Not about bonds but an interesting ray of hope?

This is off topic for bonds but I try and read a lot of interesting stuff about investments including views that are opposite to my own. For a few years I have been following posts by Avi Gilbert on the US focused "Seeking Alpha" forum. He uses Elliott Waves and fibonacci numbers to track sentiment in investment markets. He has posts that explain the method. I was extremely sceptical to say the least when I first came across it but I like to keep an open mind. In November 2018 he recommended buying long US treasuries as US interest rates were going up. Nobody else considered that and it seemed a crazy trade. Yet he was right and stocks fell 20% and treasures gained 20%. At the end of 2019 he said there was a good probability that the S&P 500 would fall to 2200 (a 30% correction) and the first quarter of 2020 was key. Again this wasn't taken seriously but look where we are as Q1 comes to an end.

Now the ray of hope. He isn't always right, that would be impossible, but he seems better than average. He has said this fall is part of a longer term wave that will see US stocks reach at least 3800/4000 in the next few years. His actual forecast are only for subscribers but it seems he feels if 2060-2200 holds on the S&P then that could be the bottom i.e we are almost there (but not quite). Remember stock markets often rise just as things in the real world get really bad and everybody gives up all hope.

He sees another lower probability possibility that this is a massive correction and we have a lot further down to go. However even if this is the case the market is unlikely to go straight down. He suggests past crashes have had large rallies within them and there would likely be a 40-50% gain before we head down again.

So either way he feels a rally is coming in the next few weeks and more importantly at the moment markets are doing almost exactly what his charts have been predicting.

Please don't shoot the messenger. I'm not saying he is right and we should buy stocks. I can gives as many reasons as anybody why technical analysis is wrong and these are clearly unprecedented times. However sentiment (fear/greed) does influence stock markets and he tries to capture that. At the moment I'm giving him the benefit of the doubt and watching with interest . . .

Comments

  • edited March 24
    The second is the blind spot barrier. Everyone has blind spots. The blind spot barrier is when a person believes he or she can see everything. But it's a simple fact that no one alone can see a complete picture of reality. Naturally, people can't appreciate what they can't see, just as we all have different ranges for singing, hearing pitch and seeing colours, we have different ranges for seeing and understanding things - https://www.principles.com/principles-for-success

    Seeking Alpha can often turn into Seeking Sensationalism, so take it easy on what might come from there

    I am sure Avi would give ten more predictions all which would be spot on and then his 11th would you loose you 90% and you would end up with less money than you began with, beware of recency bias, nobody can predict the market as future price action is going to be determined by billions of people making economic and everyday decisions based on their biases

    And if Avi has paid subscribers, then he is definitely not getting rich in the markets from his brilliant forecasts

    Yes, Baron Rothschild said to buy when there is blood in the streets, the problem is that blood on street is also subjective, empty aisles and bust businesses are bad, but hey we could have demonstrations, riots, revolution, shooting wars that we are unable to foresee at the present moment of time

    So avi is saying markets can go up and down, in short or long term horizon, okay, that i most definitely agree with, i can now see why he needs paid subscribers and he is not making money in markets itself : )

    The game is what to do when his charts eventually stop predicting, till then avi should take on 500 leverage and get rich quick, haha

    Nobody is shooting the messenger, But because our need to be right can be more important than our need to find out what's true, we like to believe our own opinions without properly stress-testing them. We especially don't like to look at our mistakes and weaknesses. We are instinctively prone to react to explorations of them as though they're attacks. We get angry, even though it would be more logical for us to be open to feedback from others. This leads to our making inferior decisions, learning less, and falling short of our potentials - https://www.principles.com/principles-for-success

  • Frugal, I plan to exit my holding in Xtrackers - S & P Inverse Daily ETF (XSPS) when the S&P500 has decreased to around 1600, so still a drop to go from now (currently 2432), therefore another 34% to go!
    I think we are still in the very early stages of a long running battle against this virus.
    Your "Now the ray of hope.", the tunnel is long!
  • I have no doubt this will be a long battle against the virus and the US could be the next hot spot despite (or because of) their President's assurances. I always hold a significant amount of cash and government bonds and my plan was to invest half the cash in three chunks at 20-25% down, then another at 30-35% down and save the final bit in case things get really bad (40-50% down which would be around 1600 in the US). On average I hope to get around a 30% discount from the highs and participate in the eventual recovery my own health permitting. I know my biases (behavioural finance is my favourite topic), but I like to try and cover all scenarios including the possibility that markets could surprise on the upside.
  • Frugal,
    "significant amount of cash and government bonds"
    Be careful of holding long dated Gilts, I think the market may adjust to the risk if the BOE starts printing too much money. Another security I hold is the
    WISDOMTREE GILTS 10Y 3X DAILY SHORT (3GIS)
    Which shortens the 10 year Gilts

    The problem with this recession, is that it is happening all at once on all the Continents, "demand" for services & goods is being massively reduced. Once things start to get better, nobody will have any spare money for that lovely cruise holiday, in addition, governments around the world will need to tax more their corporates & individuals in order to ensure "Government Debt" is still safe. Somebody needs to pick up the tab - yes it be us!

    If only we had closed our airports at the start of February!
  • Coming into this crash I had 20% cash and 15% gilts and some gold as part of my insurance. So far gilts (and gold) are holding up and have given a degree of protection as I hoped. The cash I am putting to use. I agree the prospects for gilts look awful yet I will likely always hold some to hedge deflation and index linkers for inflation. Since 2010 almost everybody thought gilts were likely to be a poor investment (less than 3% yield at the time) and yet they have returned over 6% per annum since. I agree it is almost impossible to see them repeating that. Index linked gilts have done even better over 10 years (even with no inflation). I like some non correlated assets and having something that will do well in any economic scenario which means some of my positions are always hard to hold and feel wrong. If we end up with deflation, conventional gilts could be the only thing going up. Index linkers (and equities, maybe gold) hedge the opposite risk.
  • edited March 24
    You really can't predict another 34% drop, based on your expectations of unfolding events, pls look through other people's eyes, watch their votes and come to reasonable subjective evaluation of what they are able to see that you alone are not able to see.

    And because our need to be right can be more important than our need to find out what's true, we like to believe our own opinions without properly stress-testing them. We especially don't like to look at our mistakes and weaknesses. We are instinctively prone to react to explorations of them as though they're attacks. We get angry, even though it would be more logical for us to be open to feedback from others. This leads to our making inferior decisions, learning less, and falling short of our potentials - https://www.principles.com/principles-for-success

    Trump is correct in trying to calm everyone down, despite the conflict of interest with his re-election bid. On an average, US every year has got 70million Flu cases, 700k of those get hospitalised and 35k people actually die, this coronavirus is nothing compared to it except the mass hysteria and sensationalism that media and politicians are fuelling to public in this running 24x7 news cycle

    Your health would be fine, don't stress yourself over it : )
  • Gilts are driven lower by Growth and Inflation expectations, and there's no near term possibility for either of those

    The world is flat, the recession these days are thus global, this was no different in 2009

    Lot of people have lots of savings, so plenty of people would love to take a cruise holiday to forget this unnecessary hysteria and sensationalism

    Govt doesn't need to tax more as their Balance Sheets are fairly benign to begin with, their central banks can buy their debt, just like Japan has been doing for very long time

    Nobody needs to be allocated the tab, we just need to get over this mass hysteria and sensationalism

    Airports lockdown would be a mistake as i explained here - https://fii.vanillacommunity.com/discussion/comment/4879/#Comment_4879

  • You could consider reallocating gilts/gold to cash or stocks based on your total portfolio size and annual consumption of it. Cash is also decent in deflationary environment as long as you can find an escape from negative rates, which btw are a terrible idea. Stocks are great for inflation.

    As i have said over and over again, Govvies are great in low growth, low inflation environment. But the problem there is sustainability of that environment. There would be obvious changes in the next election. People, who obviously would be tired of low growth and low inflation, would vote the previous person out, and the next person would do everything they can to get the growth and inflation up. Then you are likely to experience drawdowns on your long Govvies.

    Long Govvies at 0-2% yield, pale in comparison to Stocks with 7% earnings yield. I can also see the recency bias in the view that bonds did well the last decade. What puzzles me here is why the massive outperformance of stocks is not being considered here instead. Yes, S&P500 now had 36% drawdown, but this was the same case in 1987 with another 36% drawdown and the secular bull continued to run for another 13 years producing a massive 607% returns over that period.

    Different businesses/countries are non correlated assets over long period, so diversified global stocks unhedged for currency + cash should serve well over long periods, doesn't matter the drawdown over near term.

    You can't plan for every economic scenario as some scenarios are lower probability and low duration like the current one, it's way too expensive an opportunity cost to hedge all of these
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