Category: In The Markets

The Variant

In Disney’s newest show Loki, we are introduced to variants. Variants are people who deviate from their predetermined roles in the unfolding of history. When these so-called variants arise, they are promptly dispensed with by the Time Variance Authority (TVA). Loki is one such variant, and according to the TVA he’s a threat to the unfolding of the “sacred timeline.”

Investing in Hotel California

“You can check out any time you like, but you can never leave.” Hotel California, The Eagles

Last week it was reported that 45 people were killed while leaving a Jewish festival at Mount Meron. The annual religious festival attracts around 100,000 people. Its history dates to the Jewish resistance to Rome in the 1st century. Typical of the festival is dancing, singing, and bone fires. However, this year what began with joy and celebration quickly turned to tragedy. Although the massive crowds came a few at a time, most began leaving all at once.

The resulting crush – and the tragedy that accompanied it – was preventable. Inadequate facilities – specifically the size of the exits – were known to be a problem. But the pull of the festivities brought large numbers of people anyway. While incredibly tragic, the crush is a helpful illustration of what happens at the end of a stock market bubble. Irrational exuberance leads to the inevitable crush as everyone tries to leave the party at the same time. Today’s stock market is like investing in Hotel California. Checking out is easy – it’s leaving that’s difficult.

Beware the price you pay…or pay the price.

“The price you pay determines your future returns” is an old adage in financial literature. This is a simple way of saying that when you buy at high prices, your future returns are lower. Conversely, when you buy at low prices, your future returns are higher. Buy low, sell high. It all sounds right, but is it true? Or is this phrase just an antiquated relic of times past when money did not grow on government balance sheets, and asset prices didn’t always go up? That is a fair question, but it is not a simple one.

Jay Powell And The Chamber of Secrets

The question investors need to grapple with today is whether or not they believe in the government’s wizardry, or whether they accept the metaphysics of Parmenides and, well, the entire western tradition.

The Dukes of Moral Hazard

The absence of moral hazard is desirable because it encourages good behavior and fosters a healthy and prosperous society. Sadly, moral hazard has flooded our financial system as of late. And the responsibility for this perverse capital system lies at the feet of the dukes of moral hazard: The Federal Reserve.

Money for Nothin’ And Your Checks for Free

In the real world there are no free lunches. There is only your lunch, or someone else’s. This assumes you don’t count the Federal Reserve’s all-you-can-eat buffet, where you get your money for nothin’ and your checks for free.

The Coronavirus: A danger to fragile people… and fragile economies, too.

Fragile economies are incredibly vulnerable to external shocks. When an economy has very little savings, massive amounts of debt, and asset price bubbles everywhere, it doesn’t take much to plunge into a recession. The Coronavirus, as it turns out, isn’t just especially dangerous to fragile people. It’s especially dangerous to our fragile economy as well.

Market Update: Safety Nets are Essential

“These are the times that try men’s souls.” Thomas Paine, The Crisis.
The Coronavirus is an unpredictable event that has disrupted supply chains, shut down economies, and created fear and panic in the markets. Any time there are sudden declines of this magnitude, we can expect prices to rebound in some fashion. This is often referred to as a “dead cat bounce”, which is perhaps not the best visual at times like these. But it’s meant to convey the idea that even things that are destined to end badly can have moments of optimism.

The Death of Depth in the Death of the 60/40 Portfolio

We too live in a “pretending age”, where in-depth evaluations of important subjects are rare. Often, shallow analysis is passed off as game-changing discoveries instead of the fodder they are for title gazers. Such is the case with the recent obituaries published for the 60/40 portfolio. When it comes to investing, there is perhaps no issue more important than asset allocation. It is, in fact, the greatest determinant for portfolio returns over time. So with that in mind, let’s discuss the death of depth in the death of the 60/40 portfolio.

The Zombies Are Still Here

Most investors are simply unprepared for what is coming. They continue to believe their 60/40 portfolios will do fine. But in addition to the stock market being 50-60% above it’s fair value, the bond market is incredibly vulnerable. It’s time for investors to change their strategies. By the time you see the corporate zombies on the front lawn, it’ll be too late to move.