Результат может быть драматическим. В августе 2007 г. произошло "количественное землетрясение" (quant quake), когда компьютеризированные операции кратковременно остановились; были подозрения, что один из менеджеров поспешно распродавал свои позиции после потерь на ипотечном рынке.
Authored by Jim Rickards via The Daily Reckoning blog, The key to bubble analysis is to look at what’s causing the bubble. If you get the hidden dynamics right, your ability to collect huge profits or avoid losses is greatly improved. Based on data going back to the 1929 crash, this current bubble looks like a particular kind that can produce large, sudden losses for investors. The market right now is especially susceptible to a sharp correction, or worse. Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place… My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University. CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation. The second feature is that it is backward-looking only. This eliminates the rosy scenario forward-looking earnings projections favored by Wall Street. The third feature is that that relevant data is available back to 1870, which allows for robust historical comparisons. The chart below shows the CAPE from 1870 to 2017. Two conclusions emerge immediately. The CAPE today is at the same level as in 1929 just before the crash that started the Great Depression. The second is that the CAPE is higher today than it was just before the Panic of 2008. Neither data point is definitive proof of a bubble. CAPE was much higher in 2000 when the dot.com bubble burst. Neither data point means that the market will crash tomorrow. But today’s CAPE ratio is 182% of the median ratio of the past 137-years. Given the mean-reverting nature of stock prices, the ratio is sending up storm warnings even if we cannot be sure exactly where and when the hurricane will come ashore. This chart shows the Shiller Cyclically Adjusted PE Ratio (CAPE) from 1880-2017. Over this 137-year period, the mean ratio is 16.75, media ratio is 16.12, low is 4.78 (Dec 1920) and high is 44.19 (Dec 1999). Right now the 29.45 ratio is above the level of the Panic of 2008, and about equal to the level of the market crash that started the Great Depression. With the likelihood of a bubble clear, we can now turn to bubble dynamics. The analysis begins with the fact that there are two distinct types of bubbles...Some bubbles are driven by narrative, and others by cheap credit. Narrative bubbles and credit bubbles burst for different reasons at different times. The difference is critical in knowing what to look for when you time bubbles, and for understanding who gets hurt when they burst. A narrative-driven bubble is based on a story, or new paradigm, that justifies abandoning traditional valuation metrics. The most famous case of a narrative bubble is the late 1960s, early 1970s “Nifty Fifty” list of fifty stocks that were considered high growth with nowhere to go but up. The Nifty Fifty were often referred to as “one decision” stocks because you would just buy them and never sell. No further thought was required. Of course, the Nifty Fifty crashed with the overall market in 1974 and remained in an eight-year bear market until a new bull market began in 1982. The dot.com bubble of the late 1990s is another famous example of a narrative bubble. Investors bid up stock prices without regard to earnings, PE ratios, profits, discounted cash flow or healthy balance sheets. All that mattered were “eyeballs,” “clicks,” and other superficial internet metrics. The dot.com bubble crashed and burned in 2000. The NASDAQ fell from over 5,000 to around 2,000, then took sixteen years to regain that lost ground before recently making new highs. Of course, many dot.com companies did not recover their bubble valuations because they went bankrupt, never to be heard from again. The credit-driven bubble has a different dynamic than a narrative-bubble. If professional investors and brokers can borrow money at 3%, invest in stocks earning 5%, and leverage 3-to-1, they can earn 6% returns on equity plus healthy capital gains that can boost the total return to 10% or higher. Even greater returns are possible using off-balance sheet derivatives. Credit bubbles don’t need a narrative or a good story. They just need easy money. A narrative bubble bursts when the story changes. It’s exactly like The Emperor’s New Clothes where loyal subjects go along with the pretense that the emperor is finely dressed until a little boy shouts out that the emperor is actually naked. Psychology and behavior change in an instant. When investors realized in 2000 that Pets.com was not the next Amazon but just a sock-puppet mascot with negative cash flow, the stock crashed 98% in 9 months from IPO to bankruptcy. The sock-puppet had no clothes. A credit bubble bursts when the credit dries up. The Fed won’t raise interest rates just to pop a bubble — they would rather clean up the mess afterwards that try to guess when a bubble exists in the first place. But the Fed will raise rates for other reasons, including the illusory Phillips Curve that assumes a tradeoff between low unemployment and high inflation, currency wars, inflation or to move away from the zero bound before the next recession. It doesn’t matter. Higher rates are a case of “taking away the punch bowl” and can cause a credit bubble to burst. The other leading cause of bursting credit bubbles is rising credit losses. Higher credit losses can emerge in junk bonds (1989), emerging markets (1998), or commercial real estate (2008). Credit crack-ups in one sector lead to tightening credit conditions in all sectors and lead in turn to recessions and stock market corrections. What type of bubble are we in now? What signs should investors look for to gauge when this bubble will burst? My starting hypothesis is that we are in a credit bubble, not a narrative bubble. There is no dominant story similar to the Nifty Fifty or dot.com days. Investors do look at traditional valuation metrics rather than invented substitutes contained in corporate press releases and Wall Street research. But even traditional valuation metrics can turn on a dime when the credit spigot is turned off. Milton Friedman famously said the monetary policy acts with a lag. The Fed has force-fed the economy easy money with zero rates from 2008 to 2015 and abnormally low rates ever since. Now the effects have emerged. On top of zero or low rates, the Fed printed almost $4 trillion of new money under its QE programs. Inflation has not appeared in consumer prices, but it has appeared in asset prices. Stocks, bonds, commodities and real estate are all levitating above an ocean of margin loans, student loans, auto loans, credit cards, mortgages, and their derivatives. Now the Fed is throwing the gears in reverse. They are taking away the punchbowl. The Fed has raised rates three times in the past sixteen months and is on track to raise them three more times in the next seven months. In addition, the Fed is preparing to do QE in reverse by reducing its balance sheet and contracting the base money supply. This is called quantitative tightening or QT, which I’ve discussed recently. Credit conditions are already starting to affect the real economy. Student loan losses are skyrocketing, which stands in the way of household formation and geographic mobility for recent graduates. Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch. A recession will follow soon. The stock market is going to correct in the face of rising credit losses and tightening credit conditions. No one knows exactly when it’ll happen, but the time to prepare is now. Once the market corrects, it’ll be too late to act.
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"Великая рецессия" 2007-2009 годов миновала, а крупнейшие центральные банки мира продолжают удерживать краткосрочные процентные ставки на уровне, близком к нулю.
Nobel Prize-winning economist Robert Shiller thinks investors should stay in the market.
Consumers are reluctant to spend because of new technologies that could eventually replace many or most of their jobsSince the “Great Recession” of 2007-09, the world’s major central banks have kept short-term interest rates at near-zero levels. In the United States, even after the Federal Reserve’s recent increases, short-term rates remain below 1%, and long-term interest rates on major government bonds are similarly low. Moreover, major central banks have supported markets at a record level by buying up huge amounts of debt and holding it.Why is all this economic life support necessary, and why for so long? Continue reading...
Во вторник утром индекс Dow опять оказался на расстоянии в 27 пунктов от отметки 21 000! Как кто-то может думать, что это не пузырь?! Лауреат Нобелевской премии по экономике Роберт Шиллер разработал лучшую метрику валюации, которую я когда-либо видел. Его циклически скорректированное отношение цены акций из индекса S&P 500 к прибыли компаний, которые стоят за этими акциями, известно, как P/E Шиллера или CAPE. И Шиллер согласен со мной: мы без сомнений находимся на территории пузыря! Тем не менее, Председатель Феда Джанет Йеллен и инвестор-легенда Уоррен Баффетт – а также куча других экспертов и инвесторов – продолжают думать иначе! Им следует обратить внимание на следующее… Коэффициент Шиллера рассчитыв...
Во вторник утром индекс Dow опять оказался на расстоянии в 27 пунктов от отметки 21 000! Как кто-то может думать, что это не пузырь?! Лауреат Нобелевской премии по экономике Роберт Шиллер разработал лучшую метрику валюации, которую я когда-либо видел. Его циклически…читать далее →
Robert Shiller: How Tales of ‘Flippers’ Led to a Housing Bubble: There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and...
Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com, “The individual investor should act consistently as an investor and not as a speculator.“ – Ben Graham. We are frequently told that valuation analysis is irrelevant because fundamentals do not signal turning points in markets. Scoffers of valuation analysis are correct, as there is no fundamental statistic or for that matter, technical or sentiment indicator that can provide certainty as to when a market trend will change direction. Despite being humbled by recent market gains and the difficulties associated with timing the market to call a precise top, we remain resolute about the merits of a conservative investment posture at this time. At some point, current equity market valuations will succumb to financial gravity and the upward trend of the last eight years will reverse. When that day arrives, it will not be because a valuation ratio hit a certain level or because the market formed a well-known technical pattern. It will simply be the day that selling pressure overcomes demand. In prior articles, we compared the current economic landscape to the early 1980’s. Let’s revisit that contrast to further quantify the risk and reward associated with the U.S. stock market during both time periods. As Graham so eloquently stated, speculating and investing are two vastly different endeavors, and we prefer the practice of investing. Risk-Return Tradeoff Investors contemplating a new investment or evaluating an existing holding are typically faced with two basic but essential questions: How much of my wealth am I willing to risk? What returns do I expect in exchange for that risk? When Ronald Reagan took office in 1981, investors needed to evaluate whether his fresh economic policies could spur sustainable economic growth. In the decade preceding his election, the economy was hampered by significant inflation, double-digit interest rates, and a steadily rising unemployment rate. The Dow Jones Industrial Average (DJIA), essentially flat over the prior decade, was resting at levels similar to those seen 17 years earlier in 1964. Valuations over this period were equally stagnant, with the Cyclically Adjusted Price to Earnings (CAPE) ratio, as an example, ranging between 7 and 9. Despite the bargain basement equity prices, few investors believed that market trends would reverse. Equity valuations had been low and falling for so many years to that point, the trend became a permanent state in many investors’ minds by way of linear extrapolation. Contrast that with today. As in early 1981, there is a new president in office with a non-typical background presenting non-conventional economic ideas to aid a struggling economy. Unlike Reagan, however, public support for Donald Trump is marginal. Trump was not elected by a majority, he lacks Reagan’s humility, optimism, good humor and diplomacy and his approval rating historically ranks among the worst of incoming presidents. Additionally, while Reagan’s and Trump’s economic policies may have similarities, there are stark differences between the economic landscapes that prevailed in the early 1980s and today. (Please read The Lowest Common Denominator for a full write up on what the current administration is up against.) Equity investors betting on Reagan in 1981 were investing in an environment where the probabilities of success were asymmetrically high. With Cyclically Adjusted Price-to-Earnings (CAPE) ratios below 10, investors could buy in to a stock market whose valuation on this basis had only been cheaper 8% of the time going back to 1885. Given the likelihood of success as inferred from valuations, investors did not need much help from Reagan’s policies. Current equity market valuations require investors to believe beyond all doubt that Trump’s policies can produce strong economic growth and overcome hefty economic and demographic headwinds. More bluntly, the risk-return profile of 1981 is the polar opposite to that of today. To highlight this stark difference, the following graph compares five-year average total returns and the maximum draw downs that have occurred over the last 60 years at associated CAPE readings. Data Courtesy: Robert Shiller -http://www.econ.yale.edu/~shiller/data.htm Based on the graph above, investors in the first years of Reagan’s presidency should have expected annual returns, including dividends, of nearly 20%, while simultaneously risking a maximum drawdown of less than 5%. Today, investors should expect returns over the next five years, including dividends, to be near zero. Worse, during the next five years the S&P 500 is likely to experience a drop of nearly 30%. That is quite a risk investors are shouldering for a return they can easily attain with a risk-free 5-year U.S. Treasury note. Fire Sale Beyond the obvious, there are a couple of problems with the current risk-return profile. In a best case scenario, it is likely an equity investor will earn a return that could be attained by putting cash under one’s mattress. Although it occurred an eternal nine years ago, the financial crisis of 2008, is still a faint memory for investors. If the market does indeed drop by 30%, will investors keep their cool and not sell? If they do sell, they will lock in a permanent loss. One of the demographic headwinds we have discussed in prior articles is the growing number of retirees that are heavily reliant on their retirement accounts to meet their living expenses. Will they be able to keep their collective heads under the duress of a major correction? What if prices do not rebound as quickly as they did in the post-financial crisis years? The hard truth of this scenario is that humans always panic when faced with severe market drawdowns. The back-testing of “what-if” scenarios for buy-and-hold analysis are irrelevant because investors do not HOLD – they sell, and usually at the worst time after abandoning all hope for a durable bounce. The anxiety that retirees will face in such a scenario, many of whom can barely maintain their standard of living on an optimistic outlook, will be paralyzing. Summary If someone were to offer you a unique investment opportunity forecast to pay 0% annual returns over the next five years, would you sign up? What if they added that, at some point over that period, the value of your investment may drop by 30%? High volatility, low return investments do not get serious attention among even the most foolish of investors, so we would venture to guess there would be very few takers. Interestingly, based upon the CAPE analysis above, the U.S. stock market is currently offering that very same probability of return and risk and buyers cannot seem to get enough. Given these dynamics, not only is investor behavior perplexing, it seems to us altogether incoherent which in our view provides further evidence bubble behavior is upon us. For the sake of illustration, the graph below provides three random scenarios showing how such an expected return and drawdown could play out over the next five years. None of these, nor the infinite myriad of other possible paths, appeal to us. In a sinister rhyme to that of the early 1980’s, equity market valuations have been rising so steadily for so many years now that the trend has become a permanent state in many investors’ minds. The “investors” identified in Ben Graham’s quote do not acquiesce to the crowd or bet on whims. Instead, they carefully assess an investment’s potential risk and expected return to make calculated decisions. The virtue of this time-honored practice of cost-benefit analysis does not reveal itself every day but avoiding the pitfalls, even if it means foregoing additional speculative gains, has a long and proven track-record of compounding wealth over time.
Authored by 720Global's Michael Lebowitz via RealInvestmentAdvice.com, “History has not dealt kindly with the aftermath of protracted periods of low risk premiums” – Alan Greenspan The ability to see beyond the observable and the probable is the most important and under-appreciated characteristic of successful investors. For example, visualize a single domino standing upright. With this limited perspective, one can establish what the domino is doing in the present and form expectations around what might happen if the domino falls. However, by expanding one’s viewpoint, you may discover the domino is just one in a long line of dominoes standing equidistant from each other. The potential chain of events caused by the first domino falling now offers a vastly different outcome. Many investors myopically focus on the trends of the day and fail to notice the line of dominoes, or what is technically known as multiple-order effects. Since the Great Financial Crisis of 2008, maintaining animal spirits has been a primary goal of the world’s central banks. The crisis proved a brutal reminder that, in this new era of significant leverage, a loss of investor confidence can result in violent reactions that ripple throughout the financial markets and the global economy. By employing extraordinary policies and optimistic narratives, the central banks have persuaded the public to believe that all is well. They have successfully focused the investor on one domino. As investors, we are negligent if we follow the Fed’s lead into this complacent stupor. By prodding economic growth with unproductive debt and reigniting asset bubbles, the central banks have simply done more of what created the spasms of 2008 in the first place. Despite the markets calm facade and historically low perception of risk, the vast chasm that lies between perceived risk and reality is troublesome. Implied Volatility Implied volatility is a well-followed measure of expected price change. The metric, derived from the prices of put and call options, can be thought of as the amount of risk that investors expect to occur between today and a specified expiration date. Bullish periods are most frequently categorized by low implied volatility, while bearish periods tend to have elevated levels of implied volatility. Chris Cole of Artemis Capital has a broader definition of volatility – “(volatility) is the difference in the world as we imagine it to be and the world that actually exists.” Think about his quote carefully before reading on. In the investment sphere, Cole’s statement can be boiled down to the contrast between the consensus mindset investors hold to explain the current state of economic activity, fundamentals, market valuations and implied risks versus the reality encapsulated by those metrics. While no one can quantify “the reality”, the wider one perceives the difference between implied volatility and reality, the greater the opportunity present in the market.Since the 2008 crisis, and especially over the last three years, implied volatility has been abnormally low more often than not. In other words, investors believe the risks of a significant downdraft in stock prices is relatively minimal. This by no mean indicates that the actual risks investors face have decreased per se, just that the financial gauges constructed on investor positioning claim that to be the case. The graph below plots implied volatility (VIX) for the S&P 500 since 1990. Data Courtesy: Bloomberg Currently implied volatility is at a level that has only been experienced 0.22% of the time since 1990 and is almost half of its longer term average. Some of the primary reasons for this abnormally low level of implied volatility are: Monetary Policy and the Federal Reserve (FED): The FED’s recent monetary policies, including a near zero percent Federal Funds rate, have resulted in increased financial leverage and increased demand for securities. This occurred as the Fed removed $3.5 billion of U.S. Treasury securities from the market through Quantitative Easing (QE), further affecting supply-demand curves. As a consequence, the prices of many fixed income securities have risen sharply and yields and yield spreads hover near all-time lows. It is worth mentioning that, at times when the stock market has dipped, the Fed has been vocal about their ability to take more aggressive action. As a result, investors believe the Fed will “not allow” the equity market to decline by much. The “buy the dip” strategy reflects this mindset. Share Buybacks: Since 2012, 94% of S&P 500 companies participated in buybacks while all U.S. corporations spent over $2 trillion in precious cash over that time period. Meanwhile, total U.S. corporate profits over the same time frame rose only $14 billion. Reinforcing the “buy-the-dip” mentality, corporations tend to increase their pace of repurchases during periods when the market pulls back. An additional benefit of share repurchases is the purely optical effect on valuation measures like price-to-earnings. Although nothing material about a company’s long-term growth prospects change (indeed, prospects are arguably hurt by imprudent use of cash), buybacks afford the cosmetic appearance of improved operating performance which triggers additional demand or eases investor concerns. Volatility Trading: Through VIX futures contracts and a multitude of long and short volatility ETF’s, the popularity of volatility as an asset class has increased dramatically in recent years. VIX traders are emboldened that volatility has risen for short periods of time but regresses toward or below its mean. This predictable behavior has made shorting volatility an attractive trade, especially during market drawdowns when VIX spikes higher. Again, such action strengthens the buy the dip reflex. Contributing to lower than average VIX levels is the upward sloping term structure of forward VIX futures contracts (known as contango). Trades which take advantage of this upward slope have made shorting volatility profitable even when the VIX is not elevated. An important dynamic in VIX trading is that as volatility falls, profit-seeking traders must increase the size of their positions to generate the same income as they did when the VIX was at a higher level. Doing so, however, clearly raises the potential risk of loss for these positions. Passive Mentality: Historically-low fixed income yields have tempted investors to take on more risk. In part, this so-called “chase for yield” has led to a herding mentality. Investors have been flocking to securities, industries and indices that exhibit strong momentum, not necessarily commensurate fundamentals. Also growing is the popularity of passive investment styles. As we discussed in Passive Negligence and Passive Negligence II, the overwhelming demand for passive index funds has led many investors to eschew appropriate security evaluation. As a result, investors have bid up prices of some stocks to valuations that are well above historical norms. Noted value investor Seth Klarman described it this way in his recent letter to clients: “One of the perverse effects of increased indexing and ETF activity is that it tends to ‘lock in’ today’s relative valuations between securities. Thus today’s high-multiple companies are likely to also be tomorrow’s, regardless of merit, with less capital in the hands of active managers to potentially correct any mispricing’s.” The factors listed above, coupled with cheerleading from the media, Wall Street and the Fed, have led to a behavioral state best labeled as “animal spirits.” The term, introduced by John Maynard Keynes, is a way to say that human emotions have resulted in greed. When animal spirits run rampant, confidence trumps fundamentals, historical valuations, and poor risk/reward profiles. Janet Yellen’s husband, George Akerlof, literally wrote the book on animal spirits. Along with fellow author Robert Shiller, he wrote Animal Spirits to document how important human psychology is in driving desired market and economic results. In Fed Up, by Danielle DiMartino Booth, the Dallas Fed insider stated the following: “and yet here was the Fed, with Yellen as its biggest cheerleader, once again trying to build an economic recovery on the back of frenetic animal spirits.” Our review of Danielle’s book can be found here (LINK). The four broad factors discussed above coupled with low but stable economic growth have temporarily sated investors’ desire for economic stability and, in turn, market confidence. While this may appear well and good, we must consider what lies underneath the cloak of stability. The Unseen Dominoes While low levels of implied volatility may comfort investors for the moment, it seems prudent to contemplate current factors that run counter to low levels of implied volatility: Debt Outstanding: The total amount of U.S. debt outstanding, including Federal, personal and corporate debt, is greater than $60 trillion and over three times U.S. GDP. More concerning, much of this debt is unproductive as it has not been employed towards productive investments which generate economic growth to service and retire the debt. Debt used solely for consumption, as has largely been the case, allows for the purchase of more goods and services today that otherwise would have been consumed in the future. This leaves a consumption void tomorrow, as demand is satisfied and marginal consumption is restricted by debt payments. “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about.” – Friedrich Hayek – Monetary Theory and the Trade Cycle Interest Rates: Interest rates have been on a 35-year path lower. This is partially the result of decades of demand-focused monetary policy designed to incentivize debt-fueled consumption. With interest rates at unprecedented low levels and a limited ability for many to continue borrowing, the marginal benefit of lower interest rates is minimal. Additionally, investors are being forced to take outsized risks due to paltry returns offered by most fixed income securities. Productivity: Productivity growth in the U.S. and most developed economies has slowed sharply from prior decades and in many cases has begun to decline. Without productivity growth, economic growth can only occur with increased debt and/or favorable demographics. Given poor demographics and record debt levels, relying on either is a highly questionable strategy. New York Times author and economist Paul Krugman said: “productivity isn’t everything, but in the long run, it’s almost everything.” Economic Trends: GDP growth in the U.S. has been in secular decline for over forty years. The rate of real economic growth is projected to be below 2% for the years ahead. This assumes the productivity, demographic, and debt landscape referenced above. Secular GDP per capita, a better measure of true output, is growing well below 1% annually and could decline in the years ahead. Trump, Brexit, and Nationalism: Donald Trump, BREXIT and a growing worldwide nationalist movement raises concerns that global trade may become compromised. The Great Depression was, in part, due to a reduction in global trade as a result of protectionist actions. See Hoover’s Folly for more information. China: The significant growth of China has played an outsized role in supporting global growth over the past fifteen years. The combination of cheap labor and a surge in debt is rapidly losing its effectiveness in China. Massive debt loads, rapidly declining productivity growth and competition is resulting in financial instability. Rising Social Instability: Donald Trump, Bernie Sanders, BREXIT and other recent events serve as clear signals that voters are demanding change. The financial effects of consumerism are finally forcing people to bear an unacceptable weight. Social instability is on the rise as can be attested to by the recent riots at Berkley, the post inauguration women’s march on Washington, and racially oriented riots in Baltimore and St. Louis. While these events have different themes, causes and flag bearers, they are indicative of inequality. VIX The prolonged monetary exertions of the Federal Reserve and global central banks have put investors into a complacent trance. Implied volatility appears tame but a regime shift, when it arrives, will test even the most seasoned managers. Volatility has not been mastered. The powerful forces that have suppressed it will turn, and the dormant but still present fundamental forces that few seem to consider will not fade away. The recognition of reality may occur slowly and provide watchful investors ample warning. However, the vast chasm that lies between reality and implied risk could make such a turn explosive and will certainly catch the unprepared off-guard. Summary Fixing the world’s economic and financial problems will be arduous and steps taken to date have done nothing to abrogate those issues. Durable solutions require time, discipline, sacrifice and a return to sound fiscal and monetary policy. Throughout the last 30 years, mounting economic problems have been consistently ignored. The overriding goal of economic policy makers has been to keep near-term economic growth on par with the seemingly arbitrary goals of the day. Economic policy has focused on immediate gratification and avoidance of pain at the expense of long-term economic health. This adolescent logic stimulates short-term growth as desired, but more importantly, it fosters boom-bust cycles and long term instability. Successful investors understand that optimism, momentum and hope, the first order movements, the emotions that currently fill the media and Twitter-sphere, are most responsible for driving prices on a day-to-day basis. There is no doubt that such animal spirits could easily send the market even higher. That said, investors would be well-advised to devote significant time toward considering the multiple order effects. It is those effects, the emblematic line of forgotten dominoes, which will ultimately drive prices. When the entirety of the current situation begins to more fully reveal itself, investors are likely to find that the difference between esoteric measures of implied volatility and their very tangible perception of reality could not be more different.
Authored by Lance Roberts via RealInvestmentAdvice.com, With April now behind us, investors now enter into the seasonally weak 6-month period of the year. It is also the annual “right of passage” as the debate over the old Wall Street axiom “Sell In May And Go Away,” rages. As I noted in last week’s Technical Update: “As we wrap up the month of April, we now begin the march into the seasonally weaker period of the year. As noted by Nautilus Research, the markets tend to get choppy over the next couple of months.” Just recently at the 2017 Economic & Investment Summit, Greg Morris made an interesting statement worth considering in today’s discussion: “If you believe something that you learned from your parents, or teachers, when you were young and have never questioned; how many things about investing and finance do you believe today but have never questioned?” It is from this point that I want to discuss the issue of “Sell In May.” Let’s start with a basic assumption. I am going to give you an opportunity to make an investment where 70% of the time you will win, but by the same token, 30% of the time you will lose. It’s a “no-brainer,” right? So, you invest and immediately lose. In fact, you lose the next two times, as well. Unfortunately, you just happened to get all three instances, out of ten, where you lost money. Does it make the investment any less attractive? No. But this is exactly what happens to investors all the time. They read about some investment strategy, or discipline, that historically has had a very high success rate, so, they jump in. Of course, as luck would have it, the next year market dynamics change somewhat and the strategy doesn’t work. Since, whatever strategy is obviously flawed, they jump to the next “hot” trend from last year. This “rotation” can be seen in the Callan Periodic Table Of Returns. Most investors tend to “buy” whatever was “hot” last year, but as you can see, it rarely stays that way for long. Wash. Rinse. Repeat. In most instances, the analysis of “Sell In May” typically uses too short of a timeframe looking back only to the beginning of the last secular “bull market” that begin in the early 1980’s. Even Nautilus’ analysis above, while excellent, only looks back at the last 20-years. In order to properly analyze the historical tendencies of the markets, particularly given the impact of Central Bank interventions in recent years, we need a more extensive data set. Therefore, using the monthly data provided by Dr. Robert Shiller, let’s take a look at the seasonally strong versus weak periods of the year going back to 1900. The table below, which provides the basis for the rest of this missive, is the monthly return data from 1900-present. Using the data above, let’s take a look at what we might expect for the month of May Historically, May is the 4th WORST performing month for stocks with an average return of just 0.26%. However, it is the 3rd worst performing month on a median return basis of just 0.49%. (Interesting note: As you will notice in the table above and chart below, average returns are heavily skewed by outlier events. For example, while October is considered the “worst month” with an average return of -0.32%, the median return is actually a positive 0.39% which makes it just the 2nd worst performing month of the year beating out February [the worst].) As noted, May represents the beginning of the “seasonally weak” period for stocks. As the markets roll into the early summer months, May and June tend to be some of weakest months of the year along with September. This is where the old adage of “Sell In May” is derived from. Of course, while not every summer period has been a dud, history does show that being invested during summer months is a “hit or miss” bet at best. Like October, May’s monthly average is skewed higher by 32.5% jump in 1933. However, in more recent years returns have been primarily contained, with only a couple of exceptions, within a +/- 5% return band as shown below. The chart below depicts the number of positive and negative returns for the market by month. With a ratio of 54 losing months to 62 positive ones, there is a 46% chance that May will yield a negative return. No Reason To Sell Just Yet Based on the historical evidence it would certainly seem prudent to “bail” on the markets, right? Maybe not. The problem with statistical analysis is that we are measuring the historical odds of an event occurring in the near future. Like playing a hand of poker, the odds of drawing to an inside straight are astronomically high against success. However, it doesn’t mean that it can’t happen. Currently, the study of current price action suggests that the markets will likely break out to new highs in the days ahead. Such action, should it occur, will continue to support the “bullish case” for equities for now. This is why, as I have reiterated in our weekly missive, that portfolio allocations should remain biased toward equities. To wit: “With the market on a short-term “buy signal,” deference should be given to the probability of a further market advance heading into May. With earnings season in full swing, there is a very likely probability that stocks can sustain their bullish bias for now.” And again in Return Of The Bull…For Now “Clearly, the bullish trend on both a daily and weekly basis remains intact. This keeps portfolio allocations on the long side for now.” However, the “risk” to investors is not a continued rise in the markets, but the risk of a sharp decline. As discussed in “The Math Of Loss:” The reason that portfolio risk management is so crucial is that it is not “missing the 10-best days” that is important, it is “missing the 10-worst days.” The chart below, from Greg Morris’ recent presentation, shows the comparison of $100 invested in the S&P 500 Index (log scale) and the return when adjusted for missing the 10 best and worst days. Clearly, avoiding major drawdowns in the market is key to long-term investment success. If I am not spending the bulk of my time making up previous losses in my portfolio, I spend more time compounding my invested dollars towards my long term goals. As Greg notes in his presentation, the markets are only making new highs roughly 4% of the time. Spending a bulk of bull market cycle making up previous losses is hardly a successful investment strategy one can utilize. Since our job, as investors, is to compound our investment over time, the REAL RISK is NOT MISSING UPSIDE in the markets, but CAPTURING DECLINES. The destruction of investment capital is far more damaging to long-term investment goals than simply missing a potential for rather limited gains at this very late juncture of the investment market cycle. The chart below shows the gain of $10,000 invested since 1957 in the S&P 500 index during the seasonally strong period (November through April) as opposed to the seasonally weak period (May through October). It is quite clear that there is little advantage to be gained by being aggressively allocated during the summer months. However, in reality, there are few individuals that can maintain a strict discipline of only investing during seasonally strong periods consistently. Also, time frames of when you start and when you need your capital for retirement make HUGE differences in actual performance. That is why, for investors, while the data is certainly interesting, it yields little. For investors, market returns cannot be anticipated with any given degree of certainty from one day to the next. No one has that ability. What we do know, is that eventually, prices will take a turn for the worse and history shows that there will be little warning, fanfare or acknowledgment that something has changed. As the trend reverses, it will initially be met with denial, followed by hope, and ultimately acknowledgment, but only well after the fact. As shown in the chart below, we are currently on intermediate-term sell signal and overbought with a secondary sell signal approaching. Both are occurring from very high levels which suggests the current rally should likely be used for portfolio repositioning and rebalancing. However, such a statement does NOT mean “cashing out” of the market as the bull market trend remains intact. Maintain, appropriate portfolio “risk” exposure for now, but cash raised from rebalancing should remain on the sidelines until a better risk/reward opportunity presents itself. With our portfolios invested at the current time, it makes little sense to focus on what could go right. You can readily find that case in the mainstream media which is biased by its needs for advertisers and ratings. However, by understanding the impact to portfolios when something goes “wrong” is inherently more important. If the market rises, terrific. It is when markets decline that we truly understand the “risk” that we take. A missed opportunity is easily replaced. However, a willful disregard of “risk” will inherently lead to the destruction of the two most precious and finite assets that all investors possess – capital and time. Just something to consider when the media tells you to ignore history and suggests “this time may be different.” That is usually just about the time when it isn’t.
Authored by Samuel Rines via AvalonAdvisors.com, This note takes a brief look into "narrative economics" and the link to central banks. In the wake of the financial crisis, central banks have stepped up their communications, whether in the form of speeches, press conferences, or the like. While not a quantitative style of understanding economics, it may prove a useful tool to understanding broad shifts in the economy. Robert Shiller, in a discussion paper earlier this year, laid out the argument for economists paying closer attention to the "narratives" surrounding economics. To Shiller, popular narratives drive more of the fundamental economic outcomes than economists are typically willing to admit. For example (one provided by Shiller), the 1921 recession following the end of World War I was, in part, driven by narrative. In contrast to the typical explanation of why it occurred (a central banker went on a long vacation), there are more fundamental reasons for the downturn, including a 50% increase in the price of oil (with wide-spread fear that oil production would peak in a few years) and-probably the most important-deflation expectations. Because consumers believed that prices would fall, they held back from making purchases. This was the era of the "profiteer", the word used to describe price gouging. Thrift became a virtue, and there were calls to avoid buying anything other than the essentials. Consumer spending plummetted, leading Shiller to describe the recession as a "consumer boycott" lead by narrative, not by a traditional business cycle. While the example above is buried deep in history, there is applicability to the present. Specifically, the rise in central bank communications. There have never been more speeches given by representatives of central banks than today. In a recent speech given by the Chief Economist of the Bank of England Andrew Haldane, he calls for less complex and more accessible communication of monetary policy. Ostensibly, this is to increase transparency and trust with the public and describe their actions and intentions to markets. Being clear and transparent about the goals and sought after outcomes is a legitimate strategy being pursued by central banks around the world, the "forward guidance" policy tool. That is meant to build trust and utilize that trust to instruct outcomes. In some ways, build and maintain a narrative of economic conditions. This is where it becomes interesting for modern central bankers. First, it is not quite that simple to construct a narrative. Note that the accessibility of monetary policy is low. The primary piece of material used by the Fed to communicate its strategy, the FOMC minutes, has an exceedingly low accessibility. This makes the communication outside of it far more important to the broader public and the maintenance of a given narrative. Second, while the Fed (or other central banks) may wish to control the economic narrative, it may not be capable of doing so. Narratives, as pointed out by Shiller, have a life of their own. What does this have to do with anything? One of the critical elements embedded within both the "narrative economics" theory and "forward guidance" is that the ability to avoid a repeat of a 1921 style, narrative driven retreat. It also shines a light on the need to carefully deconstruct popular narratives for their potential economic consequences. Further, it points to the potential consequences of shifts in the efficacy of forward guidance from central banks.
Authored by Anthony Saunders via Confounded Interest blog, Supreme Court Justice Potter Steward said in 1964 in the Jacobellis v. Ohio case, “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [hard-core pornography]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.” Asset bubbles too are difficult to define, but I know it when I see it. Take Robert Shiller’s P/E Ratio measure for stocks. There was a Roaring ’20s bubble which burst in 1929 (Black Tuesday), there was the infamous Dot.com bubble. On March 10, 2000, the NASDAQ Composite peaked at 5,132.52, but fell 78% in the following 30 months. Now we are seemingly in yet another stock market bubble and almost at the P/E Ratio level of the Roaring ’20s bubble (but not near the dizzying heights of the Dot.com bubble … yet). Stocks do seem awfully “frothy.” But what about home prices? The Case-Shiller 20 composite home price index has grown 43.6% since February 2012. While home prices are not growing as fast as they did during the home price bubble of the last decade, they are going at a rate that is twice as fast as earnings (wage) growth. These certainly look like asset bubbles. If it looks like a bubble and acts like a bubble, it probably is a bubble. “Shhh. Don’t say the word “bubble!”
Мировой фондовый рынок потерял в III квартале 2015 г. $11 трлн. Падение во всех крупных мировых экономиках сильно ударило по "бумажному богатству", и это был худший квартал для фондового рынка с 2011 г.
«Сейчас очень опасное время», - отметил в интервью CNBC нобелевский лауреат Роберт Шиллер. – «Типичное соотношение P/E (прим. ProFinance.ru: цена акции/доход на акцию), на которое обычно смотрит большинство инвесторов, на самом деле вводит в заблуждение. В то же время соотношение CAPE (Cyclically Adjusted Price-Earnings, разработанное господином Шиллером) указывает на «спра читать далее…
Не могу уже вспомнить, когда мне тут объясняли, почему не надо было ждать роста цен на недвижимость в Германии...Как бы то ни было, Бундесбанк уже разглядел возможные пузыри на рынке недвижимости в крупных городах страны :). Логика прежних рассуждений о недвижимости в Германии была простой. Валюта в Германии казалась недооцененной из-за большущего профицита по счету текущих операций, поэтому цены должны были расти. Процентные ставки ЕЦБ были слишком низкими для Германии, что обязано было стимулировать рост цен на недвижимость. Понимающие это инвесторы должны были ускорить рост цен... Сегодня трудно найти читающего человека, который еще не слышал о свежеиспеченном лауреате Нобелевской премии Роберте Шиллере. Многие сразу же нарисуют его знаменитую картинку американского пузыря на рынке жилья. Но еще больше вокруг уверенных в том, что они видят пузырь на рынке недвижимости, будь то в Австралии, Канаде, Великобритании, Китае, России...Нельзя за такое осуждать. Раз уж жилье доминирует наше и их богатство, то очень хочется знать, пора ли купить квартирку или же лучше вовремя соскочить с обреченного поезда. Вдобавок к мыслям о Москве, Лондоне, Париже, Берлине, Таллине, Риге, Юрмале и Малаге, не лишне еще раз вспомнить о Гонконге. Ведь это Гонконг был правильной подсказкой к пониманию кризиса в Латвии и еврозоне. На рисунке из мартовского доклада цб Гонконга о финансовой стабильности показаны цены на жилье. Виден пузырь 1997 года, падение цен к 2004 году, в течение 6 лет, как заказывали Рейнхарт и Рогофф, и последующий волшебный взлет к сегодняшнему счастью (или горю?). После лопнувшего пузыря в 1997 году правители Гонконга уже прекрасно понимали, чем рискуют, как понимают сейчас специалисты Бундесбанка, насмотревшись на страдания Ирландии и Испании. Поэтому они внимательно следили за ростом цен на недвижимость и изо всех сил старались защитить экономику от будущих потрясений. О перспективах Гонконга в период "необычной" политики ФРС давно уже записывал здесь и здесь. Там же сохранил параграф Позена о трудностях определения пузырей, не говоря уже об их предотвращении оружием денежно-кредитной политики. Со времени тех записей, несмотря на 6 раундов (!) затягивания гаек в Гонконге и настойчивые публичные предупреждения цб, цены на жилье продолжали расти...Уже много лет не стихают споры о пузыре на рынке недвижимости Гонконга.
Колонка опубликована в журнале "Профиль" от 20 октября 2013 года (N833) Присуждение Нобелевской премии 2013 года по экономике еще раз подтвердило, что современная экономическая теория — это не наука и с научными критериями подходить к ней глупо В этом году решение о присуждении Нобелевской премии в области экономики выглядело донельзя скандальным. Два из трех лауреатов — Юджин Фама и Роберт Шиллер — не только радикально расходятся в своих концепциях по одному и тому же вопросу, но еще и крайне неодобрительно отзываются друг о друге. Кстати, последнюю из известных мне колкостей в адрес своего оппонента Шиллер опубликовал совсем недавно, в конце июля этого года. Ситуация, конечно, абсурдная. Один (Фама) говорит, что финансовых пузырей нет и быть не может, потому что никто не знает, что это такое. Другой (Шиллер) утверждает, что пузыри возможны и он знает, что они собой представляют. Он же предсказал кризис 2007—2008 годов. Фама же уверяет, что такого рода предсказания ничего не стоят, поскольку раз в сто лет и палка стреляет, и если постоянно одно событие предсказывать, то рано или поздно повезет. Третий лауреат, Ларс Хансен, теорией не занимается и своей концепции не имеет. Он разрабатывает методы количественного анализа явлений финансового рынка. И полученные им результаты опровергают теоретические построения обоих его коллег. Впрочем, чтобы опровергнуть разработанную Фамой концепцию эффективных рынков, никаких сложных расчетов и не требуется. События 2007—2008 годов наглядно показали ее ценность. Любопытно, что Фама был одним из претендентов на Нобелевскую премию еще в 2009 году, но тогда ему ее постеснялись дать. Как будто с тех пор что-то изменилось! Один из наших отечественных либералов, защищая решение Нобелевского комитета, заявил, что «на самом деле в гипотезе эффективных рынков нет ничего такого, что можно опровергнуть эмпирически». Ну да, и в гипотезе всемирного заговора тоже нет ничего такого, что можно опровергнуть эмпирически. Невозможность эмпирического опровержения — это, согласно общепринятому критерию Карла Поппера, как раз явный признак ненаучности теории. Любой человек, претендующий на то, чтобы называться ученым, кто бы он ни был, должен это понимать. Но ни тем, кто вручает премию, ни нашим либералам Поппер не указ, хоть именно он и разработал любезную сердцу и тех, и других концепцию открытого общества. Так какую мысль хотели донести до нас таким экстравагантным способом? Еще раз подтвердилось то, о чем многие догадывались, но не решались говорить вслух. То, что называется современной экономической теорией, — это вовсе не наука, и с научными критериями подходить к ней глупо. Это религия, организованная как бюрократическая структура. В таких структурах вознаграждается не реальный результат, а правильное поведение. Что сегодня является правильным и одобряемым поведением? Прежде всего это доходящая до абсурда верность букве и духу первоисточников религии. Это качество в полной мере присуще Юджину Фаме. Он из трех лауреатов самый титулованный, обладатель множества других премий. Его теория эффективных рынков — это теория о божественной сущности финансовых рынков, то есть теория ни о чем. Другой нобелевский лауреат, Пол Кругман, в свое время иронизировал по этому поводу, что рынки правильно оценивают, что пол-литра кетчупа должны стоить ровно в два раза дешевле одного литра, но ничего не могут сказать о том, почему и литр, и пол-литра стоят столько, сколько они стоят. Присуждение премии Роберту Шиллеру сигнализирует, что в рамках религиозной доктрины допустима некоторая доза безобидной и не сильно противоречащей догматам ереси. После кризиса такой допустимой ересью были признаны исследования в области так называемой поведенческой экономики. Здесь идея заключается в том, что сам рынок устроен идеально, но сомнению подвергается способность простых людей правильно пользоваться ниспосланным им инструментом. В тех сложных условиях, в которые попала ортодоксальная экономическая наука, когда противоречия между ее утверждениями и реальным положением дел бросаются в глаза всем, хорошим поведением считается «просто возделывать свой сад» и стараться не задумываться о высоких материях. Упорный труд есть лучшее средство справиться с обуревающими человека сомнениями. Этот образец поведения демонстрирует Ларс Хансен — и поделом награда. В общем, последнее решение о присуждении Нобелевской премии по экономике показало, что она не имеет никакого отношения к поиску истины, а есть лишь способ контроля и управления научным сообществом. http://www.profile.ru/article/ekonomika-kak-religiya-77602. От ред. so-l.ru - в смысле религиозности науки показательны слова самого Шиллера в которых он это прямо и признает, см. интервью: