I Am a Bull – Stock Markets Operate in Cycles, they Rise and Fall

The negative feedback to the recent End of Australia promotion was overwhelming.

By my count, for every one supportive email there were 10 that shot me down in flames.

Stop writing that rubbish. You’re scaring people out of the market. How much have you cost people with your ‘Chicken Little’ nonsense?

And these were the polite ones.

OK. Message received loud and clear.

No more bearish talk from me. No more warnings of impending doom. No more glass almost empty commentary.

From now on it’s all positive.

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Obviously a backflip of this magnitude requires a considerable shift in thinking.

Fortunately, this task was made a whole lot easier by the persuasive arguments in the ‘less complimentary’ emails.

You’re an idiot.
Banks pay you nothing.
The Fed will not let anything bad happen.

Far be it from me to argue with the intellectual rigour of these comments.

The mental gymnastics I’ve performed over the past week have required me to either dismiss or ignore some long-held beliefs.

History clearly shows that markets (in the past) rise and fall.

The Stock Market Operates in Cycles…

The duration of each bull and bear cycle varies…but one thing is abundantly clear…they all end. Then the next cycle starts.

The Rum Rebellion 13-02-20

Source: Twitter

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But in my new altered mental state, I no longer believe history is a reliable guide to future outcomes.

The cyclical nature of markets is over.

The bear is dead…it’s been stuffed and mounted for display in a Wall Street museum. A relic of a bygone era…one that the all-powerful Fed has consigned to the history books.

From this point forward, markets are destined to advance in a lineal fashion.

No more cycles.

You’ll be able to hop on and off at any point you choose on the market’s pathway to ever higher levels…and you’ll never lose.

You don’t know what a relief that is.

Do you realise how exhausting it’s been keeping vigil for signs of danger on the horizon?

Not ever having to worry again about markets experiencing a prolonged downturn certainly makes this investing business a lot easier…even an idiot like me can do it.

Ignoring history required a few days of intense therapy, but I got there.

Once that hurdle was cleared, the rest became a little easier to ignore.

Record debt levels?

Silly me, I always thought there was no new way to go broke…it was always too much debt.

However, in my defence this mistaken belief was supported by Professors Reinhart and Rogoff in their research paper ‘This Time Is Different: A Panoramic View of Eight Centuries of Financial Crises’.

On the strength of the reader’s persuasive counter arguments, I’ve been able to dismiss the following findings of the renowned Economics professors (emphasis added)…

This paper offers a “panoramic” analysis of the history of financial crises dating from England’s fourteenth-century default to the current United States sub-prime financial crisis. Our study is based on a new dataset that spans all regions. It incorporates a number of important credit episodes seldom covered in the literature, including for example, defaults and restructurings in India and China. As the first paper employing this data, our aim is to illustrate some of the broad insights that can be gleaned from such a sweeping historical database. We find that serial default is a nearly universal phenomenon… Major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors.

Don’t you worry, I’ve already sent the good professors a copy of the emails I’ve received.

Based on the rigorous and well-constructed arguments in those emails, we should expect to see a re-write (with due credit of course to the writers of said emails) along the lines of…

‘We, Professors Reinhart and Rogoff, acknowledge that 800 years of data showing serial default is nearly a universal phenomenon­ has been rendered redundant.

‘On information we’ve received from informed sources in Australia, we’re convinced that it really, truly is “different this time”.

‘Our error was in assuming that human nature would compel us to repeat the same mistakes as those who’ve gone before us.

‘However, it’s apparent to us that central banks have effectively rendered debt crises obsolete. The world will never again be subjected to the notion of there being a limit to how much debt the system can handle.

‘We have entered a new era…one where debt levels no longer matter.’

Once you let go and accept it’s different this time, then it gets easier to ignore articles like ‘The trillion-dollar corporate debt mountain threatening the world’s economy’.

To quote (emphasis added):

Debt is “the match that lights the fire of every crisis”, in the words of Aaron Ross Sorkin, chronicler-in-chief of the meltdown which nearly collapsed the world’s financial system more than a decade ago. 

Whether the villains are bankers, regulators, politicians or credit ratings agencies, the common ingredient is usually the same: too much leverage.

UK Telegraph, 14 January 2020

If that poor sod — Aaron Ross Sorkin — realised that debt no longer matters, he could have saved himself the embarrassment of publicly uttering that ‘too much leverage’ is a threat to the global economy.

And how silly does the IMF look now?

As reported in the UK Telegraph on 16 October 2019 titled ‘IMF sounds alarm over $19 trillion corporate debt mountain’.

A [US] $19 trillion corporate debt mountain built up by reckless lenders seeking higher returns threatens to topple over and deepen the next recession, the International Monetary Fund has warned.

The global lender of last resort sounded the alarm on a boom in corporate lending in the US and China, with debt classified as high-risk accounting for almost half of the market in the world’s two biggest economies. 

The IMF said in its Global Financial Stability Report that in eight major economies including the UK, debt-at-risk — or money owed by companies which cannot cover the interest payments with profits — would hit $19 trillion in the next downturn, or 40pc of the total amount owed by businesses.

Inspired by the emails showing me the errors of my ways, I sent an email to Christine Lagarde at IMF pointing out the errors in the IMF’s ways.

Not generating enough profits to pay interest costs is soooo yesterday.

Who cares?

Don’t they realise this is the new era of lineal growth…just hop on and off with no risk.

The IMF should just take a chill pill.

And why, you have to wonder, did the Financial Times even bother running this article on 4 February 2020 titled ‘Global Junk Bond Issuance Hits Monthly Record’?

New bond sales by the riskiest borrowers around the world set a monthly record in January, as businesses and other issuers sought to lock in financing while rates are low.

Bond issuance is typically heavy at the start of the year, when corporations try to raise as much of their annual financing as possible, but the wave of deals this year was unusually large, according to Dealogic.

New issuance through to January 31 amounted to $73.6bn, exceeding any monthly total over the past 25 years, according to Dealogic. Of that, $57.1bn was issued by companies.

In our new world where nothing can go wrong (and if it does, the Fed will make everything right again), why should it matter that the riskiest borrowers around the world are shoving records amount of junk down the throats of yield-starved investors?

Just because junk bonds have wreaked havoc in the past, it doesn’t mean that’ll happen again. In fact, some email writers assured me — in no uncertain terms — that these risks are overstated.

It really is different this time. None of these mounting risks matter anymore.

How comforting.

Doomed to repeat history…

You guessed it…I am a bull…shi**ter. There has been no Damascus moment.

On the contrary, the negative responses to the recent promotion was an excellent contrarian indicator.

Blind belief in and strident defence of a long-established trend continuing indefinitely is proof ‘it is NOT different this time’.

Those who fail to learn from history are doomed to repeat it…

On Sept. 3, 1929, the Dow Jones Industrial Average swelled to a record high of 381.17, reaching the end of an eight-year growth period…

Yale economist Irving Fisher was jubilant. “Stock prices have reached what looks like a permanently high plateau,” he rejoiced in the pages of the New York Times.

Time magazine

Peak optimism tends to accompany market peaks.

And, pessimism is at its greatest when markets are at their lowest.

That’s the cycle. Ignoring and dismissing it, doesn’t mean it ceases to exist.

The only thing that ceases to exist from an ignorance of history, is your capital. And that’s no bullsh*t.


Vern Gowdie,
Editor, The Rum Rebellion
PS: Watch the exclusive video interview to learn why Harry Dent believes Aussie real estate is overvalued and how we could soon enter our first recession in decades by 2022. Watch the Video Now

Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.

Learn more about Greg Canavan's Investment Advisory Service.

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