2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

[verdo]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

i think gross wanted to take more risk than el erian was comfortable with. also gross' behavior was supposedly becoming more extreme and authoritarian, or so it was rumored.

re: global macro- i think global macro doesn't trade very often. it takes big positions based on big market moves or distortions. it hides out in cash a lot. the classic global macro trade was soros' bet that the british pound would be devalued and be removed from "the snake" of linked european currencies. if i'm not mistaken he made a billion dollars on that one trade.

mark faber used to talk about the once-in-a-decade trader. that trader bought gold when it became available in the early 1970's and then went to sleep until 1980. in 1980 he woke up long enough to sell his gold and buy japanese stocks. then he went back to sleep. in 1990 he woke up and sold his japanese stocks, putting the money into the american market, especially tech. in 2000 he woke up and sold his american stocks and went into gold and commodities. in 2010 he sold his commodities and did something or other- what exactly escapes me.

he didn't do a lot of trading, he just found big trends and jumped on board.

This is precisely what Icm63 and i were talking about earlier. Making those few 3 to 4 very important trades with the bulk of your investable capital over decades

Which begs the question what now?

To be honest, I don't feel like the commodity story is quite over yet. It's left to be seen if EJ's Ka-Poom theory actually comes to fruition, but if the "poom" does happen, commodities will pretty much become the only place to be. The issue at the moment however is that we've been in this sort of transition period from heavy central bank manipulation of markets to what is hopefully more tapering and letting things churn on their own. They don't want to stay in the game forever. During the transition period, we've seen pretty much all asset classes take a major hit at least once, except perhaps for these triple AAA government bonds. My personal belief is the commodities like gold are going through the same sort of pullback that it went through in 1974 - 76 where after rocketing up 500% and having a similar 2011-styled blow off top (partly fuelled i think by the fact that the gold ownership ban Americans had was lifted in '74), it dropped nearly 50% for close to 2 years. And it wasn't just gold. Sugar prices for example had rocketed up to 30 cents a pound by 1974, crashed under 10 cents a pound and rocketed back up near its old high by 1979/80. In fact, you saw all commodities take a hit around the same time period. The financial times pointed this out in 2009, but they were too early to call upon this example. I believe now is the time that we're actually living in that "mid super cycle break"

Third, the commodity super cycle is alive and well. Last year's pullback in prices was a typical mid super cycle break in the commodity price upswing. Both the recent two commodity super cycles experienced major pullbacks several years into their bull runs. Both times the pullbacks proved temporary and the upswing resumed. During the last commodity super cycle (1968 through to 1980) commodities fell by approx 25 per cent from mid 1974 through to the end of 1975. Equally in 1937, during the first half of the 1932 to 1951 super cycle, commodities also suffered a major correction, falling a cumulative 40 per cent before resuming their upwards trajectory. Both mid cycle corrections were similar in size to last year's weakness. Both were also associated with major global recessions.

I've always viewed what is going on today as a repeat of the 1970's but on a grander scale. Since the scale of the problems and manipulations are grander, the cycle break is longer also. History doesn't necessarily repeat, but it does tend to rhyme. So i think we're going through that same sort of 1970's pullback, but with 21st century characteristics, such as the unprecedented market manipulations of central banks which has distorted things quite a bit. So as for where to be in the short term, I say hold out in cash for the most part until you actually start to see the kind of deals that we're seeing in commodities like oil.

[Chris Coles]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Which begs the question what now? Commodities had their heyday from 2001 to 2011. Global housing appears to be in its last innings in a few remaining bubble cities. Gold went back to being a commodity and busted with the others starting in 2011. Bonds of all sorts were bid to the stratosphere until the first cracks in HY started to appear in 2014 and yield spreads widened.

EJ's view for a couple of years is that the only undervalued sector in the US economy is private, entrepreneurial companies (with a bias towards tech I believe).

I sense Hendry thinks the long term, low interest rate environment is going to favour entrepreneurs, business creation, business growth and equity markets in many places around the globe. He was clear in another interview a couple of years back that he was long China (through FTSE China 50 futures I think) but because of its volatility one could only have a small position in that equity market.

Edit added: Strikes me that if China manages a "soft landing" the pressure to move capital out will reverse and that will end the very upper echelons of the Pac Rim luxury housing bubble cities.

The answer is surely to create some aiming points. As an example, for some time now I have argued that Europe is short of 30 million well capitalised free enterprise jobs created by ~ 6 million new very small businesses. Again, if the possibility exists that US employment figures are not to be trusted, the US may also need the same treatment; in one case, admittedly on my own estimates, that requires an investment of 2.4 trillion Euro so the same applies for the US$ 2.4 trillion.

If those are true, then the aiming points require a completely new understanding of how to achieve them. Many keep drawing attention to similar sums of money entrenched within central bank accounts; and as I see it, unlocking them in that manner would make good sense going forward?

We are presently locked within moribund economies that require vast sums of new investment, not into another bubble, but into genuine new ways of unlocking the economy. So, why not try some new thinking?

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

i think gross wanted to take more risk than el erian was comfortable with. also gross' behavior was supposedly becoming more extreme and authoritarian, or so it was rumored.

re: global macro- i think global macro doesn't trade very often. it takes big positions based on big market moves or distortions. it hides out in cash a lot.

mark faber used to talk about the once-in-a-decade trader. that trader bought gold when it became available in the early 1970's and then went to sleep until 1980. in 1980 he woke up long enough to sell his gold and buy japanese stocks. then he went back to sleep. in 1990 he woke up and sold his japanese stocks, putting the money into the american market, especially tech. in 2000 he woke up and sold his american stocks and went into gold and commodities. in 2010 he sold his commodities and did something or other- what exactly escapes me.

he didn't do a lot of trading, he just found big trends and jumped on board.

Which begs the question what now? Commodities had their heyday from 2001 to 2011. Global housing appears to be in its last innings in a few remaining bubble cities. Gold went back to being a commodity and busted with the others starting in 2011. Bonds of all sorts were bid to the stratosphere until the first cracks in HY started to appear in 2014 and yield spreads widened.

EJ's view for a couple of years is that the only undervalued sector in the US economy is private, entrepreneurial companies (with a bias towards tech I believe).

I sense Hendry thinks the long term, low interest rate environment is going to favour entrepreneurs, business creation, business growth and equity markets in many places around the globe. He was clear in another interview a couple of years back that he was long China (through FTSE China 50 futures I think) but because of its volatility one could only have a small position in that equity market.

Edit added: Strikes me that if China manages a "soft landing" the pressure to move capital out will reverse and that will end the very upper echelons of the Pac Rim luxury housing bubble cities.

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

i think gross wanted to take more risk than el erian was comfortable with. also gross' behavior was supposedly becoming more extreme and authoritarian, or so it was rumored.

re: global macro- i think global macro doesn't trade very often. it takes big positions based on big market moves or distortions. it hides out in cash a lot. the classic global macro trade was soros' bet that the british pound would be devalued and be removed from "the snake" of linked european currencies. if i'm not mistaken he made a billion dollars on that one trade.

mark faber used to talk about the once-in-a-decade trader. that trader bought gold when it became available in the early 1970's and then went to sleep until 1980. in 1980 he woke up long enough to sell his gold and buy japanese stocks. then he went back to sleep. in 1990 he woke up and sold his japanese stocks, putting the money into the american market, especially tech. in 2000 he woke up and sold his american stocks and went into gold and commodities. in 2010 he sold his commodities and did something or other- what exactly escapes me.

he didn't do a lot of trading, he just found big trends and jumped on board.

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

+1

a thought from the hendry presentation: the commodity crash is concentrated in its negative effects on producers, and those victims are obviously suffering right now. the benefits of cheaper commodity inputs are more diffuse and will be slower to become obvious. as he points out china is a big commodity consumer, and so will be a beneficiary of its own lowered and more rational consumption levels. developed economies in general are commodity consumers, and thus will be beneficiaries. this is the basis for his bullishness.

what he doesn't address are the high debt levels and the need to liquidate a lot of the credit bubble before developed economies can really improve. japan resisted liquidating its zombie banks and got its lost decades. the question is whether the debt write offs will happen reasonably efficiently and reasonably quickly.

Unlike Soros, Felix Zulauf, Chanos and a few others, Hendry seems to think China can execute one of Dalio's "beautiful deleveragings" it would seem? He appears to be depending on the power of central banking to remove the tail risk of China's bubbles popping violently. Given the scope and scale of the capital misallocation undertaken in China put me down as sceptical.

btw, the first chart he showed is why bond managers like Bill Gross become such rock stars in that era. Once the "salad days in the bond market" were over (Gross' own words) its just a LOT more difficult to meet expectations set in an earlier time. Maybe that's why PIMCO went through such turmoil with El Erian and Gross finally parting ways in an acrimonious manner?

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Wasn't he bearish (and wrong) for about the last 7 years until last year?

No he has not been consistently wrong for 7 consecutive years. He's had some very good years interspersed with some modest down to flat years. I think that's why the AUM goes up and down so much - investors can't stomach the roller coaster of someone measuring himself using absolute returns (unlike most of the investment industry). You can look up his fund performance online.

I think you can think of Hendry as a global macro manager as somewhat similar to what's been going on here at iTulip. Global macro comes into its own when volatility is high and things are heading up into another bubble (like EJ's long tech postions in the late 1980s) and when the world is about to come to an end (2000, 2008)/ When volatility is low, which is what the Central Banks has achieved for several years (until just recently), I think macro analysis is pretty boring and doesn't contribute as much.

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

Thanks for the link. Always interesting as usual.

+1

a thought from the hendry presentation: the commodity crash is concentrated in its negative effects on producers, and those victims are obviously suffering right now. the benefits of cheaper commodity inputs are more diffuse and will be slower to become obvious. as he points out china is a big commodity consumer, and so will be a beneficiary of its own lowered and more rational consumption levels. developed economies in general are commodity consumers, and thus will be beneficiaries. this is the basis for his bullishness.

what he doesn't address are the high debt levels and the need to liquidate a lot of the credit bubble before developed economies can really improve. japan resisted liquidating its zombie banks and got its lost decades. the question is whether the debt write offs will happen reasonably efficiently and reasonably quickly.

[GRG55]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

For all you macro thinkers, Hugh Hendry 2016 outlook: https://www.youtube.com/watch?v=ZWz_Pln_uuI

Thanks for the link. Always interesting as usual.

[llanlad2]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

He's boolish

Wasn't he bearish (and wrong) for about the last 7 years until last year?

[anayder]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

He's boolish

[verdo]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

For all you macro thinkers, Hugh Hendry 2016 outlook: https://www.youtube.com/watch?v=ZWz_Pln_uuI

It's been a while since I've seen Hugh deliver a presentation like this. He seems to avoid doing too many public appearances, so I'll have to check this out later.

[anayder]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

For all you macro thinkers, Hugh Hendry 2016 outlook: https://www.youtube.com/watch?v=ZWz_Pln_uuI

[DSpencer]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

March, 2000- Sell stocks and buy 30 year treasuries.

2001- Take 15% of funds in Treasuries and buy gold around $250

December, 2007 Sell stocks, market will decline 40%.

If you had followed this you would probably have beaten virtually all money managers on a risk adjusted and non risk adjusted basis.

EJ also said to sell Silver at around $50 in April, 2011. Note gold also topped at the same time but EJ saidhe didn't want to sell and pay long term capital gains as he thinks cold could be a lot higher over the next decade or two.

2010- Buy multifamily real estate through the private fund he mentioned.

Now if you would have shorted stocks on the two major sell signals, or even shorted silver you would have likely done much better.

EJ is not a stock picker or an investment letter, but if one reads carefully what he says there were opportunities to not only preserve capital, but to also add to capital.

The above is what I remember from his work. Where ever I was incorrect please provide the places.

As ICM63 states: you only have to right a few times at major turning points to have the opportunity to really prosper. There is far more value than any monetary gain; it's understanding what is really going on in the global economy, which is priceless.

In one of the best itulip posts ever, EJ shows the hypothetical itulip portfolios performance against some benchmarks. His portfolio doesn't include selling in 2007, presumably because the portfolio didn't buy in the meantime.

http://www.itulip.com/forums/showthr...s-Eric-Janszen

So we know that this hypothetical portfolio performed very well over that time span. The problem is that, to the best of my knowledge, there isn't a new hypothetical portfolio and hasn't been in some time. So from 2010 on, there's no way of saying "itulip beat the market".

Calling the silver top was great and helped me personally, but I don't recall any itulip model including silver in the first place. In the same way, if EJ can foresee the next stock market crash then cost of membership will be a bargain to anyone with significant stock holdings. However, my recollection is that EJ has been negative on the stock market since the last crash. If there was still a hypothetical itulip portfolio, I assume it wouldn't own any stock at this point to sell. Well, it might own coal stocks as EJ mentioned that in the last update. That sure wouldn't have gone well so far.

Maybe going forward itulip is mostly about calling market tops. If done accurately that is extremely valuable. It just seems like it won't ever be possible to determine how a hypothetical portfolio would perform going forward, which is a shame because I thought that was a great source of differentiation between itulip and other information sources which make general forecasts and can never be back-tested.

[Polish_Silver]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

traditional pensions had similar "gotchas" so that the few who jumped all the hoops got a sweet deal. That was completely left out of the otherwise excellent "retirement gamble" on Frontline.

[jk]

Re: 2013 Review and 2014 Forecast - Part I: The Last Bubble - Eric Janszen

don't worry about "true tops" and "true bottoms." you can give up 20% of a move at each end and still capture 60% with much less risk and much less worry. e.g. re energy. i am researching how i want to buy energy again but i'm not ready to do so. perhaps this is the bottom, i don't care because there is no evidence that we've seen the bottom. when energy starts to recover for real there will be a substantial move over a substantial period of time. i'll wait to be convinced.



edit: e.g. i gather that ej was clever enough to buy gold at about 250. i wasn't that clever, so i bought in the 380-400 range, about 2 years [!] after the bottom. and, btw, when i did my heart was in my throat nonetheless.