If you wanna make the world
A better place
Take a look at yourself
And then make a change
--Michael Jackson
Nice reflection (!) by Bill Gross on linear thinking--the tendency of extrapolating the past into the future. He terms particular market periods 'epochs,' and suggests that investors who simply follow the trend that defines the current epoch are often successful.
But "What if the epoch changes?," he asks. For example, what if the secular trend in easy credit comes to an end? The 'easy trade' in this epoch has been to borrow profusely and go long financial assets. Carry traders have gotten rich on this strategy--particularly as monetary and fiscal policy have bailed them out whenever the cost of carry has inconveniently turned against them.
While epochs often outlast the investors the populate them, no one knows when one epoch ends and a new epoch begins. Employing old strategies in new epochs is a likely a ticket to the poor house.
Try your best to read the tea leaves of change, and be prepared for a new epoch.
position in SPX, Treasuries
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1 comment:
No tree grows to the sky. When things go too good for too long we need to exercise caution, to avoid that King Kong, on top of the world feeling of dangerous pride. All of us are subject to the natural progression of the “S” curve, which ends in decline. When we level off in any activity, we need to consider the reality that we may have peaked. Nearly every “S” curve has a tipping point. Still, 97% of people only change when the pain of change becomes less than staying where they are. People keeping doing the same old thing expecting a different result. This is insanity. If we want a different result, we need to believe, think, feel, say and do things differently.
~R.E. McMaster
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