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Ep. 446: Abundant Anarchy with Michael Covel on Trend Following Radio

Abundant Anarchy with Michael Covel on Trend Following Radio
Abundant Anarchy with Michael Covel on Trend Following Radio

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Michael Covel talks political correctness. Americans take regular issues, and blow them up to the extreme. We see it 24/7. In addition, there is massive abundance, arguably a distraction to the freedom to make choices. Is the freedom to make your own choices even real?

Michael reads excerpts from an article by Josh Brown titled, “Abundance.” He makes the case that abundance is now the enemy, which sets our economy apart from every other culture in history. For example, so much entertainment is free these days; movies, video games, apps, dating websites, music, the list goes on. People are taking paid versions of products and producing cheap and free versions. Josh points out that a year ago he was writing about scarcity, now its abundance. We use to have pop culture or a #1 hit TV show or hit band. Now there are 50 different sub cultures and genres.

But abundance is killing us. Josh notes that it would be best if there was a major flush of the system. Capital needs to be exchanged and shifted. The imbalances we are experiencing will inevitably correct and restart, it’s only a matter of when. Michael stresses that you need to have an investment strategy to prepare yourself for that inevitable correction. You need an investment strategy to take advantage of the next crash, as well as save yourself from the next crash.

In this episode of Trend Following Radio:

  • Ego
  • Preparing yourself for the next crash
  • Abundance
  • Downfall of the economy

“Connectivity is giving us a consistency of the like minded.” –Josh Brown

“The only way to save the economy is to crash it. There is too much of everything and it isn’t good for anyone.” –Josh Brown

“Abundance is now the enemy.” –Josh Brown

Mentions & Resources:

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You don’t want volatility? That’s ok. It’s all a trade-off.

A fascinating trend following track record:

Mulvaney Capital
Mulvaney Capital

That chart always makes me recall a moronic line from Ben Stein: “If you made money in October 2008 you were doing something wrong.”

You don’t want volatility? That’s ok. It’s all a trade-off. The big question: Can you imagine something like October 2008 happening again and what will you do?


Disclaimers

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HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Hillary Clinton’s Selective Dot Com Bubble Memory

In a March 2016 debate Hillary Clinton declared:

You know, if we’re going to argue about the 1990’s instead of talking about the future, which I’d much prefer because I think every election is about the future, and you all deserve to know what we will do to help you have a brighter future — but, if we are going to talk about the 1990’s I think it’s only fair to say that at the end of the 1990’s, after two terms of my husband’s presidency, the unemployment rate in Michigan was 4.4 percent.

The 1990s were the biggest stock market bubble in USA history. And now 16 years later, via slight of hand and a fantasy timeline, shes brag about the then great economy that magically only concluded at the tail end of her husband’s Presidency.

Bottom line, politicians are never the path to wealth and their words never tell anywhere close to a full story. Here are the 1990s in Nasdaq chart form:

NASDAQ Bubble Chart
NASDAQ Bubble Chart

Ep. 405: Didier Sornette Interview with Michael Covel on Trend Following Radio

Didier Sornette
Didier Sornette

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On today’s episode of Trend Following Radio Michael Covel interviews Didier Sornette. He is Professor on the Chair of Entrepreneurial Risks at Swiss Federal Institute of Technology Zurich. He is also a professor of the Swiss Finance Institute, associated with both the department of Physics and the department of Earth Sciences at ETH Zurich. He has worked on the King effect, a theory used to predict economic bubbles. Didier also set up the Financial Crisis Observatory in October of 2008. He brings an interesting perspective to financial crisis’s, and bubbles.

Didier first realized his fascination with financial bubbles back in 1989. He received a grant to try and solve the equation of prediction. Didier goes on to discuss the different theories that stemmed from his research. A few years later, when the housing crisis hit the U.S., he founded The Financial Crisis Observatory. He founded it as a psychological response to the discourse he had with the markets. People didn’t have a clear view of what was happening. Nobody seemed to know how it happened, but to Didier it was so obvious and natural that the crisis occurred. He wanted to help inform people better with his observatory by showing concrete steps that lead to the housing collapse and other crashes that came before it.

Michael and Didier then go into discussing black swans. Didier does not believe in black swans because they relate to “surprise events.” He says that crisis’s are actually not surprise events at all. They can be expected and are human related. Instead, Didier believes in a notion he calls “Dragon Kings.” His theory is called Dragon Kings because a King is a special person in a country, and dragon means of unique origin. Dragon Kings is how he describes his version of, “surprise events.” Michael and Didier move onto talking about how the world is out of equilibrium. The world is consistently battered with surprises therefore the equilibrium is always off. A lot of economists refuse to acknowledge this and policy makers are not well educated on the subject. Lastly they talk about Didier’s financial bubble experiment. Didier then goes into his background in physics saying it gave him tools to look at things outside the box. Nature doesn’t function in disciplines just like our minds do not work in silos or disciples.

In this episode of Trend Following Radio:

  • The adaptive market hypothesis
  • Dragon Kings vs. Black Swans
  • New economy syndrome
  • Predictive markets
  • Finite singularity
  • Equilibrium of the world

“When herding behaviour among investors ramps up, a stock’s or index’s growth rate can increase faster than exponentially, leading to more herding. This positive feedback brings the system to a tipping point. About two-thirds of the time, a crash results.” – Didier Sornette

Mentions & Resources:

Listen to this episode:

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Are You Profiting From the Market Panic?

Feedback in:

Michael,

I received a call from my dad asking if I was OK with the market panic selloff. Even though I had explained how I trade he and many others still think a drop in markets is bad for everyone. Naturally the panic selling was not the start of the down trend so I was nicely short the Dow prior to sell off.

I still can’t believe how robust this system is. Conceptually, I felt I understood it in the past but you just don’t get it until you trade it. And I am still amazed that the general market still thinks that you can only profit from stocks and commodities going up. At the same time I am profiting from that ignorance, so I am inclined to enjoy it.

Regards,
[Name]

Thanks.

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