Chancellor: U.S. bull market can’t go on forever

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Crunching numbers won’t provide the winning investment formula. Instead, successful moneymaking involves what Alexander Ineichen, a Swiss financial analyst, calls “applied wisdom”. Financial assets look potentially vulnerable with interest rates at their lowest level in five millennia, U.S. stocks trading at record valuations and no shortage of irrational exuberance. The wise investor, says Ineichen, should be aware of such risks, but that’s not reason enough to rush for the exits.

”, offers everything you need to know about investment. The first rule, as former U.S. President Barack Obama concisely expressed it, is “don’t do stupid shit.” Many investors are choosing to ignore this sound advice. Instead, they are piling into special-purpose acquisition companies, stratospherically priced cloud businesses, dodgy cryptocurrencies, so-called non-fungible tokens and the like. Their actions violate another key rule, articulated by George Soros, that “good investment is boring.

The trouble is that markets are complex systems, which are by their nature unpredictable. “Only fools, liars and charlatans predict earthquakes,” said the seismologist Charles Richter. Ineichen invokes Gump’s Law , to the effect that life is a box of chocolates because you don’t know what you’re going to get. That doesn’t stop people from attempting to forecast. But research shows that forecasters with the biggest media profiles are especially bad at the job.

It’s not just a question of irrationality: U.S. stocks have traded above their long-run average valuation for at least 25 years. Ineichen cites the late Martin Zweig’s two cardinal investment rules: “Don’t fight the tape” and, more pertinent to the current day, “Don’t fight the Fed.” Wisdom lies in watching markets. Wait until the facts change, and then change your mind. Ineichen is an exponent of “nowcasting”.

 

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Chancellor: U.S. bull market can’t go on foreverStein’s Law dictates that “if something cannot go on forever, it will stop.” Timing is another matter. “Nowcasting” looks at macroeconomic and market indicators, and finds little cause for concern. But it’s just another model. And, as Box’s Law states: all models are wrong.
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