Lately, on Wednesdays, I'm finding myself staring for longer than usual at a blank page on my computer screen, shuffling through thoughts on what I might offer up in a "weekly message" that is more than just some regurgitation of the regurgitations I've been offering up on a daily basis.
I mean, you already get that I see epic risk in today's equity market. Yet I see opportunity to exploit as well -- I must or we'd own no equities -- but not without some hedging to go with it. You get that my thesis has it that a weak US dollar is an absolute must if un-hedged stock market investors are to make it out of this mess alive.
Note how the dollar (blue line) began to rise (first red circle) just ahead of the worst leg of the 2008 (-57%) bear market, rising right through to the bottom, then descending as the market finally began climbing its way into the next bull market:
Even then, there's no guarantee. Note how the dollar peaked, then descended right along with the stock market during the last leg of the tech bubble bear (-50%) market (2000-2003):
And you get how I believe gold is uniquely attractive given current conditions.
Note how it bottomed just as the dollar was peaking during the tech bubble debacle:
And how relatively (the scaling doesn't visually capture gold's 20% decline during that dollar spike in October) well it held up during the '08 experience:
Oops! I think I just regurgitated a regurgitation, didn't I?
So, I actually began writing a little something earlier today for this week's message. The first paragraph I thought set the stage, and would set me in the mood, for something truly pithy, and different than the stuff I've been pounding you on of late. Well, alas, not today. After several minutes of typing a few words, then backspacing over them, I decided to let it sit -- other stuff to do. I'll circle back at the end of the day, I thought, and turn that intro into something special for the week.
Sigh.... no such luck...
But then again, I'm thinking that intro was good, maybe even good enough to stand alone as this week's main message. You tell me:
As clients and regular readers know, we go at markets from quite the number of angles. But here's the thing, whether it's all of the macro data we crunch and score, the latest interrelations of multiple asset classes, historical correlations, volatility measures across multiple asset classes, the volatility of those volatility measures, the shapes and trend lines formed by price movements on graphs, momentum, on and on, without exception what we're measuring in each and every instance is the actions, the reactions and the premeditations of over 7 billion human beings... Hmm...
Got ya thinking? It's got me thinking. Thinking nope, I can't quite just leave it there...
So allow me to insert some stuff from my library that sort of jibes with that pithy paragraph:
"As far back as 1641, René Descartes argued in his Meditations on First Philosophy that in order to know things about the material world that were absolutely true, he first needed to doubt everything, often despite what his senses were telling him. This doesn’t mean that we cannot believe anything we are told or shown, but that, according to Descartes, those material things he judges to be true ‘demand a mind wholly free of prejudices, and one which can be easily detached from the affairs of the senses’."
--Al-Khalili, Jim. The World According to Physics
"Finally, a speculative outbreak has a greater or less immunizing effect. The ensuing collapse automatically destroys the very mood speculation requires. It follows that an outbreak of speculation provides a reasonable assurance that another outbreak will not immediately occur. With time and the dimming of memory, the immunity wears off. A recurrence becomes possible. Nothing would have induced Americans to launch a speculative adventure in the stock market in 1935. By 1955 the chances are very much better."
--Galbraith, John Kenneth. The Great Crash 1929
"...central bankers seem to have enormous power—their extraordinary power to create high-powered money, set short-term interest rates, and strongly influence financial markets with everything they say—but ultimately they themselves have little latitude to act. Central banks become merely the agents of carry. Their seeming immense power is, in reality, mostly illusory."
--Lee, Tim. The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis
"The Weber-Fechner law was developed by nineteenth-century psychologists Ernst Weber and Gustav Fechner to explain how subjects react to different physical stimuli. In a series of experiments, Weber asked blindfolded men to hold weights. He would gradually add more weight to the weights the men were already holding, and the men were supposed to say when they felt an increase. It turned out that if a subject started out holding a small weight—just a few grams—he could tell when a few more grams were added. But if the subject started out with a larger weight, a few more grams wouldn’t be noticed. It turned out that the smallest noticeable change was proportional to the starting weight. In other words, the psychological effect of a change in stimulus isn’t determined by the absolute magnitude of the change, but rather by its change relative to the starting point."
--Weatherall, James Owen. The Physics of Wall Street: A
"At the end of the day, every big change is the result of the cumulative actions (or lack of action) of each and every one of us. We need to understand our present and what the future may hold for us."
--Rutherford, Albert. Learn To Think in Systems: Use System Archetypes to Understand, Manage, and Fix Complex Problems and Make Smarter Decisions
That's a good one to leave it on...
Thanks for reading!