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
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
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
In the near future, we are likely to experience severe consequences of three converging disruptions:
- Stock market crash
- Oil price shock
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
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
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
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.