“This has basically never happened before in my whole life. I can remember 1½ percent rates. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan, who basically all went broke because they guaranteed to pay a 3% interest rate. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted. I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted. How many in this room would have predicted negative interest rates in Europe? Raise your hands. [No hands go up]. That’s exactly the way I feel. How can I be an expert in something I never even thought about that seems so unlikely. It’s new territory…
“I think something so strange and so important is likely to have consequences. I think it’s highly likely that the people who confidently think they know the consequences – none of whom predicted this – now they know what’s going to happen next? Again, the witch doctors. You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices go down – of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well. If you find it puzzling, your brain is working correctly.”
Shout out to Charles Munger, age 91, vice chairman of Berkshire Hathaway.
Everyone was told to trust the system and be happy: “Save your money and interest income will be your retirement.” This has come to be completely untrue and people are collectively beginning to wise up, as seen in Brexit.
Michael goes into a timeline of market crashes illustrating trend following success: 1973-1974 stocks go down 50% and trend following kills it. 1987, known as Black Market Monday, US stocks go down 20%+ in a day and trend following kills it. Barings Bank collapses spring of 1995, trend following kills it. August 1998, Long Term Capital Management craters, and trend following made a fortune. It was almost a zero sum transfer from LTCM to trend followers in August of 1998. Spring of 2000, the dot com bubble bursts and trend following cleans up again. 2002 was one of the best trend following performance years ever. After 2002 another bubble is built and when it burst in October of 2008, trend following had outstanding performance results yet again. When the majority of people think the world is ending, trend following is reaping the profits. Brexit? Yes, too.
Nobody can predict the future but if you want to play the game, you have to place bets. Trend followers were in established trends once Brexit hit. They do not predict, but they have educated bets. Michael ends with one question, “What side are you going to be on? The side of the winners or the side of the losers?” It’s your choice.
In this episode of Trend Following Radio:
Boom and busts
Certainty in markets
“Certainty in markets, that is the delusion. That is the media cacophony.” – Michael Covel
Detroit, you’re not alone. Across the nation, cities and states are watching Detroit’s largest-ever municipal bankruptcy filing with great trepidation. Years of underfunded retirement promises to public sector workers, which helped lay Detroit low, could plunge them into a similar and terrifying financial hole.
ZIRP pushes stocks up & pension promises to government workers brings ’em down?
This week’s Consuelo Mack WealthTrack guides you through “The New Retirement Conversation”…With traditional pension funds rapidly disappearing, what are the new building blocks for a secure retirement? Personal finance experts Mary Beth Franklin, Contributing Editor, InvestmentNews, and Kim Lankford, Contributing Editor, Kiplinger’s Personal Finance, discuss the essentials. As Franklin puts it, the old three-legged model of social security, a pension plan and savings is now a “pogo stick!” They will explain why and what needs to replace it. Lankford says, “One of the biggest challenges that people are having, is to take all that money they’ve been accumulating for years and years…and translate that into income that will last for their lifetime.”