INVEST IN PHYSICAL OR FINANCIAL (revised)

14 January 2025

Table Of Contents

1. The Core Claim

Why financial assets detach from physical reality.

2. Globalisation And Financialisation

How outsourced production feeds asset inflation.

3. The Dollar As Global Reserve

Why the US must supply dollars to the world.

4. The Exorbitant Privilege

Cheap borrowing, deep markets, and hidden costs.

5. Capital Recycling And Asset Bubbles

Why foreign surpluses flow into US treasuries and equities.

6. Triffin’s Dilemma In Practice

Why reserve status contains the seeds of its own failure.

7. What Happens If The World Stops Buying Treasuries

Debt monetisation, financial repression, and inflation.

8. From Financial Claims To Physical Assets

Why value migrates from paper to commodities.

9. Gold As Monetary Signal

Why precious metals move first.

10. The Value-Rotation Wave

From gold to industrial metals and real assets.

11. System Reset Cycles

Why monetary systems reset roughly every eighty years.

12. Conclusion

Why physical reality reasserts itself.

Glossary Of Key Terms

Short definitions for non-specialist readers.

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1. The Core Claim

Why financial assets detach from physical reality.

Financial assets sit on layers of leverage, promises, and policy support. The result is chronic overvaluation.

Their prices are inflated in US-dollar terms because globalisation, the outsourcing of production to lower-cost economies, has been matched by financialisation, reinforced by the US dollar’s role as the global reserve currency. As global trade requires dollars to switch between currencies and settle, surplus foreign earnings are recycled back into US financial assets, inflating their valuations relative to the underlying real productive economy.

In the real economy, production begins with physical inputs: energy, materials, labour and capital. Yet the profits generated from this process, often earned abroad, are recycled back into US financial assets, treasuries, equities, and prime real estate, in search of liquidity, safety, and above-average returns.

This creates a structural imbalance: demand for financial assets becomes unlimited, their supply is not.

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2. Globalisation And Financialisation

How outsourced production feeds asset inflation.

Financialisation has mirrored globalisation. As production was outsourced, capital increasingly flowed into financial assets rather than physical investment. This reinforced the dominance of balance sheets over factories and asset prices over output.

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3. The Dollar As Global Reserve

Why the US must supply dollars to the world.

As issuer of the global reserve currency, the United States must supply dollars to the rest of the world. This is the other side of the accounting equation.

   3.1 Why “Must” Is The Correct Word

The word must is correct because the role of reserve-currency issuer is not optional once it is accepted. This is the cost of issuing the world's reserve currency, the cost of this Exorbitant Privilege, ie the advantage enjoyed by the reserve-currency issuer in borrowing cheaply and in its own currency.

If the US dollar is used to settle global trade, service international debt, and sit in central-bank reserves, the rest of the world requires a continual net supply of dollars. Those dollars can only come from the United States.

   3.2 What This Means Operationally

Operationally, this means the US must run:

• Trade deficits

• Capital-account surpluses

This is not a policy choice in the narrow sense, it is a structural requirement of reserve status.

If the United States attempted to stop supplying dollars, global trade would contract, dollar shortages would emerge, and financial stress would spread.

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4. The Exorbitant Privilege

Cheap borrowing, deep markets, and hidden costs.

If on the other hand, foreign governments and investors stopped recycling surplus dollars into US Treasuries, the US government would be forced to fund itself domestically.

In practice, this means the Federal Reserve would step in, print, and buy government debt directly or indirectly, monetising deficits through money creation. Borrowing costs would be capped by policy rather than markets. This is where we are currently in the cycle.

Confidence in Treasuries as a real store of value would weaken more and more, accelerating the move towards inflation, financial repression, and ultimately a monetary system reset.

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5. Capital Recycling And Asset Bubbles

Why foreign surpluses flow into US treasuries and equities.

In the real economy, profits earned abroad are recycled back into US financial assets in search of liquidity and safety. This creates a feedback loop in which foreign surpluses inflate asset prices while suppressing real investment elsewhere.

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6. Triffin’s Dilemma In Practice

Why reserve status contains the seeds of its own failure.

This is the core insight of Triffin’s Dilemma: the reserve-currency issuer must prioritise global liquidity over domestic balance, even though doing so ultimately undermines and will destroy completely confidence in the reserve currency.

The dollar therefore serves two roles simultaneously:

• Medium of trade

• Store of value

Triffin’s Dilemma and Brent Johnson’s Dollar Milkshake explain why global capital is structurally pulled into financial assets regardless of underlying productive value, until foreign governments and investors say “stop”.

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7. What Happens If The World Stops Buying Treasuries

Debt monetisation, financial repression, and inflation.

The consequence of the US dollar’s reserve-currency role, reinforced by global financialisation and persistent capital recycling into US markets, is persistent overinvestment in financial assets and chronic underinvestment in commodities.

Eventually, when the risks and returns on financial assets are no longer there because the currency has been so terribly debased, investors switch into real.

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8. From Financial Claims To Physical Assets

Why value migrates from paper to commodities.

This repricing is spreading from precious metals into industrial and other commodities.

Physical assets are not like financial. They cannot be printed, rehypothecated, or decreed into existence by policy. Commodities anchor value in energy, materials, and food (consumer staples), the foundations of any functioning economy.

For investors focused on preserving real purchasing power rather than chasing nominal returns, commodities re-emerge not so much as tactical trades, but as strategic holdings, held as long-term stores of value, held as protection against inflation and currency debasement.

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9. Gold As Monetary Signal

Why precious metals move first.

Gold does not change. It remains a fixed physical quantity.

What changes is the number of dollars required to buy one troy ounce. Gold appears to rise in price only because the currency used to measure it is losing purchasing power.

The sharp rise in gold prices, measured in US dollars, is the first clear signal that confidence in financial claims on future value is eroding. The price rises is so sharp, well beyond inflation, that it seems that gold's price rate-of-change is front-running (anticipating) future inflation (currency debasement).

Think Weimer Republic

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10. The Value-Rotation Wave

From gold to industrial metals and real assets.

Capital rotates from monetary metals into industrial metals, energy and physical inputs (hard assets) to the production process, as inflation moves from monetary debasement into real-world scarcity.

Rotate into where?

https://youtu.be/Jisg4LCdnrE?si=_CZN7ThhgMpKAiQM

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11. System Reset Cycles

Why monetary systems reset roughly every eighty years.

Debt accumulation, currency debasement, and political pressure converge. Financial systems periodically reset back toward physical reality.

These resets are structural, not accidental.

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12. Conclusion

Why physical reality reasserts itself.

When confidence in paper-based financial abstractions erodes, capital migrates back to the real physical world.

Commodities are not so much fashionable, as they are fundamental to investing success in this quarter of Ray Dalio’s model.

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Glossary Of Key Terms

Some short definitions

Financialisation - The dominance of financial markets over productive investment.

Triffin’s Dilemma - The structural conflict in issuing the world’s reserve currency.

Currency Debasement - Loss of purchasing power through monetary expansion.

Rehypothecation - Reuse of the same collateral multiple times within the financial system.

Real Purchasing Power - What money can actually buy.

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Read More

RAY DALIO ON PREPARATIONS FOR 2026

3 January 2026

 RAY DALIO ON PREPARATIONS FOR 2026

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Quick Summary 

History shows that there are moments when keeping money idle stops being “safe” and becomes destructive. We are approaching one of those moments.

Money loses value without your realising it through inflation. Assets preserve value in real terms - Productive companies, Propert, Commodities, Precious metals. Financials - like cash, bank deposits and low-yield bonds eg treasuries - lose purchasing power.

After years of heavy money printing, the system must adjust. That adjustment rarely favours cash. 

Inflation is not just rising prices. It is a wealth transfer from savers to asset owners.

Doing nothing feels safe. In inflationary cycles, it is usually the most expensive choice.

The biggest risk ahead is not market volatility, it is complacency.

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Longer Summary  

1. A Familiar Moment In Economic History

Economic history moves in cycles, not straight lines. Across centuries, societies repeatedly reach a point where what feels financially safe becomes quietly destructive.

We are approaching such a moment again. The significance of 2026 does not lie in prophecy, but in arithmetic. The structural incentives shaping today’s economy make further monetary debasement far more likely than a return to monetary discipline.

In such periods, doing nothing is rarely neutral. It is often the costliest decision of all.

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2. Money Is Not Wealth

Money is frequently mistaken for wealth. In reality, it is only a unit of account and a medium of exchange.

The pound or dollar held today does not represent the same purchasing power it did decades ago. Monetary value changes as supply expands relative to real goods and services.

A sum of money can remain intact numerically while losing much of its real value. This is not an anomaly. It is a structural feature of modern monetary systems.

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3. The Cycle Of Monetary Debasement

Whenever governments face severe stress, war, recession, pandemics, or demographic pressure, they respond in the same way. They create money.

This occurred during the Great Depression, the Second World War, the inflationary 1970s, the 2008 financial crisis, and on an unprecedented scale after 2020.

Between 2020 and 2022, more money was created than in the entire prior history of the United States. That action postponed adjustment rather than eliminating it.

The adjustment phase is now approaching.

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4. How Imbalances Build

The economy functions as a system of interacting forces: productivity, credit, consumption, inflation, and employment.

When credit is artificially cheap, consumption is overstimulated, and liquidity floods asset markets, imbalances accumulate.

In recent years:

• Credit expanded through near-zero interest rates
• Consumption surged via fiscal transfers
• Asset prices inflated through central bank intervention

Eventually, excess liquidity must reconcile with real output. Historically, this process erodes idle money.

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5. Real Assets Versus Paper Claims

In periods of adjustment, history shows a consistent pattern.

Real assets preserve purchasing power. Paper claims do not.

Real assets include productive companies, property, commodities, and energy. Their value rests on utility rather than currency units.

Paper claims include cash, bank deposits, and fixed-income instruments without inflation protection. Their value depends entirely on monetary stability.

When money supply expands, this distinction becomes decisive.

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6. Inflation As Wealth Transfer

Inflation is not simply rising prices. It is a mechanism of redistribution.

Newly created money enters the economy through banks and financial markets first. Those closest to this process can acquire assets before prices adjust.

Those further away experience inflation only through higher living costs.

This process, known as the Cantillon Effect, ensures that holding idle money during inflationary periods leads to a silent loss of purchasing power.

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7. Why 2026 Matters Structurally

Several forces now converge.

Government debt levels are extreme, and interest costs consume an increasing share of public budgets. Demographic ageing drives automatic spending growth. Geopolitical competition necessitates sustained defence and infrastructure investment. Banking systems still carry unrealised losses from the low-rate era.

Each pressure increases the likelihood of further monetary expansion rather than restraint.

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8. Lessons From The 1970s

The inflationary decade of the 1970s provides a clear lesson.

Savers who prioritised nominal safety in bank deposits lost purchasing power. Those who diversified into equities, property, and commodities preserved and often increased real wealth.

This was not speculation. It was alignment with economic reality.

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9. Extreme Examples Clarify The Principle

Hyperinflationary episodes such as Weimar Germany demonstrate the same mechanics in extreme form.

Cash holders were destroyed. Asset holders survived.

While such extremes are unlikely in developed economies today, the underlying logic remains unchanged. Excess money creation always devalues paper relative to real assets.

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10. The Hidden Cost Of Idle Cash

Even moderate inflation imposes a measurable cost.

At 4 percent inflation, £100,000 loses £4,000 of purchasing power each year. Over time, these losses compound into life-changing outcomes.

For those nearing retirement, inflation can determine whether long-term plans succeed or fail.

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11. Time Magnifies The Damage

Inflation compounds quietly.

A young household holding cash for decades may see purchasing power fall to a fraction of its original value. Small differences in annual returns become dramatic over long horizons.

Assets that merely outpace inflation modestly compound in the opposite direction.

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12. Principles Of Inflation-Resilient Allocation

No single asset provides perfect protection.

However, diversification across assets with different inflation responses materially reduces risk.

A resilient structure typically includes:

• Productive equities with pricing power
• Real estate with scarcity and utility
• Commodities and precious metals
• Inflation-linked securities
• Limited cash for flexibility

Cash remains useful, but excess exposure becomes destructive.

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13. Implementation And Behaviour

All-or-nothing decisions introduce unnecessary risk. Gradual adjustment over time reduces timing errors and allows learning.

Regular rebalancing enforces discipline by trimming excess and reinforcing neglected areas.

The greatest obstacle is often psychological. Many delay action in pursuit of certainty. Others over-concentrate in a single perceived hedge.

In inflationary cycles, inertia is rarely neutral.

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14. Choosing Which Cost To Pay

Every financial choice has a cost.

Investing brings volatility and uncertainty. Holding cash guarantees long-term erosion.

The question is not how to avoid cost, but which cost is preferable.

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15. The Central Lesson

Periods of heavy monetary creation are always followed by wealth redistribution.

This process is mathematical, not political.

Those who understand it adapt. Those who ignore it discover too late that what felt safe was merely familiar.

The greatest risk of the coming years is not market volatility, but complacency.

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Glossary Of Key Terms

Monetary debasement – The erosion of purchasing power through money creation.

Cantillon Effect – The advantage gained by those closest to new money creation.

Real assets – Assets with intrinsic utility independent of currency units.

Purchasing power – What money can actually buy in real terms.

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RAY DALIO ON PREPARATIONS FOR 2026

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1. A Repeating Moment In Economic History

If you look carefully at economic history, you will see a pattern repeated for centuries. There is a specific moment in the economic cycle when keeping money idle is not merely a poor decision, but one that can destroy decades of hard work.

We are rapidly approaching one of those moments in 2026.

This is not a prediction. It is a logical consequence of the cycles that govern modern economies.

Keeping money under the mattress, in traditional savings accounts, or even in certificates of deposit could prove to be one of the worst financial decisions of the next two years. More importantly, there are practical steps that can be taken to avoid this outcome.

History is an excellent teacher. It is issuing a warning that few are hearing.

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2. Money As A Practical Illusion

Money is an illusion. Not philosophically, but practically.

The pound or dollar you hold today is not the same unit of value you held in 1980, 2000, or even 2020. Its purchasing power changes over time.

If you had kept $100,000 under the mattress in 1980, today it would have the purchasing power of roughly $30,000. The money did not disappear. Its real value was eroded.

This leads to the first essential cycle to understand.

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3. The Cycle Of Monetary Debasement

Whenever governments face major crises, wars, pandemics, or deep recessions, they respond in the same way. They print money.

This occurred during the Great Depression, the Second World War, the 2008 financial crisis, and on an unprecedented scale during the 2020 pandemic.

Between 2020 and 2022, the United States created more money than in its entire previous history combined. Over 240 years of monetary expansion occurred in just two years.

The consequences of this decision are still unfolding. By 2026, they will be impossible to ignore.

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4. How The Economic Machine Actually Works

Imagine the economy as a large clock.

Each gear represents a different element. Productivity. Credit. Inflation. Employment.

When the gears move in harmony, growth is stable. When one gear accelerates artificially, the system becomes imbalanced.

In recent years:

• Credit was forced higher through near-zero interest rates.
• Consumption was stimulated by direct cash transfers.
• Liquidity was expanded via central bank asset purchases.

We are now entering the adjustment phase. Historically, this phase follows a simple rule.

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5. Real Assets Versus Paper Money

During adjustment periods, real assets preserve value. Paper money does not.

Real assets include:

• Shares in productive companies
• Real estate
• Commodities
• Precious metals

Paper money includes:

• Bank deposits
• Low-yield fixed income securities
• Physical cash

The divergence between these two categories will become increasingly severe.

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6. Inflation As Wealth Transfer

Inflation is not simply rising prices.

It is a systematic transfer of wealth from those who hold money to those who own assets.

New money enters the system through banks and financial markets first. Those closest to the source buy assets before prices rise. Those further away experience higher prices without protection.

This process is known as the Cantillon Effect.

When money is kept idle during inflationary periods, purchasing power is quietly transferred elsewhere.

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7. The Reality Of Recent Inflation

Official inflation figures understate lived experience.

From 2021 to 2024:

• Housing costs rose roughly 25 percent
• Food prices rose about 20 percent
• Energy prices rose approximately 30 percent

Holding $100,000 idle over this period resulted in a real loss of $20,000 to $25,000 in purchasing power.

The structural forces driving this trend are intensifying.

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8. The Incentives Driving 2026

Several powerful incentives point in the same direction.

First, US national debt now exceeds $33 trillion. Interest servicing alone consumes over $1 trillion annually.

Second, demographic ageing is accelerating mandatory spending on pensions and healthcare.

Third, geopolitical competition is driving sustained military and infrastructure investment.

Fourth, the banking system holds significant unrealised losses from low-rate bond portfolios.

Each of these pressures increases the likelihood of further monetary expansion.

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9. Lessons From The 1970s

Two families. Same savings. Different outcomes.

In 1970, both the Martinez and Thompson families held $50,000.

The Martinez family kept their money in a savings account earning 5 percent. The Thompsons diversified into stocks, property, and precious metals.

By 1980:

• Martinez family balance: $81,000
• Cumulative inflation: 112 percent

Despite nominal growth, their real wealth declined.

The Thompson family’s assets grew to $195,000 in real terms.

This pattern repeats whenever prolonged inflation occurs.

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10. Extreme Example: Weimar Germany

The Weimar Republic illustrates the same principles in extreme form.

Money printing destroyed purchasing power. Those holding cash were ruined. Those holding assets survived.

This is not a forecast of hyperinflation. It is a reminder that monetary excess always follows the same logic.

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11. What Idle Cash Really Costs

At 4 percent inflation, $100,000 loses $4,000 per year in real terms.

At 8 percent inflation, the loss rises to $8,000 annually.

Over five years, this equates to $30,000 to $40,000 of lost purchasing power.

For retirees and young families alike, the impact compounds dramatically over time.

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12. The Long-Term Consequences

A million pounds exposed to 6 percent inflation loses roughly 25 percent of its real value over 20 to 30 years.

A 35-year-old holding £50,000 idle for 30 years will see its purchasing power fall below £15,000.

Invested prudently, that same sum could grow to £200,000 or more in real terms.

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13. A Sensible Inflation-Resilient Structure

This is not personalised advice. These are educational principles.

A broadly balanced structure might include:

• 40–50 percent in quality equities with pricing power
• 20–30 percent in real estate assets
• 10–15 percent in commodities and precious metals
• 5–10 percent in inflation-linked bonds
• 10–15 percent in cash for flexibility

Cash remains useful, but excessive exposure is destructive.

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14. Asset Selection Matters

Favour:

• Companies with pricing power
• Essential goods and services
• Utilities with indexed revenues
• Prime-location real estate

Avoid:

• Highly indebted firms
• Purely commoditised businesses
• Fixed income without inflation protection

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15. Implementation Principles

• Do not change everything at once
• Phase adjustments over 6 to 12 months
• Maintain higher liquidity for short-term needs
• Rebalance every six months

Rebalancing forces discipline: selling what has risen and buying what has lagged.

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16. Common Psychological Traps

• Waiting for perfect certainty
• Concentrating everything in one asset
• Delaying action until inflation “falls”

Doing something imperfect is often better than doing nothing.

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17. Preparing For Multiple Scenarios

Possible outcomes include:

• Moderate inflation of 4–6 percent
• Higher inflation of 7–10 percent
• Temporary deflation during recession
• Stagflation combining low growth and inflation

A diversified portfolio performs reasonably across all scenarios.

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18. The Real Cost Of Inaction

Every choice has a cost.

• Investing carries volatility
• Holding cash guarantees inflation

Inflation is silent but relentless. Volatility is visible but temporary.

For most people with a medium to long-term horizon, inflation is the greater danger.

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19. The Core Lesson From History

Periods of heavy monetary creation always result in wealth redistribution.

This is not political. It is mathematical.

When money grows faster than goods and services, purchasing power shifts from savers to asset owners.

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20. The Choice Ahead

True security does not come from avoiding risk. It comes from understanding and managing it.

The greatest risk of 2026 is not market volatility.

It is complacency.

Doing nothing is also a decision. And it may prove to be the most expensive one of all.

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Glossary Of Key Terms

Monetary debasement – The reduction of purchasing power through money creation.

Cantillon Effect – The advantage gained by those closest to new money creation.

Real assets – Assets with intrinsic utility that retain value in inflation.

Purchasing power – What money can actually buy, not its nominal amount.

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When choosing ETFs to cover an allocation in an asset class, a general rule of thumb, but with exceptions of course, would be:

“If the ETF did not exist, would the asset still exist?”
If yes, it qualifies for the portfolio

 

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WHY AND HOW TO UNITISE YOUR PORTFOLIO

31 December 2025

If you pop an extra 500 into your portfolio, does it mean that your performance has improved?

You've built your own portfolio - how can you compare its performance with that of an index such as the FTSE All Share ^FTAS or the S&P 500 SPY or indeed any Active or Passive funds?

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1. Overview

Unitising a portfolio is a simple accounting method that allows an investor to measure performance accurately over time, regardless of cash added or withdrawn. It treats your portfolio like a fund, where performance is tracked through changes in a unit price rather than changes in total value.

This approach is widely used by professional fund managers but rarely by private investors, despite being straightforward to implement.

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2. The Problem Unitisation Solves

Most private investors measure performance by looking at how much their portfolio is worth today compared with the past. This is misleading when money is added or removed over time.

Regular contributions, lump sums, or withdrawals distort returns. A portfolio can appear to perform well simply because more cash was added, not because the investments performed well.

Unitisation removes this distortion.

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3. What Unitisation Means

Unitisation means seeing your portfolio as a number of units, where a unit has a value measured in your currency) that depends on performance... not on how much you may and add or withdraw. it is still or expired  with the value of each unit being the total value of the portfolio divided by the number of units notional units, each with a changing price.

You are not changing what you own.
You are changing how you measure it.

Performance is measured by the movement in unit price, not by the size of the portfolio.

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4. How To Unitise A Portfolio

Step one. Choose a starting unit price.
This can be £1, £10, or £100. The number is arbitrary.

Step two. Calculate the number of units.
Divide the total value of your portfolio by the chosen unit price.

Example.
A £50,000 portfolio with a £100 unit price equals 500 units.

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5. Tracking Performance Over Time

As markets move, the value of your portfolio changes but the number of units stays the same.

If the portfolio rises from £50,000 to £60,000, the unit price rises from £100 to £120.

Your return is the change in unit price.
In this case, 20 percent.

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6. Adding Or Withdrawing Money

When you add money, you buy new units at the current unit price.

Example.
If the unit price is £120 and you add £6,000, you buy 50 new units.

When you withdraw money, you sell units at the current unit price.

This ensures that cashflows do not affect performance measurement.

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7. What Unitisation Gives You

Unitisation produces a time-weighted return.

This allows:

• Accurate long-term performance tracking
• Fair comparison with funds and benchmarks
• Clear separation of investment skill from saving behaviour.

It shows how well your investments performed, not how much money you happened to add or withdraw.

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8. Unitisation Versus Other Measures

Unitised returns are 'time-weighted'.

By contrast, measures such as XIRR are money-weighted and reflect the timing of cashflows. Both have value, but they answer different questions.

Unitisation answers one question only.
“How well did my portfolio perform?”

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9. Why Most Private Investors Do Not Use It

The main reason is not complexity.
It is simply that they are not familiar with it.

Most platforms do not present data this way, and investors are rarely taught to think like fund managers. Yet the method is simple, transparent, and robust.

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10. Conclusion

Unitising your portfolio turns performance measurement from guesswork into a clean, professional process. It strips out noise, removes cashflow distortion, and lets you judge your investing decisions on their merits.

Once adopted, it becomes very hard to go back.... for sure.

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Glossary

Unitisation

Treating a portfolio like a fund by dividing it into units whose price reflects performance.

Time-weighted return

A measure of investment performance that shows how well the investments themselves performed, ignoring when or how much money was added or withdrawn. It is the standard method used by fund managers because it removes the effect of personal saving decisions and focuses purely on investment skill.

Further reading:

https://monevator.com/time-weighted-return/

https://www.investopedia.com/terms/t/time-weightedror.asp

Money-weighted return

A measure of return that takes account of the timing and size of cashflows, such as contributions and withdrawals. It reflects the investor’s personal experience, meaning good or bad timing can materially change the result even if the underlying investments performed the same.

Further reading:

https://monevator.com/money-weighted-return/

https://www.investopedia.com/terms/m/money-weighted-return.asp

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Now then now then...

You drop 500 into your portfolio does this change the value of your portfolio does this change the number of units in your?

You receive a dividend does this increase the number of units or the value of a unit?

How will you track and compare your performance with the index of your choice?

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Source

To read attentively! :

Monevator - a great site for investors of all ages and skills.

How to Unitize Your Portfolio
https://monevator.com/how-to-unitize-your-portfolio/

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A Worked Excel example

That's article above includes a Excel spreadsheet to download and adapt. Here's a ready-to-paste example. Ready to drop straight into Excel or Sheets.

Worked Excel Example – Unitised Portfolio

Date | Portfolio Value | Cashflow | Units Outstanding | Unit Price

01-Jan | 50000 | 0 | 500 | 100.00

01-Feb | 55000 | 0 | 500 | =B2/D2

01-Mar | 65000 | 10000 | =D2+(C3/E2) | =B3/D3

01-Apr | 70000 | 0 | 590.91 | =B4/D4

01-May | 65000 | -5000 | =D4-(ABS(C5)/E4) | =B5/D5

Key Excel Formulas (Copy Once)

Unit price:

=B2/D2

Units added (cash in):

=C3/E2

Units removed (cash out):

=ABS(C5)/E4

Interpretation

Performance is the change in Unit Price only.

Cashflows do not affect performance.

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UK AUTUMN 2025 BUDGET SUMMARY

28 November 2025

1. OVERVIEW

The Autumn Budget keeps tax thresholds frozen, pulling more earners into higher bands through fiscal drag.

Cash remains attractive in the short term thanks to high SONIA-linked rates, but long-term growth still belongs to global equities.

Inflation (RPI) erodes real returns, so tax-efficient wrappers (ISA, pension) matter more than ever.

Core message: stay diversified, stay invested, and ignore political noise.

None of this is financial advice of course - you must always d y o r do your own research

2. TAX & HOUSEHOLD IMPACTS

2.1 Fiscal Drag on Income

Personal Allowance and higher-rate thresholds stay frozen.

As wages rise with inflation, more people fall into higher tax brackets.

Net take-home pay is squeezed in real terms (after inflation).

Glossary: fiscal drag = stealth tax rise via frozen thresholds.

2.2 Allowances Still Matter

ISA allowance unchanged: vital for shielding returns.

Pension contributions remain the most tax-efficient way to invest.

Dividend and CGT allowances remain historically low, making wrappers even more valuable.

3. SAVINGS, MARKETS & RETURNS

3.1 Cash (Short Term)

SONIA-linked cash accounts remain competitive.

Rate cuts expected in 2025–26 may reduce cash yields.

Glossary: SONIA = overnight interest rate between UK banks.

3.2 Equities (Medium–Long Term)

Global equities (FTSE All-World) continue to outperform over long periods.

Volatility expected but historically rewarded.

Glossary: global equities = shares across developed & emerging markets.

3.3 Inflation & Real Returns

- RPI remains above pre-pandemic levels.

- Real returns depend on staying above inflation over time.

- Glossary: 

real return = investment return minus inflation.

4. PRACTICAL ACTIONS

Maximise ISA and pension contributions where possible.

Keep a cash buffer for emergencies; invest the rest for long-term growth.

Stick to diversified portfolios rather than reacting to political cycles.

Avoid trying to time interest-rate moves or election news.

SUMMARY

5. NOTES

Cash returns use SONIA (Sterling Overnight Index Average), tracking overnight UK bank lending rates.

Global shares use the FTSE All-World Index, assuming dividends are reinvested.

Inflation uses the UK Retail Price Index (RPI), a measure of price level changes.

Real return = nominal return minus inflation.

Source: Vanguard UK analysis of the Autumn Budget (link provided).

AI generated from Vanguard handout

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COMPARING TREATMENT OF CASH ON TRADING PLATFORM V. ETF PLATFORM

15 May 2025

I can see why you're interested in CSH2.L. It's because it's an ETF, and so is available on your ETF platform, for your spare cash.

Trading-cash is very slightly better - it pays 4.6% AER at the moment, compared with from what I can work out CSH2 YTD 1.6% > 4.36% AER.

The T cash is instantly liquid - instant buy or sell, 24/7. Plus, there's no spread and no risk and no volatility and no fee ... it is 100% certain, if you like.

But CSH2 is almost the same - it pays a squinch less, there'll be tiny volatility and bid/offer spread, there is that 0.07% fee, you can only buy sell during trading hours... I mean when the exchange is open.

A squinchissimal advantage of CSH2 is that if the interest rates drop, it's likely to lag slightly aswhere T-cash's interest rate changes immediately.

In sum, there's pretty much no difference between them, but for you, it's important because your  ETF platform doesn't offer interest on cash, so it's CSH2 or nothin.

[End]

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WHAT IS ASSET REVESTING

Asset Revesting: A Smarter Way to Surf the Markets?

1. Introduction – Beyond Buy-and-Hold

• Most people still follow the model: buy, hold, pray.

• Chris Vermeulen’s "Asset Revesting" offers a different methodology – one where your capital moves with the momentum of the markets, not against it.

• It's a dynamic, trend-following strategy rooted in technical analysis and market discipline.

This post explores what Asset Revesting is, how it works, what technical terms underpin it, and – crucially – where its limits lie.

2. What Is Asset Revesting?

• The core idea: Revest - re-invest - capital into assets with upward momentum.

• It's neither traditional trading nor passive investing – it’s a hybrid of tactical capital preservation and opportunistic rotation.

• Vermeulen's philosophy is: stay out of downtrends or use invesrse ETFs, move into uptrends, and be in cash when nothing looks good.

3. Vermeulen’s Rules in Practice

• Use moving averages and momentum signals to identify entries and exits.

• Exit when momentum fades – no need for ego, don't listen to media narratives.

• If nothing meets criteria, sit in cash and wait.

Examples:

• Rotate out of tech into gold miners if momentum shifts.

• Move into defensive ETFs like XLP or XLU during corrections.

4. Glossary – Terms You Need to Know

• Moving Average (MA) – Average price over X days, showing trend.

• RSI (Relative Strength Index) – Signals if an asset is overbought (>70) or oversold (<30).

• Overbought/Oversold – Suggests price may reverse.

• FOMO (Fear of Missing Out) – Emotional mistake of entering late.

• Support/Resistance – Horizontal zones where price tends to bounce or stall.

• Volume Analysis – High volume confirms strong moves.

• Stop-Loss Orders – Predetermined exits to protect capital.

• Position Sizing – How much capital to risk on a trade.

• Stage Analysis – Recognises the four market phases: Accumulation, Advance, Distribution, Decline.

5. What Makes Asset Revesting Different?

• Avoids the dead money trap of holding losers, hoping they'll revive.

• Emphasises trend-following with strict exit criteria.

• Encourages unemotional, rule-based decisions.

• Views cash as a valid position – a radical but important shift.

6. A Word of Caution – Vermeulen’s Own Critique

• Vermeulen acknowledges the paradox which is that most clients don’t follow through.

• Why?

  • Lack of discipline.

  • Emotional trading.

  • Misunderstanding technical signals.

“The system works... but only if you do.” - Vermeulen

This isn’t plug-and-play. It demands commitment, learning, and honest self-assessment reviews.

7. Where Asset Revesting Shines

• Works well in trending environments.

• Protects capital in downturns.

• Ideal for active investors who want more control than general passive ETFs but less stress than day trading.

8. Where It Struggles

• Choppy, sideways markets generate false signals.

• Requires time and consistency to learn the indicators.

• Can underperform in explosive rallies if signals lag.

9. Should You Use It?

You might consider it if:

• You’re frustrated by buy-and-hold.

• You want structure and do not want pure speculation.

• You can follow rules and manage your emotions.

You probably shouldn’t if:

• You want set-and-forget investing.

• You’re uncomfortable with technical charts.

• You expect instant gains.

10. Final Thoughts – A System for the Serious

Asset Revesting offers a disciplined, rule-based way to manage risk and stay in tune with the market.

It’s not easy.
It’s not foolproof.
But it’s one of the few strategies that tries to make rational use of price action without the delusion of prediction.

If you’re willing to learn the ropes, the rewards – especially protection in drawdowns – may be worth it.

11. Where to Learn More

• Asset Revesting – 2nd Edition by Chris Vermeulen

• TheTechnicalTraders.com

• Daily commentary on Chris Vermeulen’s YouTube Channel

Also Recommended:

• Brent Johnson – Dollar Milkshake Theory

• Lyn Alden – Macro research

• Russell Napier – Financial repression & capital controls

• Luke Gromen – forestfortrees.substack.com

• Zoltan Pozsar – De-dollarisation frameworks

• Joseph Wang – Treasury & Fed liquidity dynamics

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USING STRIKE PUTS AS PORTFOLIO PROTECTION

28 April 2025

What would it be worth to you to be sure that your portfolio couldn't lose more than 10% this year? That's what buying a put option could do for you, and at little cost.

Because people think that buying options is a most complicated subject, we are going to start complicated, in the introduction below! 

But all the terms and ideas used will be unpacked in the following few paragraphs, and at the end, for anyone who gets to the end, there is a lively discussion. 

The discussion recaps all that has been explained, and the reader will realise that actually this is a sensible, practical and pretty easy-to-understand subject.

First, the Contents...

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Using Strike Puts as Portfolio Protection

Contents

1. Introduction

2. What is a Put Option?

3. How Buying a Put Protects Your Portfolio

4. Understanding the Cost of a Put

5. The Role of Volatility (VIX)

6. A Worked Example

7. Advantages of Using Strike Puts

8. Disadvantages to Consider

9. UK Platforms offering options trading

10. Conclusion

11. NOTE on the VIX

12. Listen to a lively discussion…

13. Glossary

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1. Introduction

When markets are rising steadily, it is easy to forget about risk. Yet experienced investors know that protecting a portfolio is just as important as growing it.

One simple tool for this is the strike put - a basic form of portfolio insurance.

The key is to apply it before panic sets in, ie at times of low volatility (as can be measured by the VIX). 

Buying out-of-the-money (OTM) put options is a core hedging idea 

This strategy, associated with Mark Spitzagel, involves paying a regular cost (negative carry) for the potential of a huge payout ("bang for the buck") if a major market crash occurs.

OTM put options can provide significant returns (e.g., 10x or even 70x return on the cost of the put) during sharp market declines, covering a substantial portion of portfolio losses even with a small allocation (e.g., 1 or 2% of portfolio value).

Risk Tolerance and Strike Selection: A fairly conservative investor might prefer ITM or ATM options, while a trader with a high risk tolerance might prefer OTM options for their potential for higher percentage gains ("Options Basics"). The goal at a minimum is protection against major crashes, not just small dips as in the worked example below.

This insurance is most cost-effective when volatility is low and options are cheap, ideally purchased when nobody else is thinking about hedging. The strategy requires a regular cost (e.g., 1-2% of portfolio yearly) as the options often expire worthless, but this is the planned cost of the insurance. It requires effort, knowledge, patience, and the ability to accept this negative carry. The goal is protection against massive crashes, not small dips.

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2. What is a Put Option?

An option is a contract that gives the buyer the right, but not the obligation, to buy or sell an underlying security at a certain price — this price is called the strike price. 

Options must also be exercised by a specific expiration date.

Options are derivative investments, since they derive their value from the underlying assets. They can be bought and sold on an exchange, just like the underlying assets they’re associated with.

A put option gives the buyer the right (but not the obligation) to sell an asset at a fixed price, ie the strike price, within a specified time.

It is like buying an insurance policy: if your asset falls below the strike price, you have the right to sell it at that protected level.

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3. How Buying a Put Protects Your Portfolio

If you own a stock portfolio worth £100,000, you could buy put options on a broad market index (like the FTSE 100 or S&P 500).

This guarantees you the ability to sell at the strike price, even if the market crashes.

You effectively lock in a minimum portfolio value for the cost of the option premium.

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4. Understanding the Cost of a Put

The premium is the price you pay for the insurance. Several factors influence this premium:

• How far "out of the money" the strike price is (e.g., 1% below current value costs more than 10% below)

• How much time is left until the option expires

• Current market volatility

A 1% out-of-the-money put is relatively close to the current market level, so it offers strong protection.

Suppose you hold a £100,000 portfolio of SPY shares, on which you wish to buy a put. SPY is at 610. You want protection if it falls 1% or more. That protection costs $13 per share.

• You buy a 1% OTM put at a cost of £2,130.09 when the VIX is low, say below 20.

• Strike level: 99% of today’s market level.

Situation:

Portfolio Value = $100,000

SPY Price = $610

Require 1% out-of-the-money (OTM) protection

Put Option Cost = $13 per share

Strike Price = 99% of $610 = $603.90

Number of SPY shares

 = 100,000/610 = 163.93

(Normally, you can only buy puts on lots of a hundred shares - you should buy for either one hundred or two hundred shares - but let's forget about that for this example.)

Premium 

= Number of Shares 163.93 * Cost per Share $13

= $2,130.09

Scenario A:

• Market falls 20%.

• Your portfolio value without protection: $80,000.

• With the put option exercised, you can sell at 99% of original value, losing only the premium.

Scenario B:

• Market stays flat or goes up.

• You lose the $2,130.09 premium but retain your full portfolio value.

Scenario C:

• Say, instead, you bought the same put but when the VIX was high eg above 40 or 50 - and it cost you $35 a share = $5,737.55

• Protection is still there, but at a much higher cost.

Preparation costs much less than buying insurance in a last-minute panic.

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5. The Role of Volatility (VIX)

The VIX Index measures expected future volatility in the market.

When the VIX is low, option premiums are cheap.

When the VIX is high, premiums become expensive.

The best time to buy protection is when volatility is low - not during a crash when risks and volatility are high, and everyone is rushing to buy insurance.

Buying puts when the VIX is calm preserves your purchasing power.

Likewise, selling the puts or taking profits when volatility spikes can sometimes be a smart tactic, even before a full market fall. You can sell anytime up to the expiration date.

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6. A Worked Example

Here is an example break down to show an actual cost:

Event Date	SPY Level	Strike Level	Put Cost (USD)	VIX Level (Approx.)	Percentage Cost (Put/Strike price)	Outcome
Late January	610	600 (1%)	13	Low (VIX around 15-17)	2.17% (13/600)	Bought put protection cheaply
Mid-February	610	600	16	Still low (VIX slightly up)	2.67%	Put cheaper temporarily
April 8	497	492 (June 30 expiry)	30	High (VIX above 40)	6.04%	Insurance much more expensive
April 8 (shorter expiry)	497	492 (April 25 expiry)	20	High (VIX above 40)	4.02%	2.5 weeks protection expensive

Notes:

• The return on the initial $13 on the Jan put was approximately 8× (put rose to $108) when SPY fell 18%.

• At low VIX, six-month protection cost about 2% of portfolio value ($2,130.09 / $100,000)

• At high VIX, two-month protection cost about 6%.

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7. Advantages of Using Strike Puts

• Defined maximum loss — you know the worst case, you can stay in the market regardless.

• Psychological benefit — easier to hold positions calmly....and sleep at night.

• Flexibility — you can profit from volatility spikes even if the market does not crash.

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8. Disadvantages to Consider

• Premium cost reduces returns if no crash occurs.

• Timing matters — mistimed purchases can waste money.

• False sense of security if not properly sized against actual portfolio risks.

---

 

Cost / potential benefit of buying a put option on SPY in Feb, when the VIX, was low and selling on an 18% correction - 7-fold return

9. UK Platforms offering options trading:

• IG, Saxo, DEGIRO offer access to options markets.

  IG write :

  " Please note that we do not have a demo account for the US options and Futures account yet. Its currently in the works but we don't have an estimated ETA."

   

  We need a guide to using put options for protecting portfolios, which IG has provided, and we do need a sandpit version. So many thanks IG for this reply and please note this enquiry as pending and keep us posted.

   
  

• IG have two options offerings: CFD or spread bet account or options via their US Options and Futures account. Here is the link to the US Options and Futures account: US-listed Options and Futures Account – Trade On Exchange - IG UK

• Most UK "investment platforms" (e.g., HL, II, AJ Bell) do not offer listed options trading.

• Trading212 focuses only on stocks and CFDs — no options.

10. Conclusion

Using strike puts to protect a portfolio is simple in theory but demands discipline in practice.

The insurance must be bought ahead of events and when volatility is low.

If managed properly, it can be a valuable tool for preserving capital without sacrificing upside potential.

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 11. NOTE on the VIX

The VIX measures market expectations of future volatility, not past market movements.

It is calculated by looking at prices of both put and call options on the S&P 500, typically with maturities between 3 to 5 weeks ahead, and across various out-of-the-money levels.

The VIX reflects what the market expects regarding future movement in the S&P 500.

For retail investors, trading options directly on the S&P 500 or its ETF (SPY) is often cheaper and simpler than trading the VIX.

Buying options on the VIX involves complexities because:

• You are trading options on futures, not directly on an equity index.

• Futures-based options introduce additional technical factors.

Since the VIX is already derived from S&P 500 options, betting directly on the S&P 500 provides more direct exposure.

Therefore, it is often more practical to hedge by using SPY options rather than VIX.

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12. Listen to a lively discussion 

Aimed at enlightening the beginner investor wanting to protect their portfolio in these crazy times:

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13. Glossary:

• Put Option:
  A financial contract giving the holder the right (but not the obligation) to sell an asset at a specified price (the strike price) within a set time period.

• Strike Price:
  The price at which the holder of a put option can sell the underlying asset.

• Premium:
  The price paid to purchase an option. It is a non-refundable cost.

• Out-of-the-Money (OTM):
  An option where the strike price is below (for a put) the current market price of the underlying asset.

• S&P 500:
  A stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States.

• SPY ETF:
  An exchange-traded fund that tracks the performance of the S&P 500 index.

• VIX:
  The Volatility Index, often called the "fear gauge," measures market expectations of future volatility based on S&P 500 options.

• Volatility:
  Measures how widely values are spread around the mean. The square root of the average of the squares of the deviations from the mean, aka the standard deviation. Note that...

• Variance:
  is the sum of deviations from the mean, and standard deviation is the square root of variance. If you wonder why all this squaring, it is just to obliterate the difference between +deviations and -ve deviations.

• Implied Volatility:
  Looks forward in time. The market's forecast of a likely movement in a security's price, reflected in the price of options.

• Market Makers:
  Firms or individuals who provide liquidity by standing ready to buy and sell securities or options at publicly quoted prices.

• Hedge:
  A financial strategy used to reduce the risk of adverse price movements in an asset, often by using options.

• Portfolio Insurance:
  Techniques such as buying put options to limit potential losses in an investment portfolio.

• Liquidity:
  The ability to buy or sell an asset or security quickly without causing a significant movement in its price.

• Annualised Cost:
  The cost of a financial product or protection expressed on a yearly basis, often used to compare short-term and long-term costs.

• Roll (Options):
  Closing an existing option position and opening a new one with a later expiry or different strike price, typically to extend protection or lock in profits.

• Spread (in options):
  The difference between the bid and ask prices for an option. A tighter spread usually means better liquidity.

• Market Panic:
  A period when investors rush to sell assets due to fear, causing sharp falls in asset prices and spikes in volatility.

• Index:
  A statistical measure of changes in a portfolio of stocks representing a portion of the overall market.

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[End]

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YOUR INVESTMENT STRATEGY

10 April 2025

YOUR INVESTMENT STRATEGY

Your investment strategies are clear

 

- for short-term projects such as saving for a deposit on a house*, then put your money into something safe - a single government bond that matures in a few months to coincide with your anticipated purchase; or even easier is a money market fund.

- for longer term projects going as far as retirement, just carry on drip feeding into a world index with a low fee - VHVG, though ACWI is the current favourite because it is all the world, including emerging markets, and because it's fee is half that of VHVG, you can buy this on InvestEngine.

- this is for 90% or so of your investment, maybe 100% till you get more adept, so this is your stalwart fund; 

and you can have a satellite flutter fund where you try out a few ideas - e g an energy ETF, or small caps, or copper, or gold, or some single stocks... For bigger gains, or of course, bigger losses!

NOTE

Any global index will still be dominated by the US, but worth bearing in mind that the US has done tremendously well this last decade on account of the magnificent seven, which are absolutely superb companies; but since 1975 US markets have beaten other markets on an annual basis on only 55% of the time. This year-to-date, Europe has out-performed the US.

* there will be plenty of gilts to choose from, so consider those maturing at around the same time, but with different coupons, and pick the one with the lowest coupon as the gain at maturity will be mainly capital on which there is no income tax.

** of course, it's time in the market, not market timing for us amateurs, but if you want to chance your arm, try doping your monthly transfers according to the data point in the Bollinger Bands or according to the RSI. If you want to manage major turning points, then try Fibonacci.

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MEDIUM TERM MARKET TREND MODEL TURNS BEARISH.

12 March 2025

Medium-Term Market Trend Model Turns Bearish

Summary of this report from Investopedia's Chart Advisor.

Key takeaway : The medium-term trend turning bearish suggests that investors should be cautious in the coming months.

With things as they are today, maybe the best tactic is wait-and-hope for a bounce over the next week or two....perhaps up until june... and then out of developed market ETFs for the remainder of the year.... "all things being equal", ceteris paribus, meaning unless the indicators change. Because this Trump transition will take a year or two and there could likely be many hiccups along the way.

And note that unless the whole world economy flips from west to east, then if there's a downturn in America, it'll be worse for the emerging markets.

The American economy is looking shaky, there's a lot of uncertainty and unpredictability around, and these tariffs are more specifically what's causing the current short and medium term bearishness.

If the long-term is looking okay, it's because Trump's strategy is putting us in a transition period. But for now, the focus is on capital preservation and not growth. Just be max. cautious and think short term only.

This article comes in six parts:

 

  I - The first part defines what short medium and long-term means. 

 II - The second is the key takeaways from the report.  

III - The third is a summary of the report

IV - Then we have some of the key technical terms that you need to understand to make sense of the report.

 V - Conclusion

 VI - And finally, the actual report itself from Investopedia - 

Part I

So, reading this report, what does "short-, medium-, and long-term time frames" mean:

1. Short-Term:

Days to weeks (typically up to 3 months).

The report references multiple short-term bearish signals in 2024, which were seen as temporary pullbacks within a broader bullish medium term trend.

Traders often look at daily and weekly price action, moving averages, and momentum indicators for short-term trends.

2. Medium-Term:

Several months to a year (typically 3 months to 1 year).

The Market Trend Model turning bearish on this medium timeframe suggests that your outlook for the next several months should be risk-averse. Alexis is right to put his money into short term money markets, or perhaps a bond ladder.

Investors use indicators like the 200-day moving average, 200 SMA, Fibonacci retracements, and market breadth metrics to gauge medium-term trends.

( i've defined these technical terms below....)

3. Long-Term:

Several years (typically 1 year or more, up to a decade).

The report states that the long-term trend remains bullish, meaning the market’s broader secular trend is still positive despite short- and medium-term pullbacks.

Long-term investors focus on fundamentals, macroeconomic trends, and major cycles rather than daily or monthly price movements.

Part II

Key Takeaway:

The short-term trend can fluctuate often and is relevant for traders.

The medium-term trend turning bearish suggests that investors should be cautious in the coming months.

The long-term trend remains bullish, implying that the overall structural bull market is still intact, despite near-term corrections.

Part III

Summarising the report:

1. Medium-Term Market Trend Model Turns Bearish

The Market Trend Model has turned bearish on the medium-term for the first time since October 2023.

The long-term trend remains bullish, indicating that the broader secular market trend is still intact.

The shift to a bearish medium-term trend suggests a greater focus on capital preservation rather than growth.

In 2024, multiple short-term bearish signals occurred, but they were contained within a medium-term bullish trend, allowing for buyable pullbacks.

However, the 2025 market trends are now diverging from 2024, raising concerns that the market may not follow the same bullish recovery pattern.

2. 5500 Becomes Minimum Downside Target for S&P 500

The S&P 500 has dropped nearly 10% from its recent all-time high of 6150, a decline similar to the July 2024 pullback.

The key support level of 5850 has been broken, and the index has fallen below the 200-day moving average, reinforcing a bearish outlook.

A downside target of 5500 is based on a 61.8% Fibonacci retracement of the previous uptrend (August to December 2024), suggesting a potential support level for a countertrend bounce.

The 200-day moving average is now acting as a resistance level for the market, and with RSI (Relative Strength Index) oversold conditions, further capitulation (forced selling) may occur before a possible rebound.

3. Breadth Conditions Continue to Deteriorate

The market’s breadth indicators (measuring how many stocks are participating in the trend) have weakened, with less than 50% of S&P 500 stocks now above their 200-day moving average.

Historically, when this breadth indicator drops below 50%, it has signaled further market weakness, as seen in September 2024, which preceded a six-week market decline.

The current market correction appears to be evolving into a major correction rather than a minor pullback, increasing downside risks.

Part IV

Defining technical terms

1. Market Trend Model – A proprietary tool that determines whether the market is in a bullish or bearish phase based on price action, trend indicators, and breadth measures.

2. Secular Trend – A long-term market trend that lasts years or decades, regardless of short-term fluctuations.

3. Fibonacci Retracement – A technical analysis tool that identifies potential support and resistance levels based on key percentage retracements (23.6%, 38.2%, 50%, 61.8%, etc.). The 61.8% level is considered particularly significant.

4. 200-Day Moving Average – A key long-term indicator that helps determine the market’s primary trend. Falling below this level is generally seen as a bearish signal.

5. RSI (Relative Strength Index) – A momentum indicator that measures whether a stock or index is overbought (above 70) or oversold (below 30). An oversold condition suggests a potential short-term bounce.

6. Market Breadth – A measure of how many stocks are participating in a market trend. When fewer stocks remain above their 200-day moving average, it indicates weakening market strength.

7. Stochastic oscillators or stochastics are based on the idea that closing prices should confirm the trend.

Both RSI and stochastics are used as overbought/oversold indicators.

High readings suggest an overbought market and low readings are indicative of oversold conditions.

8. Capitulation – A situation where investors panic-sell their assets, leading to a sharp drop in prices before a potential rebound.

Part V

Conclusion:

The shift in the medium-term trend to bearish, the break below key support levels, and deteriorating market breadth suggest that the S&P 500 may be entering a more prolonged correction rather than a temporary pullback. Investors should focus on capital preservation and watch for signs of market capitulation before considering re-entry.

Part VI

The Report

from Investopedia's Chart Advisor,

David Keller, CMT

Three parts:

1/ Medium-Term Market Trend Model Turns Bearish

2/ 5500 Becomes Minimum Downside Target For S&P 500

3/ Breadth Conditions Continue to Deteriorate

Investopedia is partnering with CMT Association on this newsletter. 

 1/ Medium-Term Market Trend Model Turns Bearish

Our proprietary Market Trend Model turned bearish last Friday on the medium-term time frame for the first time since October 2023. While our long-term model remains bullish, suggesting the secular trend still remains intact, this bearish signal on the medium-term time frame tells us to focus more on capital preservation than capital growth.

Note how in 2024 we had five different bearish signals on the short-term time frame, yet the medium-term trend model remained bullish through the entire calendar year. This configuration represented a buyable pullback within a cyclical uptrend, since the medium-term and long-term trends remained firmly in the bullish range.

While we’ve been tracking rotations in market leadership, as well as bearish momentum and breadth divergences since November 2024, the continued bullish reading on the medium-term trend model helped us remain constructive into Q1 2025. There’s no guarantee that we’ll see a repeat of 2022 or any other bear market year, but the fact remains that the trends in 2025 are starting to very much diverge from the bullish path of 2024.

2/ 5500 Becomes Minimum Downside Target For S&P 500

After Monday’s step selloff to start the week, the S&P 500 index is now down almost 10% from its most recent all-time high around 6150. This means that the current pullback is basically in line with the July 2024 drawdown in terms of price and time.

With the key support level of 5850 in the rearview mirror, and with the 200-day moving average violated on Monday, we have established an initial downside target of 5500. That would represent a 61.8% Fibonacci retracement of the August 2024 to December 2024 uptrend phase, where we would expect at least some sort of countertrend bounce.  

The 200-day moving average now becomes resistance above the current price action, and given that the S&P 500 reached an RSI oversold condition for the first time since the August low, we would be looking for other signs of short-term capitulation starting this week.

3/ Breadth Conditions Continue to Deteriorate

Up through the end of last week, some of our longer-term breadth indicators remained bullish, but Monday’s selloff appears to have taken one more breadth indicator off the “still bullish” list. With less than 50% of S&P 500 members remaining above their 200-day moving average, we can now add “lack of breadth support” to the list of bearish market characteristics.

Going back to August 2024, that initial pullback from SPX 4600 appeared to be a minor pullback as this market breadth indicator remained above 50%. With most S&P 500 stocks still above their long-term trend barometer, how bearish could things really be?

Then in mid-September, we saw the indicator push below 50% as the S&P 500 made a new swing low. The market ended up going lower for another six weeks before eventually finding a bottom just above 4100 in late October. Now with less than 50% of S&P 500 members remaining above their 200-day, the current corrective phase is beginning to look more like a major correction as opposed to a tactical pullback.

[End]

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HAVE MARKETS PEAKED, OR IS THIS JUST A PAUSE

22 February 2025

There's something going on in the markets. They are set to pause, perhaps worse. Why?

Markets seem to be topping. Take VHVG, SGLN, ZPRW and WSML, draw a horizontal line at what looks like the top, and then mark in a stop loss 7% below that. As / if price dips towards that stop loss, we should be thinking about what to do next if we are to preserve wealth.

For example, this chart, taken from 11 February, shows that for YTD, VHVG (developed world markets) has been trying without success to breakthrough 92.30. It's much the same for the others, and it's still the same today.

So it seems that after reaching new peaks, financial markets have decided to take a breather this week, spooked by the spectres of a trade war, the possible return of inflation meaning at that interest rates will be on hold, and the ongoing geopolitical uncertainties in Ukraine, Palestine and the Middle East, and China. 

The major indexes may have paused, but overall momentum remains intact. There is confidence from continuing positive fundamentals and earnings results, a process both started in Riyadh to end forever wars, to judge from volumes investors keep buying. Markets on the march often pause to rest and when good news emerges they recover and continue up - recall the taper tantrums of 2013, the covid crash of 2020 and the fed hike fears of 2023.

For a good understanding of the  macroeconomics of the moment, listen to Luke Gromen. Interesting answer on revaluing gold to question two. It's hard to see how this could ever happen. For a fuller explanation, listen to Joseph Wang. 

The baseline understanding of the price of gold. is that 

•  rising inflation would be dealt with by rising interest rates, which would strengthen the dollar and increase its attractiveness as a safe haven vis-à-vis gold

• remember too that, as a safe haven in times of geopolitical attention, investors prefer gold - safer them treasuries. But note that with the arrival of Trump, tensions are lessening. 

• And thirdly for reasons - the narrowing interest rate differential between Japan and the States - although the dollar has been weakening against DXY, this has not led to a decline in the value of gold.

• So the conclusion would seem to be that gold is at a high and possibly an all year high, and it might be worth switching to silver.

With significant events on the horizon this weekend, German elections being one, and next week, investors should brace themselves for some volatility, but the overall message is continue as you were, cautious commodities, keep an eye on the Japanese Yen as this could likely be the main driver of US equity markets for the next few months.

Footnote - risks are building:

It's worth noting that margin balances are increasing and investors are piling into ETF, with leveraged ETFs getting more attention than normal. 

This is okay as momentum is still there, it is a sign of confidence. But if there is a reversal, the losses could be big and then you get what's called margin call and traders could be forced to sell assets in order to cover their borrowings. This will reduce liquidity and have a downward effect.

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