And so the frustration continues. Struggling to make headwinds, it will come ……
I found this chart a nice visual display of important information. As a data scientist I am intrigued to see how the world of data visualisation is growing. The levels of creativity are truly astounding. I am amazed how some people see all the information in the raw numbers while others see the information through visual expression. I am in the latter camp.
I am currently working on a consulting project for a life company in which we are developing a business intelligence model from their data, and as you would expect the best way of creating this intelligence is through the visual medium.
Oops I wrote so much to say so little ………
It has been some time since I updated my Shiller PE timing model. I am pleased to say that the model was able to participate in the recent uptick and has gone to cash as of the 26th June. As you can see the Sharpe Ratio (risk adjusted return) of this model far outperforms the buy and hold of the S&P500 .
The Shanghai Stock Exchange has been in free fall for the last 3 weeks with many calling the selloff irrational.
Most forget that the Chinese market was the hottest stock index in the world last year with metoriac rises over the last couple of years.
When a market is hot people start to wonder when should you sell. You wait and wait and get more anxious. Finally the market starts dropping and you say let me lock in my gains and so the process unfolds until most people are heading for the same exit door and the stampede is ugly.
This is the nature of the markets they go up slowly in value sometimes a little faster than usual and then get ahead of themselves. Sensible investors identify this and cash in and typically also land up getting ahead of themselves until they create more value opportunities and so the cycle of the markets continues. Usually 5 steps forward and 3 steps backwards. Sometime in individual cases like stocks it goes back all the way to zero.
If you want to play in the game called the markets you have to be prepared to take as good as you give.
With an increase in Shanghai Stock Exchange volatility and some exciting stuff happening on the macro front i.e. Greece, things are no longer as boring as they have been for a while. I will only make one comment regarding economic jawboning.
Everyone is talking about an increase in interest rates in the US later this year, even Janet Yellen. However the IMF warns strongly against doing so as the economic recovery is simply too fragile, with recent economic GDP & consumer numbers backing this up.
This is precisely what my point has been, despite market analysts repeatedly reporting the strength of the US economy and the global recovery for that matter. What is clearly evident with the Greece default rerun is that using Zero Interest Rates does nothing more than provide “life-support”, very rarely does the patient come off life-support and function normally. To achieve normalicy one needs a viable prognosis and then the appropriate medication. We have not witnessed this in terms of the global economic recovery. All we have seen is zero interest rate life support.
On a happier note, the Freestyle fund has taken poll position on an absolute return basis with much lower volatility. Still early days but things are looking like they may get quite exciting in the coming months.
Property is the national religion in Australia. Remember this is a country that has gone more than 20yrs without a recession. Remember Australians call this place the “Lucky Country”. Remember the Austrian business cycle? Well the central banks the world over would have us believe that the business cycle is no longer the force it used to be.
Today I am not going to rant on about the impotence of the central banks ability to create the stability they believe is vital to the economy. My thesis as an Austrian and as a Jungian is that the business cycle cannot be eliminated because it is natures way of dealing with excesses and inefficiencies, and slipping my Jungian hat on, the interfering with the natural order causes a displacement of the equilibrium of the psychic energy in the actors making up the economy. This displacement is what I call the “market complex”.
Zoning into my subject line. From my observation deck there is an almost hysterical narrative in the daily media relating to the booming residential property market. It is on everybody’s lips and I mean everyones. Property is flying and there is an ABSOLUTE belief that property can only go up which is creating this self-fulfilling feedback loop where people are too scared to miss out and therefore will do anything to purchase a property.
The thing is the economy is really not doing well, yes there are pockets of prosperity but with the drop in many of the core commodities making up our resource economy this has put a significant break on the economy (despite the weakening currency). Retail is doing it tough and wage growth is simply not keeping up with the cost of living. Unaffordability according to my index not the ones concocted by government mandated statisticians is growing so many of the factors required to support this dramatic rise in residential are simply not present. I see one factor doing all the heavy lifting and that is the artificially low interest rates the world over. The minute you manipulate the driving forces influencing the market you introduce the prospects of a Complex. As Jung describes the complex as a force that can erupt at any time with an intensity that is directly related to the psychic energy it constellates.
We arrived in Australia as a family in December 2007, and our extended family who had converted to the Australian property religion told us “you have to buy immediately”. I resisted and in April 2009 when the Australian property market was experiencing its first modest pullback in 30+ years I bought a great property in a good deal. The market stabilised and started climbing again and it was all happy days. My wife and I saw great potential in our large by Sydney North Bondi standards 5 bedroom house to apply for a rezoning and develop 2 smaller modern semi-detached homes on our property. It took us almost 2yrs from start to finish to get the zoning and archetictural designs to our desired standards, and then the market was soft. In all the time we had lived here it was the most negative people had been on property and the market was incredibly soft. The agents we were speaking to thought we could just get our money back despite an approved “DA” on the title deeds.
Certain things came about regarding the development specifically and my business life in general, then we were offered a great price in the current market by a developer and my wife and I decided this was a message and we should take the deal which included a nice profit on the 2009 purchase despite the costs incurred so we sold and became renters. There is no doubt that our decision was the responsible one at the time; however, I would be lying if I didn’t say that I don’t feel a certain amount of regret with the benefit of hindsight when considering how much money we left on the proverbial table. In fact the reason why I know I have developed a “complex” about this is because I can identify how my body and mind react when the subject of residential property comes up for discussion.
In conclusion, I am a student of economic history and while I may be wrong on my timing, what is a decade here or there, I believe I will be right in the fullness of time. As you can see in the chart above residential property markets enjoyed uninterrupted positive growth of more than 100 yrs in the USA; cycles like this have a way of imbedding neural pathways into ones brain and psyche that one cannot even contemplate something to the contrary, this in my opinion is what has happened to the Australian psyche.
I am not predicting a complete bust, as there are many positive demographic drivers that will help support the property market at an unknown equilibrium clearing rate. However I will continue to stick my neck out and say that the current levels are unsustainable.
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