![]() This is a strategy adopted reasonably enough by almost everyone. (Keynes’ famous Chapter 12 would suggest that when confronted with a bubble, running off the cliff with company is the safest strategy for managers, whose business imperative, after all, is to be a permabull, where the real money can be made. These times of euphoria and panic are the most important for portfolios and the most dangerous for careers. ), this irrationality is excessive optimism, when you see meme stock squeezes and IPO frenzies, such as in the last 2 years and just now and then (about 3% of the time), investors panic and sell regardless of value, as they did at 666 on the S&P in 2009 and with many stocks trading at a 2.5 P/E in 1974. It is only the other 15% of the time that matters, when investors get carried away and become irrational. In these periods, investors (managers, clients, and individuals) are happy enough, but alas these periods do not truly matter. Most of the time (85% or thereabouts) markets behave quite normally. The Times that Really Matter for Investors Each cycle is different and unique – but every historical parallel suggests that the worst is yet to come. The current superbubble features an unprecedentedly dangerous mix of cross-asset overvaluation (with bonds, housing, and stocks all critically overpriced and now rapidly losing momentum), commodity shock, and Fed hawkishness. Longer term, a broad and permanent food and resource shortage is threatening, all made worse by accelerating climate damage. But now the fundamentals have also started to deteriorate enormously and surprisingly: between COVID in China, war in Europe, food and energy crises, record fiscal tightening, and more, the outlook is far grimmer than could have been foreseen in January. ![]() stock market remains very expensive and an increase in inflation like the one this year has always hurt multiples, although more slowly than normal this time. This summer’s rally has so far perfectly fit the pattern. This in all three previous cases recovered over half the market’s initial losses, luring unwary investors back just in time for the market to turn down again, only more viciously, and the economy to weaken. ![]() One of those features is the bear market rally after the initial derating stage of the decline but before the economy has clearly begun to deteriorate, as it always has when superbubbles burst. These superbubbles are events unlike any others: while there are only a few in history for investors to study, they have clear features in common. ![]() Only a few market events in an investor’s career really matter, and among the most important of all are superbubbles. ![]()
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