Sober Facts For Another Monday In Mad Markets

After 50%+ declines in most assets, in March 2009 valuations hit a 12-year cyclical low and central bank easing was finally able to revive some bids and cautious optimism through moribund markets. Risk-blind, long and wrong through the 2007-08 peak however, most participants were illiquid, frozen and/or liquidating in horror just as investment prospects finally turned attractive. A very few, (like our firm Venable Park Investment Counsel), managed portfolio gains through the market crash and were able to deploy strategically stored cash into high yielding/lower risk securities by the spring of 2009.

By April of 2011 however, extremist policy interventions–most notably the suspending of fair value accounting rules (FASB 157) in April 2009 that allowed banks to value toxic assets on their balance sheet as they pleased, coupled with price-indiscriminate buying by central banks and indexers–drove asset values far past rational measures once more, and those with a value discipline began reducing risk and moving capital back to safer harbors.

Markets rationally began to mean revert their exuberance–falling into late 2012–before central bankers all over the world went full Kamikaze (quite literally) promising to squander whatever government resources necessary to push asset prices temporarily higher for a while longer. Par for this course, the last 4.5 years of ultra-low rates, superfluous liquidity and reckless abandon, have now locked in the necessity for another panicked reset cycle ahead.

Bailed out by the sharp ‘v’ bounce in 2009, today many of the same people and ‘players’ are back on top boasting about their non-existent prowess and skill and talking nonsense about how ‘this time is different’ and low interest rates and central banks justify present valuation extremes. Total bull (pun intended). The money business is full of lazy salespeople who don’t actually reflect or measure return prospects–because they are paid to sell buy and hold to the public, not manage risk. But math is math all the same, and when presently deluded masses become risk aware once more, they will stampede out of crashing long duration, risky assets for the security of cash and liquidity. Of that much we can be confident.

1 2
View single page >> |

Disclosure: None.

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.