Asset management, Central banking, Economics, Inflation, Market trends, Stock market, Trading, Trend following

The one force moving stock prices and what it tells us about the future

Back when I traded stocks in late 1990s, I got a gnawing suspicion that beyond the nonstop noise of the news flow, there was some force pushing the rising tide, but I couldn’t discern what it was. By today I think I worked it out. The most surprising thing about it is that it’s been so hard to work out.

Stocks are principally driven by money supply

The first time I encountered an explicitly formulated hypothesis that justified my suspicions was years later while I researched for my book, “Grand Deception.” The hypothesis, relating to Russian stocks, was articulated by Bill Browder, CEO of Hermitage Capital Management in his 2006 HedgeWeek interview: Continue reading

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Commodity price, Energy crisis, Market trends, Oil market

More bad news from Saudi Arabia

 

Over the years I’d highlighted the increasingly dubious status of Saudi Arabia as the world’s oil production powerhouse. This year we learned that their flagship oil field Ghawar produced much less than everyone knew, now courtesy of Bloomberg we find another disconcerting bit of information corroborating these doubts as the following chart illustrates:

SaudiCrudeStockPile

There can be little doubt that we are facing a grave and serious energy predicament going forward. Our economies and societies better begin preparing yesterday. Links to my research outlining the fundamental supply and demand conditions can be found here: Continue reading

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

How we knew yields would collapse?

While most market experts completely failed to predict this year’s collapse in interest rates (see the chart below), we traded the event profitably. In this article I summarize the the hows and the whys of our performance.

Experts_YieldsForecasts

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 the 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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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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Monaco, June 2019 – with Jarand Rystad

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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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.

20190604_AutumnGoldChart

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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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