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IceCap Asset Management: The Third Law Of 'Stock Market' Motion
Excerpted from IceCap Asset Management's Keith Dicker's latest letter to investors,
Three hundred years ago, physicist Isaac Newton, compiled the Third Law of Motion. Ever since, people everywhere have noticed how every action does indeed have an equal and opposite reaction.
This Third Law of Motion is certainly evident in the music world where The Rolling Stones gathered a lot of moss. The hoodlums of rock & roll seduced the world into sympathizing with the devil as well embracing the emotion of never being satisfied. At the time, the Rolling Stones represented the dark side of music and life.
The Beatles on the other hand represented the opposite reaction – they wanted nothing more than to simply hold your hand. They embraced the rising of the sun and were seemingly always twisting and shouting about love. At the time, the Beatles represented the bright side of music and life.
Of course, as time passed the social infatuation and rejection of each band, swung dramatically and often in opposite directions, just as Newton’s Third Law of Motion predicted it would.
The pendulum of the money world also swings from side to side, yet most of the time, most investors, mostly see what they want to see. The good times are always just around the corner and any bad times were simply the luck of the draw.
Astonishingly, Newton’s Third Law seems to be either forgotten or dismissed altogether, and this is a shame because the world’s financial pendulum is in the process of reaching that ever so brief pause, after which it then begins to swing in the other direction.
To many thoughtful investors, it has become crystal clear that the world is indeed on the cusp of a dramatic change in direction. There will be extreme cases of financial, social, political and economic losses. But there will also be extreme cases of financial gains – the secret is understanding how and where global capital will flow.
Applying Newton’s Third Law of Motion will help you realize that for every negative action, there will also be an equal positive reaction is crucial to both preserving and growing your wealth.
Unfortunately, many investors make the mistake of taking a singular stance without the thoughtful consideration of Newton’s Third Law. Of course, this one dimensional thinking is deeply rooted in our recent past – the one that dominates our investment expectations to this day.
We’ve written and presented before that practically everyone in the investment business today earned their stars and stripes during the famous 1982-1999 bull market (see Chart 2).
We’ve experienced countless occasions and situations where investment firms would use market data with 1982 as the starting point to flog their newest mutual fund to the unsuspecting public. Better still are the moments when a grey haired, industry veteran begins lecturing us with the all too predictable “…I’ve been in this business for 30 years, and …”. And since 30 years is a long time, they must be right.
But, and this is a pretty big BUT – they are only right if you use the early 1980s as the starting point. Otherwise, they are pathetically wrong.
For those not in the know, both the stock market and the bond market enjoyed their greatest runs ever when using 1982 as the starting point.
In fact, almost every investment fund ever created produces perfectly, perfect returns using the magical 1982 start date. Yet, simply shifting the start date back to 1952 and counting forward 30 years will give you a not so rosy story – and most likely, fewer clients. It appears that IceCap is not the only one to observe this seemingly obvious point. Chart 1 below perfectly illustrates this exact same concept.
The point we make is that many investors in the world today are too trustworthy of their local banks and advisors, and have swallowed the industry sales pitch hook, line and sinker. Instead, respecting and understanding that financial, economic, social and political histories actually predate 1982, will provide you with a different perspective on how the world is now shaped.
The belief and hope (there’s that word again) that the world will continue along a upward trend with a few bumps here and there has been grossly miss-sold. Instead, the pendulum is changing direction and this change in direction will create untold losses for the Euro currency, government bonds, and banks & insurance companies around the world.
Yet, the brighter side of the investment world will see untold gains for the US Dollar and US stocks.
The key to understanding this paradigm shift is respecting Newton and his Third Law of Motion. As Europe further disintegrates down its rabbit hole, private sector money will seek safety. And, the only market big enough in the world to absorb this kind of capital movement is the US Dollar.
The Biggest Fallacy
The world is riddled with many untruths, and none compare to those perpetuated by the investment industry and its staunch belief that economic growth is the driver of stock market growth.
On the surface, it is a nice story – after all, if a company makes profits, pays out dividends and then makes more profits and pays out even more dividends, it has to be good for the stock price.
Yet, if any half-respected investment analyst sharpened their pencil just a little, and researched economic growth and stock market movements, their objective conclusion would be a jaw-dropper to say the least. Yes, there certainly are times when stock markets do well when our economies are growing, but there are also times when the exact opposite happens, and even more times when there is no rhyme and reason to connect one with the other at all.
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Full IceCap Letter below:
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What a perfect thread to place this question that is starting to bother me.
Is the whole concept of investing, itself, immoral?
If it all zeroes out over the long haul, then you are watching conservation of matter/energy at work.
I just want to save, and preserve the value of what I save. I am not trying to get something for nothing.
Investors are.
That seems to me to be the real "crime/conundrum/issue." The bankers can fuck us because we are trying to fuck someone, intrinsically, in the concept of investing.
I am not saying I am sure of what I just posted. But it is bothering me.
If thinkers don't pursue wealth, it will go in wrong hands. We must earn wealth and push the world in right direction.
The pendulum of the money world also swings from side to side,
“swings both ways, it goes back and forth In comes a southern breeze
Or a cold wind from the north"
Real investing is not immoral. If you find a company on CrowdFunder that will use your money to create a new product then you're engaged in a sublimely moral act. You're risking your saved work in the attempt to create something new that fills a demand. You're creating new jobs.
Investing in the S&P 500 - that's a different question. Capital has flowed into it only because our monetary system overlords have created a Potemkin village. This is a facade of a healthy economy where we have over 50 million on food stamps, over 10 million on permanent disability, and record low employment participation. You may make money, you may not, but you're not risking your saved work to making any improvements in the human condition. You're gambling. That's OK - it's your money - but its not an investment.
A noble enterprise within the context of finances. However the major factor of that saving is the economy which in turn is derived from the financial activities of the population. All is relative giving a run up from Newton to Einstein. And from that one must then look at possibilities and from there probabilities.
The real question before morality is ... 'Save what?' What is value and what will be of value in the future? And your life span must also encompass that 'future'. What is valuable to you? What is the ranking of your values ... money first or happiness first and all that one can stuff in between.
If the "value" you are trying to preserve is expressed in "fiat" then the concept of "preserving" it is illusory. One day that $20 gold piece you have in your safe will have to be worth $20,000, or more in order to have "preserved" its "value".
The same applies to all fiat.......Of couse when valued at $20,000 the criminals in D.C. and the FED will want to confiscate it and compensate you the $20 you paid for it when you acquired it........or fine you, imprison you, or murder you if you resist.
Have a nice day.
Father Time's old saying on Saturn is time is Money
My reply will cost you 1 hour at my hourly rate + 1/2 % of your total wealth
If what you mean by "investing" is actually speculating, or engaging in what are essentially forms of attempted arbitrage, then I would say that yes, the activity itself is moral.
Our financial system is rotten and reeks of immorality because it has been taken hostage by governments serving as enforcers for a handful of sociopaths determined to centrally manage all of humanity.
"Investors" by definition are a net positive for the world when functioning in a fundamentally moral system.
Our system is almost farcically, and increasingly dangerously reckless. I suppose one could make the case that to participate in this particular SYSTEM might indeed be immoral.
Well averged-out over the long term, you can only gain in value as much as the rate of real GDP growth is (not gov't -cough- manipulated numbers), less your fees and CG taxes.
But that is also true for how much RE can appreciate.
The economists "solved" the conundrum by effectively telling us we live in a permanent outlier, so they avoid the bitter truth that we have massive currency depreciation.
Given that other news this week about China surpassing the U.S. economy, and given the great market share in the BRICS countries, is it really self evident the dollar will be the "safe" place for these flows. It may depend on how long before the pendulum swings.
While I do appreciate Keith calling out economists and their inability to predict the last 7 recessions, I must disagree with his use of the word CAPITAL. Capital is what you make from creating something of value. Could be goods or services. Central Banks do not create Capital, they conjure up FIAT shifting it from one investment class to another, or continent to another, one "market" to another till bubbles form and pop.
I was struck by the fact that there was no specific mention of precious metals and a negative outlook on commodities. IceCap used to be gold bugs, right?
Stock market performance is now and has always been a reflection of what the central bank is doing. Understanding that used to give you an edge. That is why guys like Paul McCulley were so valuable. Now that the central banks of the world have come out of the closet in their unbridled desire to levitate the price of anything that goes into a 401k things have just gotten weird and the edge is gone. No one believes that stocks can go down ever again. But they must certainly do so if they outrun the desire of fund holders to hold equity, which is to say the perception that the value will always be high and rising. I do not know what will change that, though I would guess it is political. Mystified
"Professional economists have predicted 0 of the last 7 recessions."
So the amateurs like Steve LIESman must be even worse.
In both cases "useful idiots" comes to mind.
That "letter" read like one of those flashy 8 page "investment opportunity" screeds that come via bulk mail...very, very little new infomation to anyone who's been paying attention...and where is the great insight re: where to invest once the pendulem swings? Jeez! USD, US Stocks, "better" bonds, and don't even THINK about PM...damn, I could have come up with that but didn't think anyone with a sense of investing reality would consider it at all clever...
Ice Cap: one click away from Ice Cube: cold, square, and born to melt away...
Oh, and one more thing: this "Third Law" business: OK, so we're all watching the stock market rocket to the moon...where is the Ice Cap plan for when the sucker rolls over and starts screaming back down??!!
short the bastards,. till shorting is banned again
Nothing can grow forever.
Everything has a maturity date where growth becomes negligible.
Fraudulent world capital will flow where the banksters of the world want it to......into their coffers........until finally, their heads and those of their corrupt political puppets, will roll......anger, disgust, desperation, and necessity inflicted upon the cold, hungry, and homeless masses is what will be the final determinant in the disposition of fraudulent fiat.
No "ism" or "ideology" will be necessary to finally rouse human beings to throw off the scourge of the banksters and political criminals. The banksters are clever and insatiably greedy, but they are not smarter than any other group of humans. Their lust for wealth and power blinds them to the fact that they cannot forever abuse and impoverish billions of their fellow human beings without ultimately being subjected to an unimaginably violent and universal blowback.
China is no exception. They have also fallen into the consumptive devolutionary central banking scam of the Babylonian Joos. Their eggshell economy will crack and collapse quickly, immediately after the collapse of the Western economies, who have been supporting the Chinese economy with increasingly worthless foreign treasury/fiat. Gold reserves will save neither the Chinese nor the Russians.
Food, survival clothing, shelter, firearms and ammo, will be the currency of the reset.