A Different Analytical Approach

A Different Analytical Approach

I have read with great interest the arguments put forward here by Anatole that equities are in a “structural” bull market. Having listened closely to his presentation at Gavekal’s London seminar, I now understand where our main point of difference lies. Anatole argues that we are in a bull market that began in 2013 when US stocks broke above their long-established trading range and which continues to this day.  In a nutshell, he looks at the red line in the chart below and concludes that the consolidation which started in 2000 ended in 2013. Ever since, the market has been in a structural bull trend similar to those it saw between 1900 and 1929, and from the mid-1940's to 2000. This approach allowed Anatole to make a great call in 2013-14.

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The 1929 Parallel - John Kenneth Galbraith (Atlantic Magazine, January 1987)

The 1929 Parallel - John Kenneth Galbraith (Atlantic Magazine, January 1987)

In March of 1929 Paul M. Warburg, a founding parent of the Federal Reserve System and an immensely prestigious banker in his time, called attention to the current orgy, as he said, of "unrestrained speculation" in the stock market and added that were it not brought to an end, there would be a disastrous collapse. His warning was badly received. It was made clear that he did not appreciate the new era in economic well-being that the market was so admirably reflecting; he was said by one exceptionally articulate critic to be "sandbagging American prosperity." Less eloquent commentators voiced the thought that he was probably short in the market.

There was a decidedly more sympathetic response somewhat later that year to the still remembered observation of Professor Irving Fisher, of Yale, one of the most diversely innovative scholars of his time. Fisher said, "Stock prices have reached what looks like a permanently high plateau." Fisher was, in fact, long in the market and by some estimates lost between eight and ten million dollars in the almost immediately ensuing crash.

There is here a lesson about the larger constant as regards financial aberration and its consequences. There is a compelling vested interest in euphoria, even, or perhaps especially, when it verges, as in 1929, on insanity. Anyone who speaks or writes on current tendencies in financial markets should feel duly warned. There are, however, some controlling rules in these matters, which are ignored at no slight cost. Among those suffering most will be those who regard all current warnings with the greatest contempt.

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Lessons from the Mississippi Bubble - Edward Chancellor

Lessons from the Mississippi Bubble - Edward Chancellor

This year marks the 300th anniversary of the start of an economic project in France which posterity knows as the Mississippi Bubble. The brainchild of an expatriate Scot, John Law, this scheme has been hailed as the most ambitious economic experiment prior to the establishment of the Soviet Union in 1917. Like Lenin’s creation, the short-lived Mississippi Bubble burst in spectacular fashion. Central bankers around the world are currently embarked on a mission not altogether different from Law’s, making lessons revealed by his failure particularly relevant today.

Law was born in 1671, the son of an Edinburgh goldsmith. In adulthood, he became by turns a dandy, gambler, murderer, entrepreneur (“projector” in the parlance of his day), economist, central banker and finance minister. At the height of what he called his “System,” Law was the richest and most powerful man in Europe. His Mississippi Company incorporated all of France’s overseas trading companies – one of which claimed title to half the landmass of what is now the United States, along with monopolies for tax collection, tobacco, and coinage.

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A Trading Veteran's Market Perspective

A Trading Veteran's Market Perspective

We finally got the "required" breaks in Amazon (AMZN) and Netflix (NFLX), not to mention the Tesla (TSLA) fantasy. Also of note are Disney (DIS) and General Electric (GE) - key members of the equity cult. The big buy back announcement from GE, that got the idiots all fired up, fizzled (back below the pre-announcement level) and the straight up, mindless pursuit of "momentum" in DIS, got the "attention" of the robots when it broke - not a healthy sign when one of the key components of "The Dow" gets slapped hard (this gets the attention of all the soccer moms and bartenders who recently "discovered" the stock market.)

The hype surrounding the 200-day moving average (MA) is another ominous signal. The 200-day MA is a time tested support when in a bull market. There will be anywhere from two to as many as four or five VERY QUICK tests of that support. However, what all these "newbies" don't understand, is the fact that each "test" drains more and more firepower behind the bull move. 

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The Federal Reserve Asset Bubble Machine

The Federal Reserve Asset Bubble Machine

Janet Yellen's comment last week at the International Monetary Fund headquarters in Washington, D.C., that stock prices are “quite high” hardly captures the frothiness in U.S. financial markets. The Federal Reserve chair’s admission also stopped short of acknowledging the role of free money in inflating the price of stocks—as well as the price of bonds, houses and every other financial asset.

At Morgan Stanley Investment Management, we have analyzed data going back two centuries and found that until the past decade no major central bank had ever before set short-term interest rates at zero, even in periods of deflation.

To critics who warn that pumping trillions of dollars into the economy in a short period is bound to drive up inflation, today’s central bankers point to stagnant consumer prices and say, “Look, Ma, no inflation.” But this ignores the fact that when money is nominally free, strange things happen, and today record-low rates are fueling an unprecedented bout of inflation across asset prices.

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Stanley Druckenmiller at The Lost Tree Club

Stanley Druckenmiller at The Lost Tree Club

I thought I would start by spending a moment just reflecting on why I believe my track record was what it was, and maybe you can draw something from that. But the first thing I'd say very clearly, I'm no genius. I was not in the top 10% of my high school class. My SAT's were so mediocre I went to Bowdoin because it was the only good school that didn't require SAT's, and it turned out to be a very fortunate event for me.

But I'd list a number of reasons why I think I had the record I did because maybe you can draw on it in some of your own investing or also maybe in picking a money manager. Number one, I had an incredible passion, and still do, for the business. The thought that every event in the world affects some security price somewhere I just found incredibly intellectually challenging to find out what the next puzzle was and what was going to move what. And the fact that I could bet on that interaction, those who know me, I do like to bet. One of the great things of this business, I get to gamble for a living and channel it through the markets instead of illegal activity. That was just short of nirvana for me that I could constantly be making these bets, watch the market moving, and get my grades in the newspaper every day.

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2015 IAPF Investment Conference: Brian Delaney Presenting

2015 IAPF Investment Conference: Brian Delaney Presenting

I spoke at the Irish Association of Pension Funds (IAPF) annual investment conference at the Print Works, Dublin Castle on 26th March 2015 on the topic of Currency Management. Here is my presentation...

When interest rates hit 0% and central bank money printing has stretched stock market valuations, the effectiveness of monetary policy becomes limited and only enforceable through the currency. The chart on the lower left shows plunging 10-year government bond yields while the chart on the right shows the prospective 10-year total return for the S&P 500 based on a range of historically reliable valuation methodologies. We also see overlaid on the chart the actual subsequent 10-year total return for the S&P 500 (dark green line). The chart suggests that the total return for S&P 500 for the next 10 years will be approximately 0% per annum, down from approximately 8% per annum today.

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Psychological Wealth & The Return On Our Investments

Psychological Wealth & The Return On Our Investments

The following post is a contribution from Dr. Brett Steenbarger, Clinical Associate Professor of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in Syracuse, NY. Dr. Steenbarger works as a performance coach for hedge fund portfolio managers and traders in New York City.

"A little while ago, a very successful money manager told me of one of the core long positions in his portfolio. He commented in an offhand way that he hoped the trade moved against him in the near term, because he wanted to get larger in the position. Another trader I was working with at that time had the same position in his book for the same fundamental reasons. When the position did indeed sell off, the successful manager added to his holding; the other scrambled out of the trade. Over the subsequent weeks, the successful manager profited nicely from his idea. The other trader failed to reenter the position, bemoaning the fact that he was not making money and could not chase the trade now that it had moved higher.

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China's Rebalancing Effort: Will it Be Enough? - Henry McVey, KKR

China's Rebalancing Effort: Will it Be Enough? - Henry McVey, KKR

Henry McVey, Head of Global Macro and Asset Allocation at KKR, provides a fascinating insight into the structural shifts occurring in China across the economic, political and social spectra of the region. Please follow this link for a detailed analysis and review of the potential opportunities and inevitable challenges that face the discerning investor as KKR's McVey reports on some of the highlights of his recent visit to China.

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What's in a Bubble? - David Rosenberg, Gluskin Sheff

What's in a Bubble? - David Rosenberg, Gluskin Sheff

Of course, before you can address this file, you have to have a definition as to what is a bubble. Everyone has their own definition. Or as Alan Greenspan liked to say back in the day, you can only tell if something was in a bubble after the fact (nonsense). Well, we gave it a strict definition based on price only, and whether the asset class in question was at least one standard deviation away from its historical norm. Investor complacency is definitely in a bubble in terms of extreme low levels of volatility. Then again, this is a product of the Fed (and other central banks) applying massive doses of sedative to the marketplace. So the VIX which measures the price of downside protection in the stock market has a normalized value of -1.1 (values of standard deviation, above or below 1 is bubble like); and in the bond market, the comparable score for the MOVE index is -1.5. 

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IAPF 2014 Annual Investment Conference

IAPF 2014 Annual Investment Conference

As the majority of defined benefit pension schemes in Ireland today continue to work towards closing their respective funding deficits in the face of stringent regulations set out by the Pensions Authority's, we ask whether trustees are in danger of excessive prudence and being forced into making difficult investment decisions that could result in poor outcomes for members, not by choice but by compulsion.

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Market Insights from a Seasoned Professional

Market Insights from a Seasoned Professional

"I noticed your reference to a couple of well-connected analysts (Stack and Goepfert) who have been correctly positioned for the market's up trend over the past year or more. The fact that they are starting to get "twitchy" with a few  warning signs of overall market weakness setting in, suggests their opinion deserves some attention. However, that is not to suggest a bear market lies just around the corner. Before that happens, some signs of increased selling pressure, beneath the "cover" of manipulated "strength" in the big cap indices (DJIA, SPX, etc.) should show up. Short term, there persists some "overbought" profiles that could accompany further dips before year end.

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Investing With The Trend

Investing With The Trend

As traders/investors, our main objective is to be objective. Logic and intelligence are often the biggest obstacles to success, and emotions provide no benefit in this game. In trading, if you are struggling then you have to go back to the fundamentals that made you successful. Let’s start from the beginning. What makes an asset bullish or bearish?

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Bond Wars - Bill Gross, PIMCO

Bond Wars - Bill Gross, PIMCO

Adaptation is tantamount to survival in the physical world. So argued Darwin, at least, and I am not one to argue with most science and its interpretation of natural laws. Adaptation has been critical as well for the survival of countries during wartime, incidents of which I am drawn to like a bear to honey, especially when they concern WWI. Stick with me for a few paragraphs on this – the following is not likely to be boring and almost certainly should be instructive. 

In the first decade of the 20th century, British war colleges and their generals were philosophically trapped by the successful strategies of a prior era – an era before the invention of a functional machine gun. They felt that machine guns might dampen the spirit of their fighting forces. What counted was the horse and the sword. Britain’s cavalry training manual of 1907 in fact stated that “the rifle or machine gun, effective as it is, cannot replace the devastation produced by the speed of the horse, the magnetism of the charge, and the terror of cold steel.”

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World Gold Council 1Q2013 Update

Gold demand in 1Q2013 was 963 tonnes or $51 billion. Strong demand for gold jewellery, gold bars and coins was ​offset by significant net outflows in the major gold exchange traded funds (ETF's) as investors sold some of their bullion on the recent price decline. Even the most resilient of gold bulls are struggling to hang on during this difficult market correction. 

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In the Wilderness - Paul Singer, Elliott Management Corporation

In the Wilderness - Paul Singer, Elliott Management Corporation

[T]he financial system (including the institutions themselves, products traded, and risks taken) has "gotten away from" the Fed's ability to comprehend. The Fed is primarily responsible for that state of affairs, and it is out of its depth. Former Chairman Greenspan created -- and reveled in -- a cult of personality centered on himself, and in the process created a tremendous and growing moral hazard. By successive bailouts and purporting to understand (to a higher and higher level of expressed confidence) a quickly changing financial system of growing complexity and leverage, he cultivated an ever-increasing (but unjustified) faith in the Fed's apparent ability to fine-tune the American (and, by extension, the world's) economy.

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