Author Archives: Dimitri Speck

     

 

 

Plans and Consequences

You are probably already getting into the holiday spirit, perhaps you are even under a little stress. But the turn of the year will soon be here – an occasion to review the past year and make plans for the new one. Many people are doing just that – and their behavior is creating the strongest seasonal rally in the precious metals markets.

 

Anonymous industrial stackers showing off their freshly purchased silver hoard. [PT]

 

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The Strongest Seasonal Stock Market Trend

Readers may already have guessed: when the vibrant colors of the autumn leaves are revealed in all their splendor, the strongest seasonal period of the year begins in the stock market – namely the year-end rally.

 

Will Santa wake up this year? Last year he was clearly missing in action – but that is actually the exception, not the rule [PT]

 

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Bitcoin – An Exceptional Asset

When I first heard about Bitcoin (BTC) in May 2011, it was trading at 8 US dollars. Today, more than eight years later, BTC trades at around 8,000 dollars. A thousandfold increase! An investment of 1,000 dollars at the time would have resulted in a gain of more than a million  –  a dream result.

 

Bitcoin went from 10,000 BTC for a pizza to around 100 BTC for a Lambo in what appeared to be an unseemly hurry… [PT]

 

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Listless Nikkei

On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?

 

Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]

 

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A Global Pattern

You are no doubt aware of the saying “sell in May and go away”. It is one of the best-known and oldest stock market truisms.

 

Mark Twain’s famous saying about stock market speculation (the other one was “There are two times in a man’s life when he should not speculate – when he cannot afford it, and when he can”).  From a seasonal perspective he was definitely right about September and October. [PT]

 

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A Pleasant Surprise

You can probably imagine that I am convinced of the merits of seasonality. However, even I was surprised that an investment strategy based on seasonality is apparently leaving numerous far more popular strategies in the dust. And yet, this is exactly what a recent comprehensive scientific study asserts – a study that probably considers a longer time span than most: it examines up to 217 years of market history!

 

A chart of nominal commodity prices since the mid 12th century. A little aside to this: Estimates for some commodity prices date as far back as 3000 BC. The oldest price records permitting construction of a price index are from the time of the Babylonian empire, the Middle Kingdom of Egypt and the Minoan civilization (which blossomed during a time of global warming) from approx. 1840 BC to 1620 BC. One of the most intense periods of nominal commodity price inflation occurred in the roughly 130 years following the death of Emperor Severus Alexander in AD 235 (which marked the beginning of the Roman Empire’s “crisis of the third century”) until the reign of Julian the Apostate from 361 AD to 363 AD. Price information after Diocletian’s attempt to impose price controls in 301 AD (“edict on maximum prices”) is too spotty to permit index construction, but it is known that inflation accelerated even more after the edict failed. Rome’s history of monetary debasement started with Nero’s reign from 54 AD – 68 AD – Nero reduced the silver content of the Denarius by 10% to 90%. By the time Diocletian’s edict was promulgated in 301 AD, the silver content of the Denarius was a mere 0.02%. The worst offender among the third century emperors was Aurelian, who in the five years of his reign from 270 AD to 275 AD reduced the coin’s silver content from 50% to just 5%. Not surprisingly, he  tried his hand at price controls as well (at least he won the wars he funded through debasing the realm’s coinage). It took until the 20th century and the adoption of a “scientific monetary policy” by central planning agencies for prices to increase almost as rapidly and strongly as in the chaotic third century. [PT]

 

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A Change in Interest Rate Expectations

In the last issue of Seasonal Insights I discussed the typical pattern of stock prices when the Federal Reserve cuts interest rates.  As one would expect, the stock market tends to stabilize after cuts in the federal funds rate.

The issue is topical, as many investors and analysts expect rate cuts to be implemented soon given that signs of an economic slowdown are beginning to proliferate.

 

Market expectations about the direction of administered interest rates have changed significantly since last November. [PT]

 

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The “Greatest Economy in History” Stumbles

“This is the greatest economy in the history of our country”, Donald Trump opined just a few months ago.

Alas, recently there is growing evidence of an economic slowdown.

 

The Morgan Stanley MSBCI business conditions gauge plummets to its lowest level since 2008, as recent economic data releases ominously persist in disappointing. [PT]

 

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Earnings Lottery

Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery.

 

The beatings will continue until morale improves… [PT]

 

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In 6 of 10 Countries a Single Day Outperforms the Entire Week!

In the Seasonal Insights issue of 13 February 2019 I presented a study illustrating the power of intraweek effects. The article was entitled “S&P 500 Index: A Single Day Beats the Entire Week!” The result of the study: if one had been invested exclusively during a single day of the week since 2000  – namely on Tuesday – one would have outperformed a buy and hold strategy, beating the broad market.

Moreover, one would have achieved opportunity gains, as it would have been possible to invest in other profitable assets over the remaining 80% of the time.

But what is the situation on the global level? Perhaps there are intraweek profit opportunities in international markets as well.

 

Putting the 10 Largest Countries to the Intraweek Test

Today I want to examine whether intraweek effects can be detected in the stock markets of other countries as well, and what they actually look like.

For this purpose I have used the benchmark stock indexes of the ten largest countries in terms of market capitalization from the year 2000 onward.

The charts below show the average weekly patterns of the stock markets of all ten countries. The annualized performance of the stock markets of the respective countries since the turn of the millennium is depicted in black and that of individual days of the week in blue.

Daily changes are measured from close to close; thus the performance of e.g. Tuesday is the average return delivered from the close of trading on Monday until Tuesday’s close.

 

Canada: performance by days of the week, 2000 until 2/2019

 

Only two days of the week delivered a significant positive return

 

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Commodities as an Alternative

Our readers are presumably following commodity prices. Commodities often provide an alternative to investing in stocks – and they have clearly discernible seasonal characteristics. Thus heating oil tends to be cheaper in the summer than during the heating season in winter, and wheat is typically more expensive before the harvest then thereafter.

 

Silver: 1,000 ounce good delivery bars [PT]

 

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The Santa Claus Rally –  A Well-Known Recurring Phenomenon

every year a certain stock market phenomenon is said to recur, anticipated with excitement by investors: the so-called Santa Claus rally. It is held that stock prices typically rise quite frequently and particularly strongly just before the turn of the year.

I want to show you the Santa Claus rally using the Dow Jones Industrial Average (DJIA) as an example. The DJIA has a very long history and is therefore particularly useful for conducting a long-term analysis.

 

Santa Claus, usually known as a reliable purveyor of presents, occasionally steps on something. When he does, it can be fatal. That said, December crashes are historically so rare, one needs only one finger to count them. When the NYSE reopened in December of 1914 after having been closed for several months following the outbreak of WW1, it did so with a~40% gap down – however, the market quickly recovered as war-time inflation began to boost prices. By early 1916 the market was trading at new highs. [PT]

 

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