Asset management, Commodity price, Market trends, Risk management, Trading, Trend following

How we knew yields would collapse?

Here’s a question: how did we know to short US T-Notes starting in Q4 2017, then reverse and go long in November of 2018? Did we know interest rates would first rise, then collapse at the fastest rate in 50 years? Are we so brilliant as forecasters? Did we have insider information? The answer is, none of the above.

We did not know what would happen – but profited from events anyway. Here’s how: Continue reading

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Asset management, Behavioral finance, Commodity price, Economics, Hedging, Market research, Market trends, Oil market, Risk management, Trading, Trend following

Failure of price forecasting: the unit of account conundrum

In addition to the better understood challenges of market analysis, like access to timely and accurate data, there is another – rather massive, but usually completely ignored – problem that renders forecasting largely an exercise in futility.

Over the years I’ve written quite a bit on the unreliable nature of price forecasts based on the analysis of market supply and demand . Most recently, in “Market fundamentals, forecasting and the groupthink effect,” I discussed the problem of data quality as well as the very real problem of groupthink among leading analysts, providing an example of a staggeringly wrong oil price forecast they produced. Some of the very same experts later produced this gem: Continue reading

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Attaining mastery, Children, Mystery, Psychology

To attain mastery… a surprising discovery

Many years ago, quite by accident, I noticed something amazing about the human brain. Although I’ve read many books on psychology and how the brain works, I never came across anything that prepared me for what I encountered. I believe this discovery can help anyone greatly improve their skills at whichever pursuit they wish to master. I’ve followed my accidental discovery with a ‘home-cooked’ science experiment that beautifully confirmed the original finding. This insight could help parents, teachers and coaches in the way they cultivate young talent. It should also be an encouragement to such talent: whatever your skill level at this moment, you ain’t seen nothing yet – mastery may be fully within your grasp, even if you can’t even fathom it at present. Here it goes… Continue reading

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Commodity price, Commodity risk, Complexity, Economics, Expertise, Hedging, Market psychology, Market research, Market trends, Oil market, Risk management, Trend following

Market fundamentals, forecasting and the groupthink effect

Last month I had the privilege of meeting with Jaran Rystad of Rystad Energy to discuss strategic cooperation between our companies. On the occasion, he gave me a rather detailed presentation of his firm’s energy intelligence database. I must say, in my 20+ years trading in commodities markets this is by far the most impressive product of its kind I’ve ever seen. Even from the software engineering point of view, I was very impressed. For full disclosure, nobody asked nor encouraged me to write this. Much as you’d recommend a restaurant where you ate well or a doctor you respect, I wholeheartedly recommend Rystad Energy as a provider of energy market intelligence as a matter of giving credit where credit is due.

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With Jarand Rystad of Rystad Energy in Monaco – their oil market intelligence is impressive by any standard.

However, even with top notch data on economic supply and demand fundamentals, divining the future remains difficult and unlikely. John von Neumann rightly said that forecasting was “the most complex, interactive, and highly nonlinear problem that had ever been conceived of.” Continue reading

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Central banking, History, Inflation, Monetary reform

On the other side of the financial repression dam: epic inflation

Inflation is with us – and in time it will flood the economy. Regardless of how powerful and prosperous a nation may appear in its peak, no empire ever was able to exempt itself from the elemental laws of economics any more than we can exempt ourselves of the laws of gravity.

Warren Buffett warned that for a debtor nation, inflation was the economic equivalent of the hydrogen bomb. Runaway inflations tend to emerge when an economy’s debt burden becomes unsustainable, usually as a consequence of too much government spending and too much war. Today, nearly all categories of debt in the U.S. economy are breaking records: government, corporate as well as household and student debt. Worse, the levels of delinquency have been rising and credit standards have been deteriorating over the recent months, particularly for corporate debt. Continue reading

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Asset management, Behavioral finance, Market psychology, Market research, Market trends, Trading, Trend following

Trend following might save your tail

In the age of central bank quantitative easing, trend following has become an unpopular investment strategy, even earning tiself a bad name as trend following funds performed miserably compared to bonds, equities, and passive index funds. Below is a chart put together by AutumnGold showing a growing gap between Managed Futures funds the S&P 500 and Barclay’s Aggregate Bond index. Managed futures funds are a good proxy for trend following performance as most of them apply systematic trend following strategies in one way or another.

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Asset management, Central banking, Economics, Inflation, Market research, Market trends, Policy

US jobs: everything is awesome! Is it? Let’s take another look.

A few years back in an interview with Wall Street Journal’s “Heard on the Street” program , Elliott Management’s Paul Singer said that his greatest worry was the rise of inflation that could appear suddenly. He suggested that this could come about with small changes in perception of inflation risk. Specifically, “The first whiffs of either commodity inflation or wage inflation,” said Singer, “may cause a self-reinforcing set of market events … which may include a sharp fall in bond prices, … fall in stock prices, rapid increase in commodities…

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