Author Archives: Dimitri Speck

     

 

 

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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A Plethora of Headaches

We hope the recent market turmoil is not giving our readers too much of a headache. As you are no doubt aware, the events of the last few weeks have made maneuvering around global markets rather difficult.

 

A less than happy NYSE floor trader [PT]

Photo crdit: Brendan McDermit

 

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Precious Metals Patterns

Prices in financial and commodity markets exhibit seasonal trends. We have for example shown you how stocks of pharmaceutical companies tend to rise in winter due to higher demand, or the end-of-year rally phenomenon (last issue), which can be observed almost every year. Gold, silver, platinum and palladium are subject to seasonal trends as well.

 

Although gold and silver are generally perceived to trend in the same direction, there are actually big differences in their seasonal trends [PT]

 

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From Crash Danger to End-of-the-Year Ramp

 

[Ed note by PT: we are unfortunately a week late in posting this issue of SI, which didn’t reach us in time due to a technical problem. We decided to post it belatedly anyway: for one thing, the effect under discussion is normally in effect until the end of the year; for another, the statistical validity of this information goes beyond the current year, as it is a recurring phenomenon. Lastly we would note that we have a strong suspicion that the effect may actually be cut short this year – details to be discussed in a follow-up post]

 

Knock, knock… it’s Jack, from Wall Street

 

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A Month with a Bad Reputation

A certain degree of nervousness tends to suffuse global financial markets when the month of October approaches. The memories of sharp slumps that happened in this month in the past – often wiping out the profits of an entire year in a single day – are apt to induce fear. However, if one disregards outliers such as 1987 or 2008, October generally delivers an acceptable performance.

 

The road to October… not much happens at first – until it does. [PT]

 

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Most read in the last 20 days:

  • Sovereign Bonds – Stretched to the Limit
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  • Writing on the Wall
    Not Adding Up One of the more disagreeable discrepancies of American life in the 21st century is the world according to Washington’s economic bureaus and the world as it actually is.  In short, things don’t add up.  What’s more, the propaganda is so far off the mark, it is downright insulting.   Coming down from the mountain with the latest data tablet... [PT]   The Bureau of Labor Statistics (BLS) reports an unemployment rate of just 3.7 percent.  The BLS also...
  • Global Stock Markets: Danger Lies Directly Ahead
      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]   The saying is in fact justified...
  • Bond Yields in the Netherworld - Precious Metals Supply and Demand
      A Record Amount of Bonds with Negative Yields to Maturity Last week the price of gold went up $22, while the price of silver dropped ¢17. The big news last week was that the yield on all German government bond maturities is now negative. They are also all negative in Switzerland. And in Denmark, all maturities out to 20 years are negative. Interest rates are dropping rapidly in the US as well.   More than $14 trillion in bonds now trade at negative yields to maturity –...
  • Rising Stock Market Volatility – Another Warning Sign
      Bad Hair Days Are Back We recently discussed the many divergences between major US indexes, which led us to expect that a downturn in the stock market was close (see The Calm Before the Storm for details). Here is an update of the comparison chart we showed at the time:   The divergences between various indexes seem to be resolving as expected.   The next chart shows analogous divergences between the S&P 500 Index and two major foreign stock markets:   US...
  • Retail Holders Sell Their Gold - Precious Metals Supply and Demand
      A Myriad of Reasons to Buy Gold – But Small Holders are Selling Big moves occurred in the prices of the metals last week, with that of gold up $57 and silver $0.77. We have now reached a price of gold (if not silver) not seen since 2013, when it was on the way down. What is causing this sudden spike in price and renewed interest in gold?   A well-known depiction of investor emotions over a complete market cycle. Interestingly, it appears as though many retail gold holders...
  • Bitcoin – From Greed to Fear
      A Noteworthy Sentiment Change Bitcoin and other cryptocurrencies have declined quite sharply in recent days. Here is an overnight snapshot of the daily chart:   Bitcoin corrects again...   It is difficult to gauge sentiment on BTC objectively, but there is a service that tries to do just that. According to its greed & fear barometer, the recent decline seems to have triggered quite a bit of apprehension:   The BTC sentiment measure of alternative.me has...
  • Getting to a Special State of Ugly
    Suspicious Phrases There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion.  When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary.  There is no way it will be done before late spring.   USD-CNH (offshore yuan) exchange rate – the support/resistance level at 7 finally breaks amid escalating trade war rhetoric. [PT]   Or...
  • Interest Rate Watch and Bond Market Curiosities
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  • Tumbling Interest Rates - Precious Metals Supply and Demand
      An Era of Low Time Preference Last week the price of gold moved up another $16, and the price of silver was up $0.14.   10-year treasury note yield since 1999 – it is almost back at the multi-decade low of 2016. The only other time in history when US treasury yields were this low was in 1944-1945, when the Fed was actively suppressing yields in order to provide cheap financing for the war effort. One year later (from mid 1946 to mid 1947) the CPI jumped to more than 17%...
  • A Bubble in Complacency - Incrementum Advisory Board Discussion
      Incrementum Advisory Board Meeting of 31 July 2019 At the end of July the Advisory Board of the Incrementum Fund held its quarterly meeting (a full transcript is available for download at the end of this post). The board was joined by special guest Simon Mikhailovich, a financial market veteran who inter alia co-founded the Toqueville Bullion Reserve. The title of the transcript and this post was inspired by his remarks.   Special guest Simon Mikhailovich   We...

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