Don’t listen to me, listen to him…
Friday, 15 September 2017
By Kris Sayce
- Don’t buy into the fear
- It’s (Not) Dangerous Out There
- The Market’s Biggest Risk Isn’t What You Think (It’s This)
Barely a day passes without someone, somewhere, worrying about something.
But they’re not content with worrying themselves, they feel the need to worry others.
Before you sling a ‘kettle’ in the direction of our ‘pot’, we acknowledge that as contrarians…as purveyors of doom…as warners and worriers about the future…we see it as our duty to worry the bejeebers out of you…from time to time.
Just know, that we don’t do it out of malice or for the sake of it.
We actually do it because we care. We consider the advice and ruminations of the mainstream financial services industry, and we conclude it is perhaps the most awful thing we’ve ever seen.
If we had a terrible, terrible enemy, we wouldn’t wish mainstream financial advice upon them.
Our reason is simple. The mainstream financial services industry speaks with a unifying voice. The markets, the economy, the whole darn thing, is just wonderful from top-to-toe in their world.
The chief economist or chief strategist opines on the way of the world (mostly how great it all is), and the troops at the local branches and local advisories quote the economist and strategist as if he or she were all-knowing — a deity of financial knowledge.
We, however, take a different approach. We know (your editor especially) that we know very little about what will happen in the future. We have to admit to that, because despite our best efforts, we know very little about what has happened in the past.
If we can’t understand the past, really, what are our chances of understanding the future? But, we muddle on. We try. We look at the world…we see it…and to us, it just doesn’t make sense. The government manipulation and central bank meddling.
To us, it just all adds up to one big pile of mess. And that, we further concede, perhaps causes us to do or not do things that we shouldn’t or should. And we pass those thoughts and worries on to you. Perhaps causing you to do or not do things that you shouldn’t or should.
Of course, as you know, not all the folks here at Port Phillip Publishing are like that. Some of the folks — one in particular — would rather wish we kept our opinions to ourselves, and instead just allowed the market to ‘speak’.
After all, the market doesn’t care much for opinions. Certainly not your editor’s opinion. The person I speak of, the person who listens to the market, rather than your editor’s rants, is Phillip J Anderson. The most extraordinary economist and investor we have ever encountered.
In today’s Port Phillip Insider, we publish a short essay from Phil. It’s brilliant in its simplicity, and in its acknowledgement of the past, and how we should use the past to anticipate the future.
I hope you enjoy it. And next time you read your editor thumping the table about a stock market crash, we hope you’ll listen, just for our own ego. But we also hope you’ll consider the writings and the work of Phil Anderson.
We like having our ego stroked. Unfortunately for you, it won’t add much to your net wealth. But reading and understanding the work of Phillip J Anderson, may very well do so. Read on after we touch on the markets…
Overnight, the Dow Jones Industrial Average closed up 45.3 points, or 0.2%.
The S&P 500 fell 2.75 points, or 0.11%.
In Europe, the Euro Stoxx 50 index ended the day up 3.34 points, for a 0.09% rise. Meanwhile, the FTSE 100 fell 1.14%, and Germany’s DAX index fell 0.1%.
In Asian markets, Japan’s Nikkei 225 index is up 110.26 points, or 0.56%. China’s CSI 300 is up 0.22%.
In Australia, the S&P/ASX 200 is down 43.68 points, or 0.76%.
On the commodities markets, West Texas Intermediate crude oil is US$49.73 per barrel. Brent crude is US$55.24 per barrel.
Gold is trading for US$1,330.24 (AU$1,662.97) per troy ounce. Silver is US$17.77 (AU$22.22) per troy ounce.
Bitcoin is US$3,131.38.
The Aussie dollar is worth 79.98 US cents.
And now, over to Phil…
It’s (Not) Dangerous Out There
Phil Anderson, Editor, Time Trader
Nine out of 10 Australians agree that the world has become a more dangerous place. It’s the worrying trend that most of us can agree on.
If you keep reading and watching all the mainstream media stories — about the bombings, murders and wars raging around the world — you’d be forgiven for thinking the world has become a much more dangerous place.
But you’d be wrong.
The world is the safest it’s ever been — and improving.
The world is also the wealthiest it’s ever been. This trend is also improving around the world. Strongly.
There have been astounding improvements in every field of human activity.
Even in just the last four generations.
Despite what you hear on TV and read in the newspapers — and despite whatever else you might think — the greatest story of the 20th century is this: We witnessed the largest improvement in global living standards ever to have taken place in world history.
This is not an opinion. The statistics bear it out.
But back to the current bombings, murders and wars.
Between 1970 and 2015, more than 10,000 people were killed in over 18,000 attacks, according to the University of Maryland’s Global Terrorism Database.
The deadliest decades were in the 70s and 80s. This was the era of Germany’s Baader-Meinhof gang, Italy’s Red Brigades, Spain’s ETA and Britain’s Irish Republican Army.
The number of attacks right across Europe got to as high as 10 a week. But who remembers all that now?
10 a week!
We’re seeing a lot less acts of terror these days.
And the other difference is that, these days, the attacks are religiously inspired. In the 70s and 80s, the terrorists were Marxist or nationalist based.
A religious-based attack means those involved believe they are more likely to think they are God’s chosen people. This makes them far more likely to kill others — the non-believers, and those whose beliefs are different to their own.
So we are seeing more violence in the attacks.
But the number of attacks is down when compared to the past — way down.
And the world is nowhere near as violent as it was 100 years ago, either.
Between 1900 and 1914, six European heads of state were assassinated by lone gunmen. These individuals were all dedicated anarchists (themselves all part of a spontaneous but disorganised anarchist movement), fighting what they saw as privileged interests and governments totally unrepresentative of the people.
Which they probably were.
Bombs went off almost daily in squares, cafes and anywhere else where maximum damage could be inflicted.
Imagine if six heads of state were gunned down today!
It all culminated in the atrocious 1920 bombing on Wall Street.
Here’s a picture of the aftermath.
Source: The New Yorker
Click to enlarge
A horse-drawn wagon, loaded with 100 pounds of dynamite, exploded outside the offices of JPMorgan’s bank.
38 people were killed, 143 injured, and the shrapnel got as high as the 34th floor of nearby buildings.
The crime was never solved.
But it was the end of the attacks for that era. The following years saw the greatest ever bull market take over. Everyone got rich. Or thought they did. Everyone also thought it would go on forever.
Until the Great Depression arrived.
Watch for the 100-year repeat. It’s a very strong cycle.
100 years from 1920, in 2020, the world is likely to see the second half of the current real estate cycle really get underway.
History suggests that it, too, will see the greatest ever bull market take over…
…and then end in a somewhat similar fashion, though only within the context of the new times.
I’ll discuss a lot more about TIME in Time Trader. It’s an important concept that few truly understand.
In the meantime, stop letting all the mainstream media fill you with fear and emotion, and get on with the process of investing.
You’re safer in the world now than you’ve ever been.
Editor, Time Trader
The Market’s Biggest Risk Isn’t What You Think (It’s This)
Jason McIntosh, Editor, Quant Trader
These are worrying times…
Trouble appears to be brewing everywhere.
Concerns range from the economy to social issues…political tensions and the environment. Like a gathering storm, it’s enough to make people think about taking cover.
And I can understand why.
Have a look at these headlines…
‘China’s debt boom could lead to financial crisis, IMF warns’
The Telegraph, 15 August 2017
‘New era of terror threat: ASIO boss’
The Australian, 26 May 2017
‘World War 3 ALERT: North Korea tells USA prepare for imminent “uncontrollable nuclear war”’
Express, 22 August 2017
It reads like a trilogy of doom: terrorism, financial collapse, and nuclear war.
Things have never been this bad.
Or have they?
I read a fascinating piece from Bernd Struben recently. You may have seen it yourself. Bernd recounts another era of global fear in Port Phillip Insider on 10 August.
Here’s a short extract…
‘By the time I came into this world in 1968, the US and Japan were good friends. The Soviet Union was the new enemy we were supposed to hate and fear. And there was plenty to fear.
‘Growing up in Fairfax County, Virginia, we may as well have had a giant bullseye circling our home. We were less than 10 kilometres from the Pentagon. Perhaps 15 kilometres from the White House. Roughly 20 kilometres from the not-so-secret NSA headquarters location. And a mere five kilometres from the CIA’s Langley command centre.
‘If the bombs were going to fly, we would have front-row seats. Not that this stopped our schools from conducting survival drills. Drills which had us ducking beneath our desks, impatiently waiting for the teacher to give the all clear.
‘Of course, those desks — and the students beneath them — would have been reduced to cinders in an all-out nuclear exchange.’
Now, that is something to worry about.
Bernd’s experience helps bring some perspective. Yes, there’s plenty to worry about now. But this isn’t new. The world has a long history of dire possibilities.
All this got me thinking.
What can we learn from yesteryear’s worries?
This week’s update takes a look.
Lessons from history
Right, let’s get into it.
Have a read of this:
‘As Reserve Bank governor [XXXX] told the parliamentary economics committee last month, the main threat to the economy is the unsustainable growth in home lending and house prices…
‘The risk of this boom bursting is not the only risk we face. There is a chance the world economy will slump into recession, dragging us with it…
‘But the biggest risk is that a bust in home prices will bring down the economy…This is what worries the Reserve Bank, and, from the tone of his recent warnings, it also worries [the Treasurer].’
It’s a familiar, and worrying scenario. This could easily be a recent news report.
But it’s not. I’ll tell you more in a moment.
First, check this out…
This is a chart of the All Ordinaries from the time of the article. The box on the right indicates the date of the story. It had been a tough 12 months in the market.
Now, take a moment to think. How confident would you feel about the future?
Many people would say it was a time to be cautious. And who could blame them? When none other than the RBA boss and federal treasurer were warning of a potential slump.
Here’s what the market did next…
Click to enlarge
This is the All Ordinaries 12 months later.
The ‘worrying times’ weren’t so terrible after all. They were in fact the early stages of a boom. But if you let your concerns take over, you may have been on the sidelines.
The previous article was from The Age on the 8 July 2003. Peter Costello was treasurer, and Ian Macfarlane was at the helm of the RBA. You can read the whole story here.
The lesson is loud and clear: you should follow the market, not the concerns.
History is full of similar examples. I’ve see the same sort of thing happen many times.
You see, humans are often too pessimistic about the future. This is particularly true during the early to mid-stages of the market’s up cycle — people are constantly looking for prices to peak.
But, as you’ve seen, this can be an expensive mistake.
So, does a nuclear threat change anything?
Let’s look at that now.
Today’s concerns may seem bigger than those in 2003. An unpredictable dictator with weapons of mass destructions is about as worrying as it gets.
But do you know what?
We’ve been here before: the Cuban Missile Crisis in 1962, and the invasion of Iraq in 2003. Just like today, weapons of mass destruction were the source of tension.
I saw a fascinating chart during the week. It’s by broking firm Charles Schwab’s strategy team. They analysed the US market’s performance before and after these events.
Have a look at this…
Source: Riverfront Investment Group
Click to enlarge
In both instances, stocks sold off as the threat of war rose. But the losses were temporary. Stocks began to rally prior to a successful resolution of either crisis.
You see, lasting bear markets are mostly due to recessions or high inflation. Hostilities, on the other hand, typically don’t spark enduring declines.
According to Riverfront Investment Group, in the last century, only the Nazi invasion of France led to US stock losses over the course of a year. Even JFK’s assignation had only a brief impact on the market.
History tells us this: ‘Sitting it out’ is often not a winning strategy.
There’s no shortage of global concerns at present. Experts constantly remind us of the potential dangers. Many traders must wonder if they should be in stocks at all.
But here’s the thing: You don’t need to know how the future will unfold.
Successful trading is about having a robust process, not a crystal ball.
Yes, bad things could happen.
And yes, stocks could fall.
That’s why you should always have an exit strategy. It’s also why I believe spreading risk is so important. These strategies help you deal with whatever the future brings.
People ask me: what if the worst happens? I respond, what if it doesn’t?
The biggest risk in my view is to worry yourself out of the market.
Until next week,
Editor’s note: They say markets ‘climb a wall of worry’. And they do. You’ll hear all sorts of reasons why the cycle is about to turn lower. But much of the time it will push on to new highs.
Quant Trader doesn’t listen to opinions. It buys into strength, and aims to exit losing trades early. I believe this strategy beats a newsstand of headlines hands-down.
Right now, you can get instant access to Quant Trader with a 30-day money-back guarantee.
Try it. See if it makes sense to you. It could change the way you trade forever.
Quant Trader sources all graphs and images above, unless otherwise stated.