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.

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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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Asset management, Economics, Market research, Market trends, Stock market, Trend following

The crucial importance of trends

In Berkshire Hathaway annual report (1985), Warren Buffett wrote the following:

When a management with reputation for brilliance tackles a business with reputation for poor fundamental economics, it is the reputation of the business that stays intact. [1]

My wife and I recently spent some time in Egypt. For a few days we sailed up the Nile from Luxor to Aswan on a cruise ship that counted nearly 70 crew members serving the total of five guests. The manager of the vessel was Mr. Khaled, an impeccably polite and always well dressed man in his 40s who, in spite of running a nearly empty ship managed to keep the crew’s morale high and ran the ship’s operations admirably well. Unfortunately, even if Mr. Khaled were the world’s best cruise ship manager, this particular situation was a good illustration of what Warren Buffet was talking about in his 1985 annual report. Continue reading

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Complexity, Market research, Stock market

Why we can’t predict the behaviour of complex systems (markets, economics or climate)

Over the last century or so, science has made immense progress in understanding natural phenomena like the weather and social phenomena like markets and economics. Unfortunately, we still fall well short of being able to successfully predict their behaviour. In spite of the mindboggling leaps in knowledge and computing horsepower, systematically successful prediction continues to elude us. This is largely due to the difficulty in modelling complex systems in sufficient detail. An aspect of this problem, called “sensitive dependence on initial conditions” might well be altogether insurmountable. Continue reading

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Asset management, Central banking, Economics, Market research, Policy, Politics, Stock market, Uncategorized

Investing in the age of unprecedented monetary experiments

Since the 2008 financial crisis, world’s largest central banks have unleashed a program of monetary stimulus that dwarfs anything we’ve experienced in history. With no historical precedents, how should investors navigate the risks and events that will likely exert extreme stress upon political, economic and social fabric of nations across the world. Altana Wealth’s founder Lee Robinon offers some unorthodox insights in a 45 minute interview with Real Vision TV with Grant Williams. You may not hear similar thinking from academics or CNBC-vetted pundits. Lee has the remarkable capacity to keep a mind-bogglingly detailed mental map of what’s going on in the world of business, finance and politics within a clear historical perspective and isn’t shy about laying it out as he sees it. The video is below: Continue reading

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