Time to Take a (Measured) Risk?
Astute investors know that buying when others are fearful can be a good strategy. Despite remarkably low market volatility, investors continue to avoid risk. This month, we examine previous periods of risk and investor behavior, when investors discarded normal valuation measures, threw caution to the wind, and suffered the consequences.
Random Walk Part 1 – A Random Walk down a Dead-end Street
This is the first of a four-part empirical research study into the fallacy of the “random walk” view on investment reward and risk.
Eyes Wide Shut
At the October 2002 market low, the S&P 500 stood -49.2% below its March 2000 peak (-48.0% including dividend income), with the Nasdaq 100 having lost more than -82.8% from its high, on the basis of both price and total return. The loss wiped out the entire total return of the S&P 500, in excess of Treasury bills, all the way back to May 1996.
The Parable Of The Broken Window
The Blockchain Could Potentially Be as Disruptive as Amazon Was in the 1990s
With its ability to validate all transactions in an immutable electronic ledger, the blockchain has the potential to be as disruptive as Amazon was in the late 1990s. When the company went public in 1997, there were serious doubts whether people would willingly give up their credit card information just to buy a book. Since then, Amazon stock is up 8,000 percent, and founder Jeff Bezos briefly overtook Bill Gates in July to become the world’s wealthiest person.
Pension Storm Warning
Elected officials at all levels have promised workers they will receive pension benefits without taking the hard steps necessary to deliver on those promises. This situation will end badly and hurt many people. Unfortunately, massive snafus like this rarely hurt the politicians who made those overly optimistic promises, often years ago.
Opportunities in U.S. Commercial Real Estate Debt Investing
Unmet borrower needs continue to grow in the U.S. commercial real estate lending market.
The Future of the Global Economy
This letter will be the first of a series in which I outline my vision for the next 5–10–15–20 years of global economics. I understand that there is a substantial amount of hubris involved in such an undertaking, so I will approach the topic gingerly.
Gold and Bitcoin Surge on North Korea Fears
China put a halt to new ICOs and crypto transactions. In response, ethereum tumbled as much as 15.8 percent on Monday, or $55 a unit. Bitcoin lost $394 a unit.
Positive Developments for Hedge Funds
Sentiment toward hedge funds has been negative in recent years, in large part because industry returns were poor in 2015 and the first half of 2016. Also, CalPERS and other institutions left the asset class, amid a wider debate about active management in general, and hedge funds’ fees, in particular.
Market Valuation, Inflation and Treasury Yields: Clues from the Past
Our monthly market valuation updates have long had the same conclusion: US stock indexes are significantly overvalued, which suggests cautious expectations on investment returns. In a "normal" market environment -- one with conventional business cycles, Federal Reserve policy, interest rates and inflation -- current valuation levels would be a serious concern.
But these are different times.
On Travels and Travails
As the focus of my work is emerging markets, I don’t spend a lot of time in the United States anymore, even though I grew up there. But like many people, I took a bit of time off this summer to enjoy a visit with family. We traveled to Mackinac Island in the state of Michigan, situated in Lake Huron.
Crestmont Market Valuation Update
Quick take: Based on the August S&P 500 average of daily closes, the Crestmont P/E is 112% above its arithmetic mean and at the 99th percentile of this fourteen-plus-decade monthly metric.
Instead of delving deep into one subject, I’ll give you my quick thoughts on several different items. They aren’t connected to each other, nor do they build up to any sort of conclusion. They’re just what is on my mind as we wrap up summer 2017.
Two Sides of the Same Coin
Rarely have equity bulls and bears disagreed more than they do at present. We look at both the bull case and the bear case, and then we introduce a longer-term structural angle, which is largely ignored by both bulls and bears. This third side of the coin is based on the fact that inflation is structurally low, and that central banks may be committing a serious policy error by targeting 2% inflation, when it is almost impossible to drive inflation to those levels. Enjoy the read!