I love the year end year in photos…The below lists are from one of my favorite blogs, Kottke:




2012: The Year in Photos from In Focus: Here’s part two.

Best Photos of the Year 2012 from Reuters.

The 45 Most Powerful Images of 2012 from Buzzfeed:  See also The Best Animal Photos of 2012.

Pictures of the Year 2012 from AFP (Agence France-Presse).

2012: The year in pictures from CNN.

Year in Photos 2012 from the Wall Street Journal.


And also Kottke’s interesting list on new publishing ideas…from his post:

Subcompact Publishing:  Not sure I like the name, but I dig his gist. Here are a few examples I’ve seen:

Evening Edition: A daily roundup of the news brought to you by Mule Design.

29th Street Publishing: They’re building a platform to make publishing Newsstand apps as easy as publishing a blog. Example pubs: The Awl’s Weekend Companionand V as in Victor.

NextDraft: From Dave Pell, a culture-centric newsletter available via email and for iPad/iPhone.

Brief: “Technology news worth caring about”, compiled daily by Richard Dunlop-Walters.

The Magazine: A bi-weekly iOS magazine for tech/internet lovers published by Marco Arment.

MATTER: An outlet for long-form journalism founded by Jim Giles and Bobbie Johnson.

Tapestry: A platform for making tappable iOS publications from Betaworks.

Lipper Insight

This is a nice new website I had not seen before, Lipper Insight:


I am in Phoenix and Tucson this week, drop me a line if you want to say hello…

Hercules! Hercules!

Excellent new white paper from Montier at GMO - The 13th Labour of Hercules: Capital Preservation in the Age of Financial Repression.  I got this late in the day and don’t want to goto the gym so I figured I would run some analysis on some of the ideas…

It touches on a number of topics (namely negative real rates) but most interesting to me was their chart of forecasted returns relative to drawdown in the next three years.  It should come as no surprise, but when markets are expensive you have a great chance of a big fat loss.


I wanted to take this chart back to 1880 in the US (they only take it to 1940), as well as simply comparing it to CAPE values rather than GMO forecasts, but as you can see, the conclusion remains the same.  (More background in our paper here:  Global Value: Building Trading Models with the 10 Year CAPE.)

Pay up for a market, and expect a greater chance of pain to come.  I was surprised to note how small the 3 year chance of drawdown at low valuations was.

Will update this with some ideas from foreign markets in the coming days.



Top 10 ETF Launches of 2012

Back in Feb I predicted that Gross’s new fund would raise $5b (and it didn’t so I had to buy Jake at EconomPic dinner and beers).  However, it was the most successful launch in 2012 and has garnered nearly $4b in assets.  (Out of 165 launches and 95 closures.)

The rest of the class?  Almost all bond funds.  Lots more to come in 2013…

From IndexU article:

Stock Market Forecast = Marine Layer

Living in Los Angeles I’ve often woken up in the morning to see a big grey haze out everywhere (like today) that people affectionately refer to as the marine layer.  Eventually it usually “burns off” by the afternoon, sometimes by 10 am, sometimes 2pm, sometimes not at all.

That pattern reminds me a bit of where we are with stock market valuations.  As the good Dr. Hussman shows in his weekly blog, it doesn’t really matter which market valuation metric you prefer, most signal a bit of overvaluation to the market.  It’s nothing nearly as awful as the late 1990s, but it means that until this valuation “burns off”, which can take years, decades, or possibly even a month or two, you will have somewhat muted returns of perhaps 4% nominal per year.  Below are his charts that look at some basic valuation metrics and subsequent market returns.







This is also a reason we prefer using these valuation metrics not only as an absolute indicator, but also relative.  Usually, there is some country trading at low valuations (Greece, Ireland) while others are trading at rich ones (Columbia, US).  We examined constructing trading models out of global valuation metrics in our paper Global Value: Building Trading Models with the 10 Year CAPE.

Here is also a nice piece on stock market indicators we sent out to the Idea Farm list this weekend.

The End of a Trend?

Investment styles go through cycles of performance.  I was chatting with a friend the other day about the relative underperformance of trendfollowing funds the past few years, and remarked that we’ll know we are near a bottom when some CTAs start going out of business.  I was bummed to see the news the other day that John Henry’s funds are closing shop.  (JWH was one of the pioneers in the field, although I don’t think he has been that involved for quite some time.)

Below is a chart of the Altegris40 Index against the S&P500.  (There are a bunch of these CTA indexes including Barclays, Morningstar, S&P, and IASG.)  You can see the strong and consistent performance for the past 20+ years, with lower drawdowns than the S&P.  The index regularly has 10-15% drawdowns, and three of the last four years have been in the red.

The next chart is the same indexes since the bottom in 2009.

Is this a magazine cover indicator for the trend funds?



Politics and Profit

This is a paper we put out back in 2010, and I think it is a really fun read.  It combines the January Effect in small caps with the four year Presidential Cycle.

Feel free to play around with this on your own, all the data is free over on French Fama.

Politics and Profit (PDF)

Below is a chart of all months median returns across the 4 year cycle since 1926 (Hi30 and Lo 30). Year 1 and 2 (ie 2013 and 2014) tend to be pretty marginal for for large caps (although mid and small are better especially in year 1).  Perhaps we will see continued selling of the large caps, especially big winners and dividends ahead of the tax rate hike?

Article from Steve Sjuggerud also on the topic



Alpha Now

Great blog from Thompson called Alpha Now.  They do a feature called the month in charts, a few highlights below…




Sentiment Updates

Courtesy AAII



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