FYI: Poland, 1503: A young man named Nicolaus Copernicus returns home after years spent studying Catholicism and astrology among the priests and clerics of Italy. He is schooled in the ideas of Ptolemy, the Ancient Greek who had originally popularized the idea that the planets, sun and moon revolved around the earth. This idea had become accepted as fact and had been taught that way for over a thousand years.
Regards,
Ted
http://thereformedbroker.com/2016/07/12/the-laws-of-capitalism-are-being-rewritten/
Comments
It's beginning to look as if maybe both of us were "right" to some extent. It's certainly looking as if the tectonic faults of the entire capitalist financial system are poised for a major quake, well beyond the abilities of the large Central Banks to "manage".
At this point it's hard to see this ending well, for sure. We might have just postponed the big collapse for a few years, as Scott predicted. If it goes, it won't be just us, though. An ebb tide lowers all boats.
You noted: "those ultra-safe bonds have savers being pulled in both directions, because what they currently pay is ridiculously low"
Are your bond holdings attractive for you as a yield only or do you also factor the price appreciation, if applicable?
Only two samples here:
Pricing (yield) was fairly flat/quiet between June 22, 2015 and Feb. 16, 2016, relative to the last few months. During this period one could find the following total returns (yield + pricing).
LQD = flat
IEF = + 6.4%
From June 22, 2015 to date (July 14, 2016) the following total returns are:
LQD = +10.9%
IEF = +9.3%
LQD, IEF total return chart, June 22, 2015 - July 14, 2016
Now if yield (U.S. 10 year) stays relatively flat between 1.5% and 1.7% for 1 or two years, then yes, and investor likely would find a poor return for the safety. Knowing that the ongoing 30 year bull market in investment grade bonds has been named as dead. several times, during the past several years should always give one pause to considered the circumstances surrounding their investments in the global economy. A cause and effect situation with a measure of supply and demand to round off the mix.
Note: both LQD and IEF have had face slaps this week. Just keeping an eye on the trends.
Regards,
Catch
The author closes with the controversial conclusion that Modern Portfolio Theory is dead. I say controversial because of the very short term data that the author deploys to bolster his argument, and his very selective manner of assembling that data.
I say selective because he assumes that the elements of the model that he adopts to backstop his judgment are indeed the real causes for the market’s directional movement-without any doubt whatsoever. In the marketplace, doubt is always a factor; nothing is certain.
Remember that foresight does not equal hindsight. Yes, things change. But a single year measurement period is not an appropriate measurement yardstick. A much longer timescale is warranted for any such major model revision. Market volatility data tells us that intrayear stock price changes are dramatic and occur frequently.
The stock market delivers positive annual rewards about 70% of the time. Yet during every single one of those annual positive returns, the market was negative sometimes during that year. On average, the market experienced a minus 14% downdraft during these positive annual return periods. That’s one reason that John Bogle and a host of other senior market experts advise clients to “stay the course”. Here is a Link that shows this informative data set:
https://www.americanfunds.com/advisor/insights/2015-insights/welcome-back-volatility.html
The data for annual positive returns from the stock market are historically overwhelming and compelling. Here is a Link to a graph that does a terrific job at illustrating that point:
https://www.ftportfolios.com/Common/ContentFileLoader.aspx?ContentGUID=4ecfa978-d0bb-4924-92c8-628ff9bfe12d
The positive blue portions of the returns map dominate over the red colored sections. Seeing this presentation format makes it hard to resist being in equities.
The evidence that there is a fundamental sea change as presented in the referenced column is not overwhelming and not compelling by my standards. Stocks are still stocks with higher volatility and higher long haul return expectations. The current dislocation is most likely only temporary.
In this instance, the author of the referenced piece seems to be purposely wearing a tin-foil hat. It will collect him much attention, but it is highly improbable to be the definitive prescient observation that a major market shift is happening. The cited documentation is weak, parochial, and perhaps self-serving as an attention gatherer. At a minimum, the author is guilty of an overreach.
I hope you guys benefit from these two charts as much as I did and still do.
While I’m documenting some of my favorite charts, it just might be a good time to also provide a reference to John Bogle’s 10 investment rule set. Here is the Link:
https://www.thestar.com/business/personal_finance/2013/02/10/john_bogles_10_key_rules_of_investing.html
In this instance, Bogle favors the hedgehogs chances over those of the wily foxes.
From my perspective, no mass gravesites are required. It’s just equity volatility.
Best Wishes.