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Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

RB Advisors, founded by former Merrill Lynch chief quantitative strategist Richard Bernstein believes “our criteria for financial bubbles have now been met in long duration assets like technology, innovation, disruption, and cryptocurrencies.”

Mr. Bernstein has some credibility in this regard, rising to prominence as an early pessimist on the 1990s technology bubble,

“Given today’s elevated valuations and extreme market concentration, it’s clear most people are in the ‘you just don’t get it’ camp, which isn’t surprising in the least. How can you have a bubble if everybody agrees there’s a bubble … If we knew exactly when the bubble was going to end, investing would be easy: simply own the most speculative bubble assets right up until the peak and then sell it all. While we have no doubt some investors think they can do just that, history suggests most will fail … What if you reduce exposure too early? A critical distinction between a bubble and a typical investment peak is that you can essentially sell a bubble at any time and it will be additive to your longer-term wealth creation. ... Had you sold Tech and bought the other side of the market seesaw (i.e. small cap value, Financials, Energy), you could have been three years early and still had superior returns”

“RB Advisors “It’s never too early to sell a bubble” – (research excerpt) Twitter

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BMO economist Shelly Kaushik interprets the latest housing price data as proving a shortage of supply,

" The annual growth in Canada’s New Home Price Index decelerated to ‘just’ 11.3% in September, though still well above the pre-pandemic average. The strength was broad-based with annual growth reported in all metro areas in the survey. It’s worth noting that robust demand continues to be the driver of price strength. In September, almost half of metro areas saw monthly price increases, led by Windsor (+1.9%), Oshawa (+1.8%), and Victoria (+1.7%). In all three cases, StatCan noted demand pushing up prices amid weak sales activity. It seems as though a lack of existing homes for sale is leading many people to turn to the new home market in many cities across the country.”

“@SBarlow_ROB BMO: ‘In all three cases, StatCan noted [housing] demand pushing up prices amid weak sales activity” – (research excerpt) Twitter

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Citi’s Levkovich Index, named after its developer Tobias Levkovich, who recently passed away due to injuries suffered in a traffic accident, indicates a significant probability for lower U.S. equity prices in the next 12 months,

“The Levkovich Index is a sentiment model designed to capture US portfolio positioning, not just feelings on a 12-month forward basis. Despite the recent market pullback, the Levkovich Index remains in Euphoria territory and continues to suggest caution… Emotion is important in markets, but measuring positions against that emotion is even more insightful. The model was built to reflect subsequent 12-month forward S&P 500 returns using a combination of predictive correlations to enhance the chances of investing success. Nine key inputs are embedded in the calculations: the NYSE short interest ratio, margin debt, gasoline prices, the average of AAII bullishness and Investors Intelligence data, CBOE put/call ratios, Nasdaq volume as a percent of NYSE volume, put/call premiums (based on total CBOE put/call data), CRB futures, and the National Financial Conditions - Nonfinancial Leverage Index. What is it saying now? Bottom-line is that it’s still cautious. Euphoria readings since last November suggest a better than 76% probability of negative S&P 500 returns over the next 12 months versus a 21% random chance of forward losses '

“@SBarlow_ROB Levkovich index: 76% probability of lower equity prices in next 12 months” – (research excerpt) Twitter

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Diversion: " Climate Change Wiped Out the Mammoth, New DNA Study Shows” – Gizmodo

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