Vitaliy Katsenelson's blog

The Little Book of Sideways Markets is officially out.  It was a fun and interesting project.  I took Active Value Investing (my first book), completely rewrote the first half of the book, added three new chapters (“Born Again Value Investor” is my favorite one), updated it to reflect the post-Great Recession economic environment, added new examples, explained some things differently (hopefully better), distilled it, and made it an easier read for a much wider audience.

Stocks were drifting sideways for a second-straight day Wednesday, which is no big deal considering the sharp rally since late August. But it will be a big deal if the market suffers another lost decade, as Vitaliy Katsenelson of Investment Management Associates predicts. "To be honest, I have no idea what [the market] is going to do over the next three weeks. But I think over next 8 to 10 years it will be going sideways," he says.

Of course, there are many critics of the Fed who say the second round of quantitative easing is wrong and even harmful. "The failure of QE2 doesn't worry me. It's the success that worries me," says Vitaliy Katsenelson of Investment Management Associates.

Fears America is "turning Japanese" have been rampant ever since our real estate
bubble burst.

Just as Japan's policymakers were unable to stave off deflation after their
credit bubble burst in 1989, despite their best efforts, conventional wisdom
holds that all of Ben Bernanke's "reflation" policies will ultimately be
overwhelmed by deleveraging and debt destruction.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen. … the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.

Frederic Bastiat (1801-1850)

It contains seven sections: Selling, Think Like an Investor, Behavioral Investing, Economics, Stock Market History, Risk and Books for the Soul. The first three sections were presented last week and the remaining four are below. I hope you enjoy it.

In these crazy times, all one could ask for is sanity. Yes, sanity – a clear mind, free of noise, with which to face the insanity that the volatile, noisy stock market thrusts upon us. We find ourselves glued to our computer screens or CNBC, waiting to find out what the Dow’s next tick is going to be. What do we get out of it? Only a headache and wasted time.

Here is my advice: read.

Here is my latest article in the October issue of Institutional Investor. But first I want to bring to your attention two articles from the NY Times.

Interview with Vitaliy Katsenelson on the challenges facing China and Japan and the implications to the rest of the world.

I love Barron’s. I really do. I read it from cover to cover, and I truly believe it is one of the few business publications that knows the difference between a good company and a good stock. Now that I’ve sugared it up, let me tell you this: its article on Medtronic is wrong!

The Japanese economy operates on the assumption, soon to be proved false, that the government will always be able to borrow at low interest rates. As internal demand evaporates, the government will have to start hawking its debt outside Japan — in a more realistic world, where interest rates are a lot higher.

Ultimately markets will move sideways long-term.

China is not a black swan, because a black swan is a rare, significant, and unpredictable event. However, the consequences of what is transpiring in China and Japan are for the most part predictable (especially if I am writing about it). We don’t know when they will play out, but they are predictable.

Investors are understandably scared of the sovereign debt crisis unfolding in Europe. Amid their angst, however, they are ignoring a more likely, and significantly larger, debt catastrophe that is about to hit the nation with the second-largest economy in the world — Japan. Two decades of stimulative, low-interest-rate fiscal policy have made Japan the most indebted nation in the developed world, and as new Prime Minister Naoto Kan recently said, in his first address to Parliament, that situation is not sustainable. Japan has little choice but to raise interest rates substantially, with dire consequences far beyond its shores.

 I have not written articles in a few months, except for the one I wrote for the July issue of Institutional Investor magazine, on Japan (I’ll post a link once the magazine comes out)..  I am sure Freud, after spending a few minutes in my subconscious, would provide some disturbing explanations.  But as Freud said, sometimes a cigar is just a cigar.  I've just been enjoying summer with my family.