrost...You'll wish we'd done something about renewable energy back in the 70's...
When a Black Swan (in this case two) lands in the investment lake, the splash is immediate; but wakes (ripples) will affect all as they widen to reach the shore. We have not yet begun to see the effects on the markets. Lots of distress and volatility to come. Watch out for recommendations for high-dividend, highly-leveraged places to take your money. As in the past crises, these will be taken down. Still short equities. Long EDV, GLD, and AAA laddered munis paying over 5% from 2007, and, of course dry powder cash. Took all investment profits 23 Jan. Canceled Cruises, annual spring baseball trip.
Olja S.A profile picture
I added more GLD today. Good luck all!
James Hanshaw profile picture
"A falling US$ is very positive for US high-value exports which stimulates US productivity, employment, retail sales and wage growth." What are these high-value exports? Aircraft are priced in dollars so are not affected. Few want to buy US brand cars....
kimboslice profile picture
I concur with the title.
But, do not buy Wells Fargo;)
Low interest rates favor stocks.
Low oil prices are like a consumer tax cut, more income can be used to buy other products.
Spring is near and the virus doesn’t like warm weather.
jx7000 profile picture
kimboslice, you said, "Spring is near and the virus doesn’t like warm weather." That's true in the northern hemisphere, but in the south fall and winter are arriving.
What to buy? What to buy? Anyone want to go on a cruise or take a plane trip?

What is on everyone's shopping list?
@John Clark Martin, Esq. - ESNT and NMIH are screaming buys here. Very low debt, very high profitability and margins, excellent growth, stupidly low valuation.
jx7000 profile picture
John Clark, not Boeing or GE unless you're a hyper-contrarian (I just made that up, not sure there's such a thing :-)
ruber-rant profile picture
While this viruses bark may be worse than its bite... dogs tend to jump through glass doors during lightning storms.... like I said if you want a store of value replacement for gold and you believe as do I that serious US dollar debasement aka (monetary base supply inflation) then buy common ammunition from Arizona and buy lots of physical platinum bullion as close to Spot price as you can... food and medicine is for survival... special place in hell for price gouging and hoarding in the middle of a crisis.
Is this article mistimed? Or am I out of touch totally?
The Naked Hedgie profile picture
When Japan's 'everything bubble' burst in 1989 they had a 20-year bear market and the Nikkei fell by 82%!! So catching falling knives could be risky. Instead, the best and most reliable way to ride out through thte storm is using systematic trend following. Here's the directional positioning of 493 I-System strategies across 40 financial and commodities markets at market open today (9 March): seekingalpha.com/...
I’ve been on SeekingAlpha a long time. This is a brilliant article explaining a complex issue and sequence of events. We’re all smarter from reading your explanation.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

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