The Dance of Death
Illustrations for this web site are taken from the series of paintings created by Kaspar Meglinger between 1626 and 1635 known as "The Dance of Death". The paintings are under the roof of Lucerne's Spreuer Bridge (completed in 1408) and bring forcibly to mind the transitory nature of life on earth. All "The Dance of Death" illustrations can be clicked for a larger photo.
The December 2013 Monthly Market Commentary (MMC) was published on the MMC subscribers only section and emailed on 1-Dec-2013.
"Investing, either we suffer the Pain of Discipline or the Pain of Regret and Losses"
Many investment professionals complain that the investment environment has become extremely difficult. However, I am showing that with a disciplined approach and integrity, and by avoiding chasing short-term performance through speculative investments in momentum stocks, a successful fund management business can be built. In particular, I am focusing on Selling Disciplines. If there is great value in buying distressed assets, there must be value in selling highly priced assets as well.
According to Mark Hulbert, “The current Shiller P/E is 24.4, which puts the [US] market in the 9th decile. On the assumption that the future is like the past, the market’s expected real return over the next decade is just 0.9% annualized.” Hulbert then explains that the stock market bulls argue that the “alternatives” such as bonds are hardly any better because it would take only a small increase in interest rates to produce losses in real terms over the next decade. But, according to Hulbert, “this argument doesn’t really support the conclusion the bulls draw. Just because the alternatives are awful doesn’t mean the stock market is a good place in which to invest your money. T-Bills are not an unattractive option...”
High valuations, excessive debts, and extremely bullish sentiment do not necessary imply that a US stock market collapse is imminent. This especially not in an environment of unlimited money printing but if we believe in Selling Disciplines then the combination of high valuations and extremely positive sentiment strongly argues for reducing one’s exposure to US equities. As Tennessee Williams said, “there is a time for departure even when there’s no certain place to go.”
I am enclosing two reports.
The first report is by Paul Brodsky who with Lee Quaintance is a portfolio manager at Kopernik Global Investors. Paul’s essay is very thoughtful and worth a read. He concludes that, “claims on production and demand-inelastic global resources are now the ultimate sovereign currency, regardless of their provenance, and this is where substantial alpha resides in today’s equity markets”.
Chris Becker who is market strategist at ETM Analytics in Johannesburg is the author of the second report, which discusses the economic boom in Africa and compares it to the Asian boom prior to the 1997/98 crisis.
I wish my readers Merry Christmas and a Happy New Year.
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