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Latest Observations, April 2019

 

 

 

The Coffee Chronicles

"I think the innovation that we are getting is driven in strange ways. I worry that the conformity problem is actually more acute than it was in the '50s or '60s, so that the category of the eccentric scientist, or even the eccentric professor is a species that is steadily going instinct because there is less space for that in our research universities than there used to be."

Peter Thiel, Conversation with Tyler, Mercatus Center, May 2017

Quote on
the Fly


"We argue that yield-curve inversions are a signal that monetary policy is tight, and we show that tight policy has a substantially larger impact on the economy than easy policy. In other words, monetary policy’s brake pedal is more powerful than its gas pedal."

Inverted Yield Curve (Nearly Always) Signals Tight Monetary Policy, Rising Unemployment, Evan F. Koenig and Keith R. Phillips, Federal Reserve Bank of Dallas, February 12, 2019

 

Part 2: Our Evaluation of the Global Economic Cycle
The Bearish View of the Global Economic Cycle
Anujeet Sareen, Brandywine Global, Around the Curve, April 10 2019
 
Part 1: Our Evaluation of the Global Economic Cycle
The Bullish View of the Global Economic Cycle
Anujeet Sareen, Brandywine Global, Around the Curve, April 3 2019

 

What legacy will Mario Draghi leave to the ECB?
"Could the ECB now revert to its original condition, i.e. an annexe to the Bundesbank?" Read more...
Bruno Cavalier, Fabien Bossy, ODDO BHF Corporates & Markets, 9 April 2019

 

Swiss Pension Fund Indices 2019 Q1 Returns
Pictet LPP 2000 Indices
Pictet Asset Management SA, April 2019

 

Swiss Pension Funds 2019 Q1 Returns
Credit Suisse Pension Fund Index
Credit Suisse, April 2019

 

10 Years of Slow Growth Fears
Growth slowdown fears appear omnipresent these days as investors worry this long global economic expansion is on the wane. But slowish growth isn’t a bull market killer—as stocks’ overall rise over the last decade attests.
Fisher Investments MarketMinder, March 25, 2019

 

I Get Knocked Down, Then I Get Knocked Down Again…
When Will Value Investing Get Back Up?
Patrick S. Kaser, Brandywine Global, Around the Curve, March 25 2019

 

Clash of Empires: Currencies and Power in a Multipolar World
Empires usually start off as road-building exercises. Which explains why, in Europe, everyone says that “all roads lead to Rome”. And when they don’t build roads, empires build canals: the French built the Suez Canal (only to see the British buy Egypt’s stake once the hard work had been done), the Americans built the Panama Canal and, less happily, the Soviets built the Aral Sea Canals (which ended up triggering one of the greatest ecological disasters of all time).
Charles Gave & Louis-Vincent Gave, Gavekal, March 2019

 

 

The Coffee Chronicles

"But his creative process is like almost engineered around being loose; like doing whatever he wants, going where he wants to go."

Joe Rogan Explains Dave Chappelle's Creative Process, JRE Clips, March 5, 2019

 

 

China’s Gangbusters Loan Growth
China likes doing things on a grand scale; its recent stimulus is no exception. 
Fisher Investments MarketMinder, March 4, 2019


Quote on
the Fly


"Ce qu'il faut faire c'est le Bruxit, c'est sortir Bruxelles de l'Europe. Parce que l'Europe marchait très bien, jusqu'à Mr. Delors qui a décidé d'essayer de transformer l'Europe en une Nation, en un Etat."

Charles Gave, Le Peuple contre Bruxelles, Planetes360, March 13, 2019

 

Global economy – Winter Is Ending
"Other problems of secondary importance, or at least with more limited repercussions, could be added to this list, such as the crisis in the German automotive industry, the bout of social unrest in France, vain attacks by the Italian government on the Commission and, last but not least, the political psychodrama of Brexit."

Read more...
Bruno Cavalier, Fabien Bossy, ODDO BHF Corporates & Markets, Economy & Rates, 12 March 2019

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the Fly


"I think we’re actually on the cusp of something exhilarating and terrifying.
Paxman: It’s just a tool though, isn’t it ?

No it’s not. No it’s an alien life form (laughs). Is there life on mars ? Yes, it’s just landed here." Read more...

David Bowie speaks to Jeremy Paxman on BBC Newsnight, 1999

 

Europe: make or break?
In a baseline scenario, our review of economic conditions and risks prompts us to pluck for the first answer: it will make it. In other words, we think there is a higher chance that the Eurozone economy will stabilise and recover in the months ahead than weaken further and fall into recession. Fear of an economic slump can have some virtues. Read more...
Bruno Cavalier, Fabien Bossy, ODDO BHF Corporates & Markets, Economy & Rates, 14 February 2019

 

The Broken Window Fallacy
"In 1850, the French economist Frederic Bastiat introduces the concept of opportunity cost with a fallacy in Chapter I of his book “Ce qu’on voit et ce qu’on ne voit pas” (What we see and what we don’t see). In Bastiat’s tale, a man’s son breaks a pane of glass, which ultimately stimulates the economy."
Didier Darcet, Gavekal Intelligence Software, The Quant Corner, February 2019

 

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"The finance industry of 1900 was just as able as the finance industry of 2000 to produce bonds and stocks, and it was certainly doing it more cheaply."

 

Thomas Philippon, New York University, Finance vs. Wal-Mart: Why are Financial Services so Expensive?

 

The Evolution of Swiss Institutional Investor Portfolios

1920 - 2017

Corestone Investment Managers, 2018

 

 

The Coffee Chronicles

"Let us try for once not to be right."

 

Samuel  Rosenstock, aka Tristan Tzara, a French-Romanian poet and essayist, "Data Manifesto", 1918, translated by Robert Motherwell, in "Dada Painters and Poets".

 

 

The Scandinavian Monetary Union of 1873
Together with the Latin Monetary Union of 1865, another example of a monetary union that didn't go quite as planned and ended before its 50th Birthday.
InvestmentOffice, February 2019

 

A Century of Chinese Stocks and Bonds

 "London was the financial center of the world until World War II, and many companies in emerging markets listed their shares on the London Stock Exchange before a stock exchange even existed in that country. After World War I, many companies listed on the New York Stock Exchange."

Dr. Brian Taylor, Global Financial Data, 4 January 2019

 

 

Shallower Cycles?
"Less vigorous expansions spread over longer periods would entail a fundamental change in the risk/return dynamics of markets and a resulting shift in expectations."
Altug Ulkumen, Lobnek Wealth Management, February 2019

 

A double capitulation

Read more...
Bruno Cavalier, Fabien Bossy, ODDO BHF Corporates & Markets, Economy, Focus US, 01 February 2019

 

Events in Time Anniversaries: January 2019
 25 years ago: January 1994

 50 years ago: January 1969

100 years ago: January 1919

200 years ago: January 1819

300 years ago: January 1719
Dr. Brian Taylor, Global Financial Data, 22 January 2019

 

Quote on
the Fly

"Bear in mind, without our money for the final 21 months of the current multi-annual financial framework, the EU is insolvent!
Now people say what plans have we made for no-deal; what plan has the EU made for no deal?"
Jacob Rees-Mogg on BBC, January 19 2019

 

Pyramid Distribution of US Equity Returns
S&P 500: 1825 - 2018

 

The Berenberg Capital Markets Outlook
Wealth and Asset Management
Berenberg, Horizon handout, January 2019

 

The Callan Periodic Table of Investment Returns 2019

Annual Returns for Key Indices Ranked in Order of Performance (1999–2018)

Callan Associates Inc., 2019

 

France: implications of the “yellow vests” movement
In a few short months, the “yellow vests” movement (gilets jaunes) has changed the way France is viewed in the economic and political spheres. The negative impact on the pace of activity seems modest, transient, limited to some sectors. On the contrary, the impact on the business climate and household confidence is extremely brutal. Read more...
Bruno Cavalier, ODDO BHF Corporates & Markets, 16 January 2019

 

Quote on
the Fly

"The EU's "single market" is designed for goods. It works less well for services - which make up over 70% of the European economy."

The Economist, Big mistake, December 22nd 2018 - January 4th 2019

 

 

SYZ Macroeconomic Outlook 2019
Investment Perspectives

Fabrizio Quirighetti, Adrien Pichoud, Antonio Ruggeri, Michalis Ditsas, Roberto Magnatantini, Jöel Le Saux, Zhoaib Zafar, SYZ Group, January 2019

 

 

 

 

The Coffee Chronicles

 

"I am not yet tir'd of doing nothing."

David Hume to Adam Smith, January 1766 

 

Quote on
the Fly

 

 

 

"Therefore, we suggest that, unlike the 2007/08 Crisis which was more about a broken banking system involving the sudden collapse of leverage among over-extended banks and shadow banks, the current credit squeeze looks more like the 1997/98 Asian Crisis when Central Banks, led by the US Fed, tightened the supply of primary liquidity and cross-border flows rapidly retreated."

Michael Howell, Why has Global liquidity crashed again? CrossBorder Capital, January 2019

 

US Banks Haven’t Behaved Like This Since 2009
If there is one thing Ben Bernanke got right, it was this.
Jeffrey P. Snider, Alhambra Investment Partners, December 11, 2018

 

The Coffee Chronicles

"Once again, these are just facts, and facts are never powerful enough vis-à-vis theories about war and what we want to believe."
Stephen Kotkins, Dartmouth, 1917 Centennial Series: War, Revolution, Socialism, War. October 2017

 

Economics Is Easy When You Don’t Have To Try 
The real question is why no one says anything. They can continue to make these grossly untrue, often contradictory statements without fear of having to explain themselves. Don’t even think about repercussions. Even in front of politicians ostensibly being there on behalf of the public, pedigree still matters more than results.
Jeffrey P. Snider, Alhambra Investment Partners, December 7, 2018

 

 

Factor-based investing – the third pillar
In our first white paper on factor-based fund management, we would like to give interested investors an insight into the history and current characteristics of this asset management approach. Read more...
Dr. Carsten Große-Knetter, Thierry Misamer,  ODDO BHF Asset Management, November 2018

 

Faktorbasiertes Investieren als dritte Säule
In unserem ersten White Paper zum faktor-basierten Fondsmanagement möchten wir interessierten Anlegern einen Einblick geben in die Geschichte und aktuellen Merkmale dieses Ansatzes der Vermögensverwaltung. Weiterlesen…
Dr. Carsten Große-Knetter, Thierry Misamer,  ODDO BHF Asset Management, November 2018

 

Does the Yield Curve Really Forecast Recession ?
It's well known that in the United States recessions are often preceded by an inversion of the yield curve. Is there any economic rationale for this?
David Andolfatto, Andrew Spewak, Federal Reserve Bank of St. Louis, November 30th, 2018

 

Labor Force Participation Rates, 25-54 year old
A Strong Economy – But We Can Aim Higher. Remarks by MARY C. DALY President and CEO Federal Reserve Bank of San Francisco To the Regional Economic Development for Eastern Idaho (REDI), November 12, 2018


The financial and business cycles in the United States
"Put differently, calendar time might not be the best way to compare cycles over time."

Andrew Filardo, Marco Lombardi and Marek Raczko, BIS Working Papers, Measuring Financial Cycle Time, 7 November 2018

 

 

Globale Renten, Währungsmanagement und Indexbenchmarks

In den Portfolios der Investoren lässt sich in nahezu allen Regionen der Welt trotz des Fortschreitens der Globalisierung auch über die letzten Jahrzehnte ein ausgeprägter „Home Bias“ nachweisen, eine Bevorzugung von Investments in die Kapitalanlagen des Heimatlandes, auch wenn diese Anlagen unter Risiko-Ertrags- Aspekten oder Risikokonzentrationskriterien selten optimal sind. Weiterlesen...
Werner Krämer, Lazard Asset Management, November 2018

 

Aktualisierung zu Indexbenchmarks für Emerging Markets Debt
Die politische Diskussion hat sich seit der Finanzmarktkrise 2008 stark auf die Themen “Sparen” und “Austerität” fokussiert. Insbesondere in Europa, aber auch in den USA und in vielen Emerging Markets wurde vermehrt festgestellt, dass „man nur das ausgeben kann, was man vorher auch eingenommen hat“. Weiterlesen...
Werner Krämer, Lazard Asset Management, Oktober 2018

 

Quote on
the Fly

"So when the majority of volume in the market is traded by people who do not care about fundamentals, what is that fundamentally mean for the stock market ? It is a pretty scary thought, right ?"

Brad Katsuyama, The Stock Market had become an Illusion, March 26, 2016

 

The Coffee Chronicles

 

"I have several theories about things and stuff.

My theory about evolution: Darwin was adopted!"

Steven Wright, Wicker Chairs and Gravity, 1990

 

The history (and future) of inflation
It may not feel like it, but we live in inflationary times relative to long-term history.
Jim Reid, Craig Nicol, Nick Burns, Sahil Mahtani, Deutsche Bank, September 19, 2018

 

 

Do stocks outperform Treasury bills?

"All of the wealth creation can be attributed to the thousand top-performing stocks, while the remaining 96 percent of stocks collectively matched one-month T-bills."

Prof. Hendrik Bessembinder, Francis J. and Mary B. Labriola, Arizona State University, W. P. Carey School of Business, May 2018


The ECB’s QE End Is Bullish
Closing the chapter on QE is bullish—not bearish—for investors, in our view.
Fisher Investments MarketMinder, November 8, 2018

 

Why French Investors are Truly les Misérables
"Over a 100-year period, French investors would have lost over 90% of their money after inflation no matter how they invested their money."
Dr. Brian Taylor, Global Financial Data, 17 April 2017

 

Can banks individually create money out of nothing? — The theories and the empirical evidence
This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, "out of thin air".
Richard A. Werner, International Review of Financial Analysis, December 2014

 

What do rising rates mean for international investments?
Brian Levitt, OFI Global Asset Management, October 11, 2018 

Do we still believe interest rates will remain low for long? 
Brian Levitt, OFI Global Asset Management, October 11, 2018

 

Notes on The Bitcoin Standard
"Bitcoin, as designed, is deflationary."
Michael Kendall, Man on the Margin, July 16, 2018

 

American Default

The Untold Story of FDR, the Supreme Court, and the Battle over Gold.
Sebastian Edwards, Princeton University Press, May 2018

 

The Coffee Chronicles

“In the depth of your ignorance, what is it that you want?"

 

Orson Welles getting frustrated with some studio personnel as he attempts to narrate some badly written commercials that he clearly finds quite annoying. Obscure Audio 2: Orson Welles Outtakes - Frozen Peas, 1970

 

Asian currencies vs. Yuan, rebased at 100 on 31.12.2013

Charles Gave, Guerre Commerciale Chine/ Etats-Unis, Institut des Libertés, October 7 2018

 

Why Financial Institutions Struggle to Modernize…and Why They Have to
Prattle is pleased to publish this interview with Zac Sheffer, CEO and Founder of Elsen, focusing on the modernization of financial institutions and the future of data in finance.

Prattle, February 7, 2018 
 

Quote on
the Fly

Shadow Risk in Passive Investing
"The shift from active to passive investing is a significant amplifier of future volatility."

Read more...

Christopher Cole, Founder and CIO of Artemis Capital, Volatility and the Alchemy of Risk, Reflexivity in the Shadows of Black Monday 1987, October 2017

 

 

 

 

Pension Funds Switzerland 2018
For institutional investors only


 

Public Pension Funds

 

Corporate Pension Funds

 

Industry-Wide Pension Funds

 

Multi-Employer Pension Funds

 

 

Seismic waves
Seismic waves are waves of energy that travel through the Earth's layers. What would be the equivalent in today's markets?
Investment Office, September 2018

 

Bloomberg: Prattle Analysis Shows Men Speak 92% of Time on Earnings Calls
Prattle, September 18, 2018

 

 

 

A Tangled Tree: A Radical New History of Life

"My favorite part of the book is the section, starting on p.244, on bacteria that are resistant to antibiotics that have not yet been invented."
Greg Van Kipnis, Daily Speculations, September 16, 2018

 

Pension asset allocation
Aggregate P7 asset allocation from 1998 to 2017

 

Willis Towers Watson, Global Pension Assets Study 2018, February 2018

 

 

The Count of Monte Cristo
The Count of Monte Cristo has numerous financial data and speculations in it that shows that during the Napoleonic years there was active speculations.
Victor Niederhoffer, Daily Speculations, September 16, 2018

 

 

The Callan Periodic Table of Investment Returns
Annual Returns for Key Indices Ranked in Order of Performance (1998–2017)

Callan Associates Inc., 2018

 

 

The Coffee Chronicles

“But it was really difficult to explain our needs and for them to get their head around what we are doing, or even have an interest in doing something in low volume. So that meant we had to develop it ourselves.”

Christian Van Koenigsegg, The Drive, November 2016

 

 

Asset Class Returns in Swiss Francs (2008 - 2017)

Dr. Alex Hinder, Hinder Asset Management, 2018

 

 

 

The Oxymoron of World Trade
Oxymorons are powerful combinations of contradictory meanings. We encounter oxymorons in every human form of expression attempting a description of reality, whether it be in works of tragedy (“fearful bravery” in Shakespeare’s Julius Caesar), in our daily lives (work that is “almost done”), or even in the projected future of human societies (“artificial intelligence”).
Didier Darcet, Gavekal Intelligence Software, The Quant Corner, September 2018

 

Information in the Yield Curve about Future Recessions
"Furthermore, when interpreting the yield curve evidence, one should keep in mind the adage “correlation is not causation.”
Michael D. Bauer and Thomas M. Mertens, Federal Reserve Bank of San Francisco, Economic Letter, August 27, 2018

 

 

Chart of the Month: Gold in Turkish Lira (TRY)

1875 CIO Office, Current Views, 1875 Finance, August 2018

 

General Electric: The Fallen Giant
"General Electric’s decline has been steady during the 21st century. In 2000, GE’s market cap was over $500 billion and as recently as 2005, General Electric was the largest company in the world. Since then, GE has lost over $400 billion in market cap, and today, GE doesn’t even make the top 50 in the world."
Dr. Brian Taylor, Global Financial Data, 22 June 2018

 

Consumers Response More to negative News than Positive Info
"The laboratory provides insight into how cognitively taxing it can become for people exposed to changes in the economic landscape to acquire and process information."
Antonella Tutino, Federal Reserve Bank of Dallas, Economic Letter, Volume 13, Number 7, May 2018

 

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on the Fly

 

“It is better for the Bank of Japan not to attract attention and remain as quiet as the forest for a rural shrine.”
Hisato Ichimada, Governor of the Bank of Japan, 1946-1954

 

 

The Coffee Chronicles

"An era does not just create technology. Technology creates the era."

W. Brian Arthur, The Nature of Technology, 2009

 

Neurosis Is Killing Your Returns!
Short-term volatility is the psychological price investors pay to achieve stocks’ high historical long-term returns.
Michael Hanson, Fisher Investments MarketMinder, 14/06/2018

 

Memory Sticks!
Didier Darcet, Gavekal Intelligence Software, The Quant Corner, June 2018

 

 

 

Quote

on the Fly

 

“In a dataset of 10 developed countries for the period 1890-2000, we show that diversification benefits decline as financial markets open up to international capital flows. Diversification benefits disappear as investors chase them." Dennis Quinn and Hans-joachim Voth, The Diversification Fata Morgana: Capital Account Openness and the Fall and Rise of Stock Market Correlations, 1890-2000 , 2015

 

 

The Coffee Chronicles

"Villager: How can we find a samurai we can pay with only rice?

Gisaku: Find hungry samurai."

Akira Kurosawa, The Seven Samurai, 1954

 

A monopoly on liquidity
"The board game Monopoly® was originally invented by Elizabeth Magie, under the name “The Landlord’s Game”, as a means of demonstrating the evils of rentier capitalism. Originally, there were two sets of rules — essentially, socialism (where the rewards for development were shared by all) and capitalism (where the rewards accrue to the monopolist, who crushes all opponents) — the purpose being to show the moral superiority of the first set."
Erik Britton, Fathom Consulting, 16 March 2018


 

The Russian Stock Market Before the Revolution
"Russian stocks advanced more in price than American stocks between 1864 and 1914, but American companies paid larger dividends. Price and dividends offset each other and during that 45-year period, the two stock markets provided approximately equal returns."

Dr. Brian Taylor, Global Financial Data, 21 March 2018

 

 

Understanding inflation and its impact on your portfolio
Thanks to globalization, technological advances, monetary policy and demographic trends, inflation in most developed economies has been moderate in recent decades. However, a continuation of this benign inflationary environment is by no means certain, as evidenced by a recent White Paper released by Mercer Investments Research highlighting the growing inflationary pressure.

By Gil Platteau, Country Head Switzerland, Mercer Investments.  More...

 

 

Lonely Bytes – Cryptocurrencies & The Future of Money:
A New Technology Solution Desperately Seeking A Problem?
Michael Howell, CrossBorder Capital, March 13, 2018

 

 

The Coffee Chronicles

"And the real problem is, in my opinion, that as we move, from the local community to the State, from the State to the Federal Government, it becomes increasingly difficult for us to control the mechanism we have established, and that mechanism tends to control us." Milton Friedman, in 1978, Free To Choose Network, May 22, 2012

 

The Questions for the Coming Year
"As Charles has shown over the years, this is the best combination for equity markets, as tight fiscal policy and loose money almost invariably leads to far higher P/E ratios. Alas, the opposite is true for the reverse: loose fiscal policy and tight money typically trigger a de-rating of equity markets. And this is the policy mix we seem to be heading towards."
Louis-Vincent Gave, Gavekal Research, December 15, 2017

 

 

 

The Coffee Chronicles

"A couple of geeks who sketched out some software could destroy Sears Roebuck?"
"60 Minutes" episode from 1999, "Jeff Bezos & Amazon - An Inside Look". The late reporter Bob Simon asked (sneering) an analyst about Amazon highflying stock.

 

Market Capitalization Amazon vs. Sears
1999 vs. 2017

Scott Galloway, L2 Inc. December 2017

 

 

 

Quote

on the Fly

 

 

“What we said for years, going back to the beginning of so called Quantitative Easing in America was that it was not Quantitative Easing, it was Quantitative Diseasing (...) and that Quantitative Easing as it is called is always contractionary and deflationary, and that we’re having a bull market and economic expansion DESPITE it, not BECAUSE of it."

Ken Fisher, Fisher Investment Capital Markets Update: Summer 2017

 

 

Passive-aggressive Bureaucracies

"Means become ends and ends become means. Consequently, the original goals of such organizations are now considered to be nothing more than obstacles on the way to realizing new aims (...) the collective perpetuates its existence, regardless of whether it has any role left and how well it functions."
Sam Vaknin, Lidija Rangelovska, Malignant Self-love: Narcissism Revisited, 10th edition, 2015

 

Bad Things That Didn't Happen in 2017
A look at the false fears that weren’t
Fisher Investments MarketMinder, December 28, 2017

 

Retail's Anti-Christ
Market Value Today vs. 2006

Scott Galloway, NYU, December 2017

 

Changes at the Top

The Five Largest Companies: Now vs. 2006

Scott Galloway, NYU, December 2017