Friday , July 19 2019
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The Zeitgeist – 3.21.2019

Summary:
Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it. But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world. Morningstar runs these articles for financial advisors, detailing the different “behavioral types” of typical clients and recommending “action plans” for each type. The action plans are filled with bromides like Listen – Seek to understand. Listen closely … which doesn’t sound too action-y to me, but whatever. Everyone’s got a shtick and everyone’s got to put

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Every morning, we run the Narrative Machine on the past 24 hours worth of financial media to find the most on-narrative (i.e. interconnected and central) stories in financial media. It’s not a list of best articles or articles we think are most interesting … often far from it.

But for whatever reason these are articles that are representative of some sort of chord that has been struck in Narrative-world.


The Zeitgeist – 3.21.2019
The Zeitgeist – 3.21.2019

Morningstar runs these articles for financial advisors, detailing the different “behavioral types” of typical clients and recommending “action plans” for each type. The action plans are filled with bromides like Listen – Seek to understand. Listen closely … which doesn’t sound too action-y to me, but whatever. Everyone’s got a shtick and everyone’s got to put food on the table.

This article is on the Accumulator Client, aka the Nightmare Client whose over-spending and warped view of markets “typically cannot be corrected with advice and information”. Morningstar’s action plan?

It is therefore your task to make a blended recommendation–one that takes into account his financial goals while at the same time accounts for his emotional (difficult to correct) biases. Therefore, you decide that a reasonable compromise allocation is 65% equity, 10% cash, and 25% bonds. You also plan to recommend that he reduce his spending.

LOL. I mean, it’s actually pretty good advice if you want to keep “Rossington” as a client (who btw in this scenario is 58 years old and had a heart attack last year), but don’t kid yourself that this is a “compromise” with the client.

It’s a compromise with yourself.


The Zeitgeist – 3.21.2019
The Zeitgeist – 3.21.2019
It’s a trap!
The Zeitgeist – 3.21.2019

Sigh. Once more with feeling …

This is NOT a trap. This is NOT a drill. This is NOT a mean-reverting phenomenon.

As I wrote recently to ET Professional subscribers, “This Is Why Your Long-Vol Allocation Isn’t Working“. The skinny: It’s not impossible for market volatility to spike massively through some deflationary shock to the financial system like a global recession or a China-driven credit crisis or an Italy-driven euro crisis. What’s impossible is TO GET PAID for taking out an insurance policy against volatility spikes from these deflationary shocks.

This is a change in the investment Zeitgeist.

This is the transformation of capital markets into a political utility.


The Zeitgeist – 3.21.2019
The Zeitgeist – 3.21.2019

I guess if you’re a bond trader, yesterday’s charade was a delight. We’ll see how you feel as the inflation engine continues to rev. For equity markets, though, the issue isn’t delight/not delight.

The issue is that we no longer have a normal distribution in portfolio return variation. This isn’t a Fed put. This is what a political utility looks like.

The Zeitgeist – 3.21.2019

Heads I Win, Tails You Lose


The Zeitgeist – 3.21.2019

LOL. I love the sourcing of this hatchet job article — “three employees told Reuters”. You know who sourced this article? Morgan Stanley and Goldman Sachs and JP Morgan and Citi and BofA and UBS and Barclays, that’s who.


About Ben Hunt
Ben Hunt
He is the chief investment strategist at Salient, a $14 billion asset manager based in Houston and San Francisco, and the author of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory and history. Over 100,000 professional investors and allocators read Epsilon Theory for its fresh perspective into market dynamics.

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