Investing in an Unjust World

“I have to admit to being baffled by the aptitude of the Wall Street and K Street financial elite to keep their Ponzi scheme growing,” wrote Jim Quinn in mid-2013. The S&P 500 was already up 15% for the year, on its way up to a 30% increase.

For several years, Mr. Quinn has kept a blog called The Burning Platform. It’s one of the few enlightening entries in a mostly useless genre of Internet writing your editor has taken to calling “doom porn” — forever bearish, oblivious to the adage that inevitable events (a market crash) aren’t necessarily imminent.

Here at Agora Financial, we don’t have the luxury of engaging in such activity. We know real people like you count on us for help making real financial decisions and not to “get your doom on.” And so in 2013 our editors identified gold’s breakdown at $1,650 and spotlighted biotech plays that outperformed even a torrid biotech market.

Quinn at least had the presence of mind to recognize the politicians and central bankers could keep the proverbial music playing far longer than most of the doomsters thought possible — or just.

“The appearance of stability is illusory, as the civic fabric of the country continues to tear asunder,” Mr. Quinn continued in 2013.

“Record-high stock markets do not trickle down. The debt-engineered stock market gains enrich the 0.1% at the expense of the working class. Bernanke’s ‘wealth effect’ theory is a charade.”

Hear, hear, says our newest editor, Michael Covel.

You might find that a bit surprising. Michael, after all, is an evangelist for “trend following” — a specialized kind of chart watching. As far as trading goes, Michael is agnostic about the Federal Reserve, the national debt and all the other things that rightly get the doomsters wound up.

But Michael thought so much of Quinn’s 2013 blogpost that he read excerpts of it during his podcast a few weeks later. And yesterday, he directed readers of Trend Following With Michael Covel to the archived podcast episode.

“Even though this is not a recent article, it still applies to everything that’s happening today,” said Michael. “This is especially important now that we’re facing a challenging market environment.

“Central banks around the globe are trying to control the direction of the markets and economies,” Michael goes on.

“But the markets and economies are too complex to be managed by anyone… especially by rumpled suits with Ivy League degrees. They’ve been blowing bubbles for the past two decades, and this is unlikely to change anytime soon.”

So if you’re concerned about the Fed or the national debt or all those other things… rest assured that Michael “gets it.”

But he well understands the dangers of what we call “just world” investing. If it were a just world, investors would be punishing a spendthrift Uncle Sam mercilessly for allowing the national debt to cross the $19 trillion mark. U.S. Treasury prices would be tanking, and yields would be soaring.

Instead, a 10-year Treasury note yields 1.77% this morning — still near three-decade lows.

It’s not a just world… and you’ll quickly go broke investing in a just world. You must invest in the real world.

And in the real world, trend followers are making money in 2016 even while stocks have taken a thumping.

“So far this year,” says Michael, “trend following funds, also known as CTAs, have outperformed all other hedge funds. This is just more proof that this strategy can make money in any type of market environment.”

The average hedge fund got off to a miserable start this year — the worst since 2008. But these CTAs were up an average 2.6% during January, according to Hedge Fund Research.

It’s at this moment we return to a question posed by an aggrieved reader more than once last year. This is the fellow who denounced the other trend followers on our team as “chart chimps.”

“How is it,” he said, “that you can issue calls based on chart patterns generated from a manipulated market?”

Here’s how Michael answered that question in 2013 after reading the Jim Quinn blogpost on his podcast: “You can pretend to know all and be a fundamental follower, but if you’ve got a rigged system, the fundamentals don’t matter. [Emphasis ours.]

“Or you can accept our upside-down world and take advantage of it with a trend following mindset and strategy.”


Dave Gonigam
for The Daily Reckoning

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