In looking back at the recent bull market, it
is universally agreed that during those 18
years the market were in a perfect scenario.
Low inflation, rise of an investor class, a
world at peace, social stability in the US,
increase in productivity driven by technology
spending, the commercialization of a
new technology (the internet) and interest
rates at historic lows both in real and nominal
It is not universally accepted but it is coming
to be more accepted that the perfect scenario
has given way to less than perfect one or in
some minds a perfect storm.
The words insatiate cormorant are taken
from John of Gaunt's great speech in Shakespeare's
Richard II as John on his death bed
condemns Richard for being so greedy that
he mortgages the entire kingdom.
I am not one of those Cassandras who goes
about wringing my hands about the debt carried
by others although I know that it is a
problem for some people. In the line following
the cormorant John of Gaunt talks
about how the ever-hungry bird having consumed
its means of living starts to prey upon
itself and its peers. Market cycles are like
Bull markets sow the seeds of their own destruction
as they advance, through the creation
of imbalances. Bull markets and an
advancing economy forgive many mistakes
and people grow lazy and inattentive. Bull
markets, like fire suck in the oxygen
(money) needed to support them and they
will not be extinguished unless fuel is denied.
The bull market that recently ended was an
insatiable cormorant as it sucked in money
to ventures that appeared made sense in
those halcyon times when annual returns of
nearly 20% seemed to be fated to continue
forever. Many of these ventures now appear
less wise in the face of 8-9% expected returns.
It took a considerable period for the imbalances
to be created and it will take longer to
unwind them due to investors being unwilling
to accept losses. This insures that the
markets we currently see will the norm.
To make a meaningful change in the market
direction there first must be a destruction of
unsound ideas and practices and in fact they
must not be merely destroyed they need to
go the other way to the point where people
will not look at even good ideas out of fear.
We are not there yet. In the meantime, people
continue to search for something that
will give them that one big hit or that one
edge that others are denied. They will find it
for a while, and then the insatiable cormorant
will devour the means and turn upon
The markets will continue to be dominated
by the actions of the increasing number of
hedge and private equity funds, most of
which are run by people who just before the
bull market were asking critical questions
like "you want fries with that? Or what kind
of car where you driving?"
There are changes occuring that allow investors
as opposed to speculators, to make
money. Bear markets and dynamic times
foster creative destruction.
The choice for many is going to be binary,
try to out trade the hedge funds, or to find a
good investment course based on long-term
trends, preservation of capital and be opportunistic.
Hint, you will not out trade the
hedge funds the level of stupidity, greed and
fearlessness is just too high.