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

Bear market or bubble reflation: what comes next?

In March last year, I published an article looking at historical perspective on boom/bust cycles in SeekingAlpha. I suggested then that, “the (still) festering economic imbalances might get resolved along two alternative scenarios. Either we’ll have a full-blown deflationary depression that could see asset prices drop by 50% or more, or we’ll have a strong and sustained decline in the US Dollar, ” accompanied with a continued rise in equity markets. Today, the latter scenario appears more likely. Here’s why: Continue reading

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Asset management, Commodity price, Commodity risk, Stock market, Trading, Trend following

With I-System through March storm – part 2

March 2020 market storm has been an important test of the I-System model and the way it navigated the unforeseen events. The results have been very encouraging and the system has done well in all affected markets. Last week I summarized its performance on Brent crude oil, Silver and US 30-year Bond. Here we take a look at how it performed in Russell 2000, S&P500 and Palladium markets. Continue reading

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Central banking, Economics, History, Inflation, Monetary reform, Stock market

Asset bubbles and their human toll

Bursting of an asset bubble can have grave consequences for the economy and the society at large – so grave, it’s worth paying attention at this point. I’ll elaborate.

In only six trading sessions from the 20th February peak, the S&P500 shed more than 12%, one of the fastest declines on record for the index (only the 1987 black Monday was worse). Only a week before this event I posted the article, “Bubbles Always Burst…”on SeekingAlpha, warning about the risk of this happening.

Whether last week marks the beginning of the bubble’s bursting remains to be seen, but this is only a matter of time. Bubbles always burst, no exceptions. But what’s important to understand is this: bubbles are meant to be burst! For guidance, let’s look again at the bursting of Japan’s own everything bubble of the 1980s. Continue reading

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Economics, Energy crisis, Inflation, Market research, Market trends, Oil market, Policy, Risk management, Stock market, Trend following

Perfect storm gathering: the three converging disruptions

In the near future, we are likely to experience severe consequences of three converging disruptions:

  1. Stock market crash
  2. Oil price shock
  3. Inflation

Since the last recession we’ve enjoyed the longest ever period of economic expansion with low interest rates, low inflation and subdued commodity prices. But this all could be coming to an end.

Bursting of the “everything bubble”

Throughout the west, unprecedented government and central bank stimulus programs helped inflate the current “everything bubble.” This is not a new phenomenon; monetary expansion always creates asset bubbles. The one thing we know is that without exception, asset bubbles ultimately burst. The examples are many and some of them made a mark in the collective conscious of entire generations, from the 1630s Tulip Mania to the 1990s dot-com bubble. Continue reading

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Asset management, Behavioral finance, Commodity price, Commodity risk, Expertise, Hedging, Market research, Market trends, Risk management, Stock market, Trading, Trend following

Do trend followers move markets? (they do).

A few months ago, when reviewing our trades on US Treasury futures, I was so delighted, I drafted a bragging article titled “How we knew yields would collapse?” summarizing the results of our trading. That performance was entirely generated by my I-System model, first built in 1999. I still find myself awestruck that this works… We generated profitable trades through both the bear and the bull market in bonds, literally without needing to know a single thing about the market fundamentals. The trades were strictly based on the knowledge framework built into the system more than 20 years ago (by the way, our strategies are still generating excellent signals in those same markets). Continue reading

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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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Asset management, Behavioral finance, Hedging, Market psychology, Market research, Market trends, Risk management, Stock market, Trading, Trend following

Lessons Of Japan’s 1980s Bull Market

Afer popping, Japan’s 1980s bull market gave way to an 82% drop over the following 20 years.

Three decades later, Japanes equities are still more than 40% below peak valuations.

One of the most effective methods of navigating the boom/bust cycles has been the systematic trend following.

Sooner or later a crash is coming, and it may be terrific

Roger Babson, 5 Sep. 1929

If everybody indexed, the only word you could use is chaos, catastrophe. The markets would fail

Jack Bogle, founder of The Vanguard Group

As of December 2018, passive index funds controlled 17.2% of the stock of all U.S. publicly traded companies, up from only 3.5% in 2000. The 5-fold increase was in part the consequence of the ongoing stock market growth, which now has the distinction of being the longest running bull market ever recorded. Buoyed in large part by central banks’ unprecedented quantitative easing (QE) programs, the rising stocks have lulled many investors into complacency.

Continue reading

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Asset management, Economics, Inflation, Market research, Market trends, Policy, Stock market

Parabolic markets may signify onset of high inflation

Asset price inflation might signal debasement of the currency and acceleration of commodity price inflation

This time it may well be different… For several years now, numerous high-profile commentators and analysts have been forecasting an imminent stock market correction, or indeed a crash, evoking the events of 1929, 1987, 2000 or 2008. Of course, many are now predicting it is sure to happen in 2018. If not, perhaps in 2019 or maybe 2020? Who knows… But so far, not many analysts – if any, apart from yours truly – have considered the possibility that this rally might extend even higher from today’s dizzying heights. In an October 2016 post I suggested that this is exactly what was ahead. Continue reading

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Asset management, Behavioral finance, Commodity price, Complexity, Economics, Expertise, Hedging, Market psychology, Psychology, Stock market, Trading, Trend following

The illusion of expertise in financial markets

Participants in financial markets have to deal with uncertainty on a daily basis. Their need to research and understand markets has given rise to a massive industry delivering security prices, reports and expert analyses to traders and investors seeking to make sense of the markets and predict how they might unfold in the future.

The need to understand stuff is innate to our psychology: when something happens, we almost reflexively want to know why it happened. But the compulsion to pair an effect with its cause sometimes gets us jumping to conclusions. If such conclusions turn out to be mistaken or irrelevant, they could prove useless – or something worse. Consider two recent titles from the ZeroHedge blog, published 89 minutes apart: Continue reading

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Central banking, Commodity price, Economics, Inflation, Market trends, Monetary reform, Stock market

Stock markets might not crash. Investors might still lose big.

Our future is being shaped by an unprecedented monetary experiment run by our central bank mandarins, but a happy ending is a mathematical impossibility. The economic imbalances that resulted in the last, 2008 financial crisis are now much worse and we are facing two possible routes of their resolution. One is a full-blown deflationary depression that could see asset prices drop by 50% or more. The other is a strong and sustained decline in the US Dollar (and other major currencies) with an accelerating commodity price inflation that might span a full decade.

Central banks’ overt commitment to supporting asset prices at all costs suggests that the second scenario may be more probable. In this case, a major stock-market crash could be averted; instead, we could see a significant and sustained rise in equity markets, as was the case most recently during the Zimbabwean and Venezuelan inflations, as well as the Argentinian, Brazilian, Israeli and German inflations before that. Below is the chart showing the appreciation of Israel All Share index during the country’s inflationary crisis in the 1980s: Continue reading

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