Thank you Joachim. I really like your posts and couldn't agree more in focusing on the empirical vs the theory. I've seen in both public and private sectors that we're still too often caught up in theory -- I think because it's easier and cleaner (and perhaps because a lot of people in economics and finance like to think understanding a few equations makes them smart). As you say, the economy is billions of people making different decisions for different reasons. That's why I love trying to make sense of it too!
Happy New Year, Joachim - I am not particularly bored, but do read all your posts which must make me mad, although I hope not. Always amazed by the amount of time you are able to dedicate to reading the papers and then writing these. I can barely function after my day job. I enjoy your approach and dry sense of humour. Keep them coming and I certainly look forward to more of these!
Happy new year. Apropos long-term stock market risk and returns, over the holidays I noticed that, for the first time since 1998 and 1999, the S&P 500 produced back-to-back years of >20% total returns; in addition, for the first time since 1975 and 1976, the index generated back-to-back years with a Sharpe ratio >2.0 (implying that the investment is generating more than two units of return for every unit of risk taken). At the turn of each new year, brokerage houses all feel compelled to produce predictions for full-year stock market returns, which I find a bit ironic, as for the rest of year they can't seem to get quarterly earnings or monthly ECB/Federal Reserve meetings correct, and I'd bet that there were *zero* brokerage strategists who confidently predicted +24% for the S&P 500 and +27% for the Nasdaq 100 in 2024. This conventional wisdom likely to result after this sort of outperformance is that we're likely poised for a massive correction at worst, or flat to mediocre returns at best in 2025.
We're also doubtless about to read the annual parade of reports on how stock markets in Europe generally and the UK specifically look relatively attractive, "poised for a rebound", "bound to close the gap", etc. However, I have been increasingly concerned about the degree to which the US economy and stock markets are trouncing Europe https://www.reuters.com/markets/us/imf-lifts-us-growth-forecast-marks-down-china-sees-lackluster-global-economy-2024-10-22/ . I am reminded of a chart I once saw showing that Google and Facebook have essentially hoovered up and consolidated what used to be the collective market caps of hundreds of advertising-driven media companies. Could the US also be doing the same more broadly via Amazon et al.?
I recently wrote up my notes from my first trip to Europe in 1987 https://gunnarmiller.substack.com/p/jun-1987-european-grand-tour-journal , and recall how much more advanced Germany in particular used to appear to my 22-year-old American eyes. I remember how the likes of Minitel, ISDN, MP3s, and essentially the whole car industry, really felt like the future. Contrast this with some of my American acquaintances now starting to call us "Europoors"; Professor Scott Galloway has said something along the lines of "Europe's a great place to live, but be sure you've already made your money in America first".
One of the most damning developments has been successful European companies (Spotify, ARM, Birkenstock, etc.) no longer even bothering to list in Europe at all, and lots of established companies (Linde, CRH, Wolsely, UMG considering) opting for the NYSE; how are indices supposed to perform with all the growth companies sucked out of them? I have strong personal feelings on this, as I believe that strong local capital markets are key to capital formation and innovation which are de facto strategic assets; controversially, I think companies should be *required* to list where they were founded and have benefitted from locally-educated labor forces, if not direct government subsidies and tax breaks.
I also wonder if Europe's sort of lost the plot on productivity. I woke up early this morning to attend a recurring weekly meeting, and discovered that the year doesn't really start until next week. In the US, Christmas Day and New Year's Day are market holidays, so that's two days off; in Europe it's essentially 14. I've had a 40-year career, so (14-2 = 12 *40 = 480 days, meaning that during my career alone the US has logged in almost two more 250-day working years ... just over Christmas/New Year's. A labor-leisure trade-off indeed! https://en.wikipedia.org/wiki/Labour_supply
As someone once said, "80% of success in life is just showing up" ... so it's a great sign that you're already posting on 2 January!
Thanks Gunnar. I will post my usual comments on equity market forecasts tomorrow, but rest assured as someone who participates in this annual ritual as a Bloomberg contributor, I have absolutely nothing god to say about that. To me it's like looking for Easter eggs or putting up a Christmas tree. It's an annual ritual that has no deeper meaning than to make us feel good.
Hello Joachim, in this world of information overload your posts stand out as they shine a different and refreshing light on relevant subjects. I am impressed with your ability to keep up with the five per week commitment!
Good to see you back again JK and Happy New Year. I too, am one of those who read all your articles. Re your comments on the inefficiency of markets, surely these terms are relative. In my experience markers are fairly, but not completely efficient. Good companies are nearly more expensive than poor performers. Academics readily admit that theories about human behaviour, economics, investing, politics, war, etc) are only about 75% efficient. (with a st. dev. 25% and the distribution is not normal.) :)
I am very happy that you found a paper that presents evidence for my hypothesis that stocks have different elasticity. But authors might underrate the extent the extend of how inelastic narrative-prone certain large stocks might be. If you think it's worth your time, you might want to read the link below.
" I post five days a week but only a mad or extremely bored person would read all of them" I AM FROM THE "EXTREMELY PERSON" and i will continue reADING YOU :)
Keep them coming! Challenging and sometimes provocative but always useful posts.
Thank you Joachim. I really like your posts and couldn't agree more in focusing on the empirical vs the theory. I've seen in both public and private sectors that we're still too often caught up in theory -- I think because it's easier and cleaner (and perhaps because a lot of people in economics and finance like to think understanding a few equations makes them smart). As you say, the economy is billions of people making different decisions for different reasons. That's why I love trying to make sense of it too!
Happy New Year, Joachim - I am not particularly bored, but do read all your posts which must make me mad, although I hope not. Always amazed by the amount of time you are able to dedicate to reading the papers and then writing these. I can barely function after my day job. I enjoy your approach and dry sense of humour. Keep them coming and I certainly look forward to more of these!
Happy new year. Apropos long-term stock market risk and returns, over the holidays I noticed that, for the first time since 1998 and 1999, the S&P 500 produced back-to-back years of >20% total returns; in addition, for the first time since 1975 and 1976, the index generated back-to-back years with a Sharpe ratio >2.0 (implying that the investment is generating more than two units of return for every unit of risk taken). At the turn of each new year, brokerage houses all feel compelled to produce predictions for full-year stock market returns, which I find a bit ironic, as for the rest of year they can't seem to get quarterly earnings or monthly ECB/Federal Reserve meetings correct, and I'd bet that there were *zero* brokerage strategists who confidently predicted +24% for the S&P 500 and +27% for the Nasdaq 100 in 2024. This conventional wisdom likely to result after this sort of outperformance is that we're likely poised for a massive correction at worst, or flat to mediocre returns at best in 2025.
We're also doubtless about to read the annual parade of reports on how stock markets in Europe generally and the UK specifically look relatively attractive, "poised for a rebound", "bound to close the gap", etc. However, I have been increasingly concerned about the degree to which the US economy and stock markets are trouncing Europe https://www.reuters.com/markets/us/imf-lifts-us-growth-forecast-marks-down-china-sees-lackluster-global-economy-2024-10-22/ . I am reminded of a chart I once saw showing that Google and Facebook have essentially hoovered up and consolidated what used to be the collective market caps of hundreds of advertising-driven media companies. Could the US also be doing the same more broadly via Amazon et al.?
I recently wrote up my notes from my first trip to Europe in 1987 https://gunnarmiller.substack.com/p/jun-1987-european-grand-tour-journal , and recall how much more advanced Germany in particular used to appear to my 22-year-old American eyes. I remember how the likes of Minitel, ISDN, MP3s, and essentially the whole car industry, really felt like the future. Contrast this with some of my American acquaintances now starting to call us "Europoors"; Professor Scott Galloway has said something along the lines of "Europe's a great place to live, but be sure you've already made your money in America first".
One of the most damning developments has been successful European companies (Spotify, ARM, Birkenstock, etc.) no longer even bothering to list in Europe at all, and lots of established companies (Linde, CRH, Wolsely, UMG considering) opting for the NYSE; how are indices supposed to perform with all the growth companies sucked out of them? I have strong personal feelings on this, as I believe that strong local capital markets are key to capital formation and innovation which are de facto strategic assets; controversially, I think companies should be *required* to list where they were founded and have benefitted from locally-educated labor forces, if not direct government subsidies and tax breaks.
I also wonder if Europe's sort of lost the plot on productivity. I woke up early this morning to attend a recurring weekly meeting, and discovered that the year doesn't really start until next week. In the US, Christmas Day and New Year's Day are market holidays, so that's two days off; in Europe it's essentially 14. I've had a 40-year career, so (14-2 = 12 *40 = 480 days, meaning that during my career alone the US has logged in almost two more 250-day working years ... just over Christmas/New Year's. A labor-leisure trade-off indeed! https://en.wikipedia.org/wiki/Labour_supply
As someone once said, "80% of success in life is just showing up" ... so it's a great sign that you're already posting on 2 January!
Thanks Gunnar. I will post my usual comments on equity market forecasts tomorrow, but rest assured as someone who participates in this annual ritual as a Bloomberg contributor, I have absolutely nothing god to say about that. To me it's like looking for Easter eggs or putting up a Christmas tree. It's an annual ritual that has no deeper meaning than to make us feel good.
Hello Joachim, in this world of information overload your posts stand out as they shine a different and refreshing light on relevant subjects. I am impressed with your ability to keep up with the five per week commitment!
Thank you and I wish you an excellent 2025!
Good to see you back again JK and Happy New Year. I too, am one of those who read all your articles. Re your comments on the inefficiency of markets, surely these terms are relative. In my experience markers are fairly, but not completely efficient. Good companies are nearly more expensive than poor performers. Academics readily admit that theories about human behaviour, economics, investing, politics, war, etc) are only about 75% efficient. (with a st. dev. 25% and the distribution is not normal.) :)
Happy New Year! Greetings from Nebraska in the US and a avid daily reader (I may be a little mad, but aren’t we all a little mad haha)!
Thank you a lot, Mr. Klement.
I am very happy that you found a paper that presents evidence for my hypothesis that stocks have different elasticity. But authors might underrate the extent the extend of how inelastic narrative-prone certain large stocks might be. If you think it's worth your time, you might want to read the link below.
https://metacriticcapital.substack.com/p/i-might-have-changed-my-mind-passive
Artemis Capital is an (apparently) defunct hedge fund that published a bunch of interesting papers.
https://www.artemiscm.com/research-market-views
"The Allegory of the Hawk and Serpent"
How to Grow and Protect Wealth for 100 Years
is particularly good- it outlines a 2-phase model of US stock performance over the past 100 years.
You have to email the proprietor and he sends you the paper. It's worth reading.
" I post five days a week but only a mad or extremely bored person would read all of them" I AM FROM THE "EXTREMELY PERSON" and i will continue reADING YOU :)