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What Happens Next is a Fait Accompli and Jp Morgan is Dead Wrong
Posted at 9 Dec by Shalin

The Bodhi Tree Cycle Monitor continues to point toward a negative investment outlook. We view the “cheap zone” as a magnet for risky-asset prices and an area of tremendous cyclical opportunities, while overly expensive markets represent secularly poor investment periods. Indeed, in November we saw the measure actually worsen. However, it appears that in early December trajectory toward the cheap zone has resumed.

Given the sensitive nature of the barometer and our forecast for a very challenging investment environment, this will be the last time in a while that we will publicly share the measure. If in the future you are interested in getting a personal update on our proprietary market gauge, feel free to email our Investor Relations (ir@btam.co) department and we’ll see what we can do for you.

 

Of course, a negative macro outlook can be sustained for quite some time, as we have seen over the last several cycles. This is where a mosaic approach to macro corroboration is imperative. As they say, “timing is everything.” That said, I’ll analogize investing ‘risk on’ in a negative macro environment as the near equivalent of betting on a poor Blackjack hand. Below, you’ll find the odds of winning a hand versus the dealer given a certain set of cards.

Now let’s be clear, having a poor hand in Blackjack, Poker, or in the Investment markets doesn’t guarantee a loss in any particular instance. Rather, it infers if you were to play the game continuously, the likely probability is that eventually, you’ll bankrupt yourself.

The same philosophy applies to investment markets and yet it’s quite an irony that you’ll find more information on gambling odds versus the odds of becoming a successful macro-cycle investor! Indeed, common-sense odds are the main reason why I am so against trading a bear market from the long side. It’s hard and it is a long-term losing strategy.

It is also why I chuckle when I read a headline like this:

JP Morgan Thinks Fake News to Blame (for the volatile markets)

I know the game and JP Morgan and the sell-side knows it way better than me. Make a ton of calls on both sides of the market and hope something sticks. Ignore whatever didn’t work. Sell the heck out of what worked (there is a reason it’s called the ‘sell-side’). Rinse, repeat…

But I’d like to memorialize this particular call on our blog due to its timing and the prevalence of certain quant strategists in the news today. I believe this could be one of the worst market calls in history.


Of course, I could be wrong. It IS possible to beat the dealer that shows a 20. But unlike the sell-side, we on the buy-side are accountable through our track-records. It’s why in my opinion risk management, and not returns-management, is the most important aspect of being a money manager. There is no bigger mortal sin than losing your clients’ egregious sums of money while simultaneously taking yourself out of the ‘game’. Moreover, the mathematics of compounding suggests the same.

After 20 years in the financial services industry, I have come to the conclusion that in a world of Thought Leader ‘GaGa’ (sorry, Freddie Mercury), one’s audited track-record is the only tangible accomplishment on his/her resume. No amount of salesmanship can substitute a long-term resume of consistent profit utilizing a defined process. And while I am specifically referring to the investment industry, I’d say that the thought is relevant to nearly every person in every industry today who is looking for further opportunities.


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