Fundamentals aren’t enough

Fundamentals have been in place for years
What’s happening on the stock market? For starters, it’s not crashing. At least not yet. This is just a small correction. So far. The set-up in December 2018 is decidedly worse on all fronts than in, e.g., December 1999 and December 2007.

Valuations are higher (P/S type of multiples), growth is lower, slack in the economy is lower (record low unemployment), productivity growth is lower and keeps getting lower by the decade, interest rates are lower (can’t fall). On top of it all debts are larger and have grown faster than at any point in history — not only in the US but all over the world.

“Never go full retard, everybody knows that”

The correction in 2008-2009 was halted prematurely due to full retard level money printing and other globally coordinated stimulus. Central bankers and politicians pulled out all the stops in order to avoid a meltdown on their watch. Instead of fixing the poblem, they ended up stimulating moral hazard and asset prices more than the economy.

Maybe there is a way to repeat the indian rope trick. Maybe the current quantitative tightening can be turned into an order of magnitude more massive money printing than last time. Will one hundred trillion dollars suffice (it was 20T this time)?


Hello Africa?

However, don’t forget that the Greenspan put was already in place ahead of both 2001-2002 and 2008-2009, and they used it, slashing interest rates at unprecedented speeds, while the largest and most solid stock markets in the world still fell by over 50 per cent.

2 nuggets
Where’s the whale? Where’s the SocGen scandal, the Madoff, the Enron, the Bear Stearns subprime miss? The August 2007 hedgefund crash? That thing that tells you it’s really over?

There are of course more or less subtle signals all over the place: high yield bonds, BBB growth, gold/DXY, FANGs, Italian bond yields, market narrowing, technical dispersion and so on. But we’re still lacking that multi billion dollar speculative loss, the ponzi scheme revelation with systemic effects. Not even -85% for Bitcoin caused more than a marginal stir.

Who has been swimming naked?

My guesses for 2019
Nota Bene: these are not recommendations. Do your research elsewhere. I am not a certified financial advisor (anymore)

* Stocks keep falling
* Sell the rips, don’t buy the dips
* Gold treads water but might be gaining upward momentum. Either way there’s no use waiting for the ultimate bottom if it means gambling away a 5x upside to get a 20 per cent discount.
* Don’t forget about soft commodities if you like to trade. Corn maybe? Coffee. Covfefe?
* Central bankers turn dovish, which only makes investors more cautious
* Cyclicals, ETF holdings, large caps, companies with negative cash flows, tech stocks crash.
* Some banks in some regions fare better than other sectors owing to below P/B=1 valuations and too big to fail policies firmly in place. Nordea anyone?

My most humble regards,


P.S. Check out the song “Jump” by Astrid S if you”re looking for an upbeat pop song
Karriär- och Finansklubben i “25 minuter” har uppdaterats med mina tankar (7 minuter ljudfil) om vad Fed egentligen signalerade i onsdags. Jag tror Powell var för dovish för marknaderna

Du kan hitta filen här

A few rules for life: trust no one

Topic: Never act (blindly) on recommendations. always do the math yourself, always make sure you understand the level of certainty of the premises and facts, the solidity of the logic, and the probability of the conclusion.

Discussion: A recommendation, be it regarding an investment or a life altering decision, should only be a starting point and inspiration for your own investigation; and preferably one of several such inputs

Rule of thumb: trust no one

As an investor and portfolio manager I received as many recommendations a day I had time to listen to. They proved “right” within a reasonable time horizon about half of the time, i.e., as recommendations per se they were useless. No matter, I still got tremendous value from my analyst meetings.

I never cared about the recommendations as such; I only listened to the facts that had been painstakingly collected and documented. If anything, I made it a point to pay extra attention to the points brought forward by analysts with a different conclusion than mine. I then constructed a bigger picture of all the various data sources I had access to, some conflicting, some supporting. Not least, I gauged what the weighted average of important analysts views were.

Owing to my particular vantage point as a billion dollar hedge fund manager with access to all the largest Wall Street firms, I thus had an informed view of both all the facts, and what all other players thought were the facts and what their recommendations were. Consequently, I could slightly more reliably than most other investors take outperforming positions. Despite my privileged and advantageous position, I still had to build my own models, draw my own conclusions from a wide array of data, and not least make assessments of the relevance and reliability of the information I received.

“Try pouring a ton of steel without rigid principles”

You wouldn’t put your hand through molten metal without understanding the principles, would you? Or pouring a ton of steel without all the facts. So, why would you invest your own or clients’ money without understanding the risks, the facts and the logic involved?

Investing is hard. Anybody who claims it’s not is either stupid or selling something. If it seems to good to be true, it is, so make sure you know what the relevant facts are, and how they interact causally for the required conclusion.

Please note that this principle is valid in all aspects of life and decision making — trust no one to make your decisions for you.

Why being permanently bullish is the best place to be

Topic: there is always a good opportunity to invest somewhere

Conclusion: I’m a perma bull, and you probably should be one too


“I felt like a one-eyed person, lacking depth of vision, stumbling around, missing half the picture, often being blind-sided and having to correct my inputs and bearings. It still beats everybody else though, in this land of the blind.”

There’s always something to be happy about
The grass is always greener where I am, or how does that saying go again?

I am what you would call a perma bull; I’m always happy about something, looking forward to things to come, enjoying planning for them, or simply relishing in whatever activity I’ve chosen for the moment.

The world of investments works in the same fashion; there is always a good opportunity to invest somewhere. At any one point there is a fixed amount of wealth (people, tools, machines and assets), even if the amount of debt and currency associated with that wealth varies. Over time, wealth usually rises (more people, more tools, more buildings, more dug up gold and gems). The receipts (e.g., dollar bills) on that wealth always need to go somewhere, bidding up the price for that particular piece of wealth – and that’s where you want to be exposed.

It’s never exactly clear where the dollars are going next, but sometimes it’s slightly less difficult than other times, to guess at a likely turn of events. In any case, there is always some asset being significantly underrated compared to other assets. Usually investors will find it sooner or later; first a few hesitant hands and later attracting the masses, thus with time making it overappreciated and promising low or even negative returns. By then, there are tremendous opportunities somewhere else.

Swedish Central Bank:

Our best estimate for a reasonable rate hike

50 000 basis points

Back in 1992, I had studied business administration, accounting, securities and derivatives valuation etc at Stockholm School of Economics for two years. From a macroeconomic perspective those were turbulent times: One of my professors actually suggested students change banks due to the risk of bankruptcy, and the Swedish central bank raised its policy rate by almost 50 000 basis points to 500 per cent.


Buying call options on banks heading for state receivership


Meanwhile I was trying to buy call options on all but defunct Swedish banks.

Yes, I was a perma bull with no regard to the downside.

The year after, in 1993, I started buying tech stocks in earnest. My “well diversified” portfolio consisted of two stocks: Ericsson (the “safe” bet) and Måldata (a small IT consultancy; “to add some upside volatility”).

In 1994, bears be damned, I became a finance pro: I took a job at a small brokerage, while the doomsday debt clock on the central square outside my window counted the steps toward default and ruin for the Swedish model.

Armed with DCF and CAPM models, straight out of my still warm textbooks, I promptly issued Buy recommendations on construction companies, medical technology firms, computer manufacturers and IT services and software companies. I even through in a few chemical industry companies in the perpetual Buy Everything mix back in 1994-1995.

A perma bull is hard to slow down apparently

In 1996 I took a new job as the head of IT research at Sweden’s largest bank. By then I had become bolder than ever (albeit quite fitting, considering the budding tulip bubble IT boom), thinking others just lacked the right visionary capabilites that I had. My bullish research reports on mainly software companies knew no boundaries at the time, and soon I included so called internet consultancies and a Virtual Reality firm as well. Buy Buy Buy.

Visionary Sprezza

The LTCM and Asian currency crises in 1997-1998 didn’t deter me the slightest: “Temporary!” and “Buy the dip!”, were my mantras.

Toward the end of 1999, however, I finally realized things had gotten out of hand, and by February 2000 I threw in the towel regarding IT shares as well as my then employer, and moved to a hedgefund instead. With my sunny disposition there was always only upside (a start-up hedge fund in March 2000; what could possibly go wrong). For me, that is. For the market not so much.

And that recent LTCM hedge fundcrash in 1998? I couldn’t care less. I was joining a “completely different” hedge fund. With only upside! (actually that turned out to be true — or how does “European Hedge Fund Of The Decade 2000-2009” sound to you?

The three years that followed we (Futuris/Brummer) could do no wrong. E.g., there were always interesting new opportunities to sell short ridiculously valued and cash consuming IT companies. Despite personnel issues at our firm, perma-bull me saw only rainbows and gold all around and in the future. Sure, regarding the stock market, I thought many stocks would fall to just a tenth of their values, but every one of those were “special cases”, and I never predicted doom for the economy or the stock market or financial system as a whole. I definitely was a bull. For me that is, and for the firm, and for short positions on tech stocks.

At the time, and quite often today too, I felt like a one-eyed person, lacking depth of vision, stumbling around, missing half the picture, often being blind-sided and having to correct my inputs and bearings. Yes, I actually gradually became aware of my shortcomings. It still beat everybody else though, in this land of the blind called finance.

In 2004-2006 I focused more on banks, hotels, cruise ships and professional services rather than purely on software companies; and boy was I bullish on banks back then!

There were buybacks to the tune of 7 per cent a year, and dividends at a similar rate on top of that, while P/B ratios were between just 1 and one and a half. Growth was fast, returns were high and credit losses were non-existent. Perma-bull as I am I bought everything, including the recycling company Tomra (Wait, what? Software, Banks,… and Tomra?) which gave me a 100% return in less than a year. What can I say, if you’re bullish, you’re bullish.

In 2006, my bullishness toward stocks waned, but I still managed to find a handful of promising small cap companies and took outsized positions in them. Bad move. Blind bull move. When markets started turning downward in the run-up to the bursting of the housing bubble, and onset of the financial crisis, those smaller companies proved very hard to sell.

“Yes, I’m currently perma bullish on gold”

Stock market bullish-me took a harder hit than ususal in 2007-2008, since I was 1) hit hard on a few long positions right before, and 2) I was proven right* on my house bubble thesis, as well as 3) made a killing on bank shorts* throughout 2008. I imagine gambling addicts are hooked by similar principles*.

* there is nothing more detrimental for an investor than being right on a bearish call

Since then, I’m still a perma bull in every aspect that counts, but not quite so much regarding public stocks. When they are expensive relative to sales, profits and the price of commodities and precious metals, I’d rather stay away and project my inherent and eternal bullishness on other things.

The Buying Opportunity Of The Decade
Actually, in the fall of 2010, when my partners were leaning towards going short again, I wrote a couple of memos (e-mails), where I called the situation “the buying opportunity of the decade”, based on a lot of slack in the economy (exactly the opposite of the current situation).

Since 2015 I’ve regularly been called a “perma bear” (typically by people with less than 10 years of investing experience), and it’s true I’ve had a very negative view of the prospectice returns for the stock market as a whole for a few years. On the other hand I’ve invested heavily in start-ups and scale-ups, all probably depending on the economy staying strong. At the same time I’ve increased my exposure to gold manyfold. Yes, I’m currently perma bullish on gold too.

I’m writing this as I once again saw somebody caliing John Hussman a perma bear on Twitter. Actually, dr Hussman’s history is similar to mine; just longer, better and more objectively based on research. Still, being wrong-footed in just the latest up-cycle is enough to make people, with no understanding of the word, call out thoughtful and accomplished investors like him as “perma bears”.

How about you? Is the grass always grener where you are? Are you too a perma bull like me? What does your bull/bear story look like? And if you don’t have one, due to too little experience, I suggest you tread very carefully the coming years.

My most humble regards,


P.S. Check out my interview on Future Skills with Erik Townsend from MacroVoices. That guy has a lot of wisdom to share about skills, education, analysis and much more. You can find a direct link to the episode here