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Saga of Financial Markets

Fri12152017

Last updateSat, 29 Jul 2017 12am

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为何业界一致判断美联储一定会加息?

2008年以来,美联储通过三次量化宽松政策买入了大量垃圾债券,使证券持有者手中原本不值钱的债券瞬间变成了现金。2007年美联储资产负债表规模只有0.89万亿美元,到2014年底变成了4.5万亿美元,涨了4倍。这些资本进入实体经济从而促进了美国经济的复苏,但同时也带来了通胀的风险。当然了,美联储的策略是向全球输出通胀,全球粮食和能源价格一直上涨,而最近八年美国国内的年均通胀率只有1.4%。

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Why markets fall in 2016?

Year 2016 started with market rout.  What is the cause for the rout?  We believe the cause for the rout may be attributed:  Oil, China and the Fed.

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Junk Bonds Flashing Warning Signs

3 best leading indicators for recession have been Credit Spreads, the Shape of the Yield Curve and Profit Margins.

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In investment the million dollar question is...

The question of when to buy is the heart of every investor.  The two big themes in quantitative investing are momentum (trend following) and value (mean reversion).  The million dollar question is always which method will work now: i.e. should we stay with the trend or is it time to try to catch the falling knife.

{loadposition adsense_l300x250}Mean reversion investor are typically contrarian.  Common strategy contrarian adopted is to buy what was beaten up last year, and to sell what worked well over the preceding 12 months. 

Historically, on a 12 month basics, mean reversion investor have done exceptionally well only when the technology bubble popped in 2000 or when the financial system recovered from near collapse in 2009.  In other, if you are able to identify the turning point of a major crisis to catch the falling knife - turning point, you will be paid handsomely, as a mean reversion investor.

The rest of the time, mean reversion is not a good strategy. According to Citi Research, selling the ten best performers and buying the ten worst each year out of the 250 largest stocks in the MSCI since 1998, momentum wins as shown below:

 

Why?  One of the possible reasons is that 12 month could be too short to see any meaningful reversals.  You would probably get reversals on a two- to three-year view.  Unless they trade on a very short-term basis, contrarians then might have to spend painful time in the wilderness before they are proved right.

Reference:

Financial Time, Dan McCrum, 2016-01-08, "The Art of Contrarian Investing is in the...timing"

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Why Hedge Funds Fail?

Warren Buffet attributed the failure of hedge fund to its fee structure: 2% of asset under managed per year plus 20% of trading profits...it that the real reason?

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