Investing
What was that all about?
Written by James Aitken
Posted on August 16, 2024
“Global investors just do not have the time or inclination or background to understand the nuances of the BOJ communication”, opined one sell-side scribe during the last two weeks of tumult.
Shame on us.
Cynicism aside, if we invert that scribe’s logic we get this:
“Global investors who make the time, and have both the inclination and background to understand the nuances of BOJ communication, have an edge”.
As I have long discussed with my clients, the primary challenge for investors in this noisy, too often hyperventilating ('emergency rate cuts now!'', 'it's all the BoJ's fault!') world is to remain calm, confident, energised, focused, knowledgeable, anticipatory, and always in control.
It is easier said than done, and the last three weeks have been a stern test of that mindset.
The other challenge is -at the risk of being prosaic - the hurdle to macro bullshit has never been lower.
Never.
On market structure, as Alan Greenspan told a futures industry gathering in Boca Raton in March 1999:
'Probability distributions estimated largely, or exclusively, over cycles excluding periods of panic will underestimate the probability of extreme price movements because they fail to capture a secondary peak at the extreme negative tail that reflects the probability of occurrence of a panic.
Furthermore, joint distributions estimated over panicless periods will underestimate the degree of correlation between asset re-turns during panics when fear and disengagement by investors results in simultaneous declines (or, in rare instances, increases) in values as investors no longer adequately differentiate among degrees of risk and liquidity.
Consequently, the benefits of portfolio diversification will tend to be significantly overestimated by current models’.
Indeed, and recent market turbulence has been another reminder of that.
The determination to add risk after the big wobble has been astonishing to watch: it’s almost as if the wobble in everything from the Nikkei to momentum stocks never happened.
Could this rebound be driven by qualitative, fundamental investors?
Bargain hunters aside, I doubt it.
The best explanation I have heard for this remarkable snap back is ‘the computers want their stocks back.’
Last Thursday (August 8th) I found a moment to do an interview with Grant & Bill.
We discussed a range of relevant topics, including how the path to the BoJ hike (& BoJ hikes to come) started with a dinner in London last October.
I hope you may find time this weekend to listen: https://www.grant-williams.com/contributor-james-aitken/
Be well, invest well, see you later.
JA
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“Global investors just do not have the time or inclination or background to understand the nuances of the BOJ communication”, opined one sell-side scribe during the last two weeks of tumult.
Shame on us.
Cynicism aside, if we invert that scribe’s logic we get this:
“Global investors who make the time, and have both the inclination and background to understand the nuances of BOJ communication, have an edge”.
As I have long discussed with my clients, the primary challenge for investors in this noisy, too often hyperventilating ('emergency rate cuts now!'', 'it's all the BoJ's fault!') world is to remain calm, confident, energised, focused, knowledgeable, anticipatory, and always in control.
It is easier said than done, and the last three weeks have been a stern test of that mindset.
The other challenge is -at the risk of being prosaic - the hurdle to macro bullshit has never been lower.
Never.
On market structure, as Alan Greenspan told a futures industry gathering in Boca Raton in March 1999:
'Probability distributions estimated largely, or exclusively, over cycles excluding periods of panic will underestimate the probability of extreme price movements because they fail to capture a secondary peak at the extreme negative tail that reflects the probability of occurrence of a panic.
Furthermore, joint distributions estimated over panicless periods will underestimate the degree of correlation between asset re-turns during panics when fear and disengagement by investors results in simultaneous declines (or, in rare instances, increases) in values as investors no longer adequately differentiate among degrees of risk and liquidity.
Consequently, the benefits of portfolio diversification will tend to be significantly overestimated by current models’.
Indeed, and recent market turbulence has been another reminder of that.
The determination to add risk after the big wobble has been astonishing to watch: it’s almost as if the wobble in everything from the Nikkei to momentum stocks never happened.
Could this rebound be driven by qualitative, fundamental investors?
Bargain hunters aside, I doubt it.
The best explanation I have heard for this remarkable snap back is ‘the computers want their stocks back.’
Last Thursday (August 8th) I found a moment to do an interview with Grant & Bill.
We discussed a range of relevant topics, including how the path to the BoJ hike (& BoJ hikes to come) started with a dinner in London last October.
I hope you may find time this weekend to listen: https://www.grant-williams.com/contributor-james-aitken/
Be well, invest well, see you later.
JA
Written by James Aitken
August 16, 2024