WORTHWHILE PURSUITS FOR INVESTORS GOING FORWARD
There is no glory in blazing a trail down the beaten path of macro-induced pessimism in the financial markets. The S&P was within spitting distance of a new all-time high on Thursday, before the elderly population of Great Britain decided that they wanted to set their skiff adrift in choppy waters at 2 a.m. after a night of drinking pints at the local pub. In other words, a trip into the unknown with completely random consequences in the time ahead. The markets, of course, reacted because of the shock value of such an unexpected move. However, it is our choice at investors whether to believe the reaction or put it in the category of a temper tantrum due to being frightened by extraneous circumstances, yet again. What you will have over the next few months are prophecies of cataclysm, brought about by a disintegration of the European Union, throwing the entire developed world into a state of fiscal and monetary retardation. What will most likely occur with the markets in response to the perception of impending doom will very likely be what we have experienced during the first half of 2016: A wide ranging sideways chop that is meant to confuse investors through a maligning influence. The markets aren't going anywhere this summer. They may very well make a new high in the next few weeks. The S&P may move down to 1900-1950 by late in the summer. However, amidst all the calls for termination of the financial system as we know it, the end result will be near nothing. The attraction to the 2000 level for the S&P should remain constant in the midst of the baboonery. In time, the expansive sideways range we have been experiencing in the major averages should give way to a new leg up for this bull market. The entirety of my mission is to discover the most advantageous form of investment to gain alpha from this eventuality. I don't believe there is necessarily another worthwhile pursuit an investor should be focused on, lest they enjoy dwelling in consensus opinion and investment, which unsurprisingly, remains uninspiring in its creativity. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business...
MAY CLIENT LETTER: THE HAUNTED HOUSE OF ZIRP & NIRP; MAY EDITION OF “I’D RATHER EAT ROCKS THAN BUY STOCKS”
What follows is a section from the “Thoughts & Analysis” portion of my monthly letter to investors at T11 Capital. The Haunted House of ZIRP and NIRP Zero interest rate policy, more commonly referred to by the acronym ZIRP, has worked its way into the financial lexicon over the past year in a rather eloquent manner, followed closely by negative interest rate policy or NIRP. Financial pundits of all types have taken to the airwaves proclaiming ZIRP and NIRP as something that is an inevitable conclusion to the massive global monetary stimulus that continues to take place. Denmark, Sweden, Switzerland and Japan are all wandering into the haunted house of ZIRP and NIRP currently, wondering what lies in its hollow corridors and narrow passages. There is no guidepost for ZIRP and NIRP, as it has never been attempted in such a globally coordinated fashion. What lies at the essence of ZIRP and NIRP policy is a proclamation by global central bankers that cash is essentially worthless unless invested in a risk asset. This proclamation comes against a backdrop of investor skepticism of risk assets moving progressively higher on the curve based on the substance of the asset in question, with stocks being seen as the least substantive taking a backseat to tangible assets such as gold and real estate. Most recently, even centers of reliable increases in real estate prices that have attracted global assets, such as New York and San Francisco, have seen a general softness in prices develop as the uncertainty of this experiment in global monetary policy has taken its toll. What must be considered is that against a backdrop of enormous uncertainty created by a never before attempted policy of ZIRP and NIRP, will investor mentality begin converging along the lines of low or no returns available in all asset classes causing them to simply refuse to participate in all but cash for an indefinite period of time? Already global cash levels are at 15 year highs according to some measures such as the Bank of America Merrill Lynch Global Fund Manager Survey: Global investors' cash levels are currently pegged at 5.6% of their total portfolio, which is the highest in the past 15 years as many have opted for capital protection amid a volatile global market. This mentality towards capital preservation in the face of an attempt by global central banks to force investors out of cash tells us at a very basic level that investors see no returns as a better option than a negative return. We have to assume then that investor expectations for future returns are being tempered by the...