Results matching “market timing”

I've been thinking that a decent investment strategy might be to go short anything the government gets heavily involved in (think housing and banking).  Of course timing is everything here and it's hard to know when the bet will pay off (will health-care fall apart sooner or later?).

Well, I just came across a fund that is taking a like-minded strategy.  The fund is called the Congressional Effect Fund.  The fund's basic strategy is to capture the above average returns on the stock market on those days when Congressmen are on vacation.  A great idea and much easier to implement than my strategy.  The average annualized return to the S&P 500 when congress is in session (1965-2009)? 0.31%.  The average annualized return to the S&P 500 when congress is out of session?  16.15%.

Hat tip to DoL'er (and fellow Georgian) Frank Stephenson.

I've read a couple excellent articles in the last two days.  First, a piece by Nobel Laureate Vernon Smith and Steven Gjerstad in the Wall Street Journal.  And today, a fine work by Mario Rizzo of NYU. 

Gjerstad and Smith outline how the increase in consumer debt that results from a fall in home prices can lead to huge losses for the financial sector and severe recessions.  They point out how the losses from the stock market couldn't have caused the Great Depression (the timing wasn't right), but how the fall in home prices caused many banks to fail.  They also ask the great question- how did a $10 trillion fall in equity values from the Dot-com bubble not result in financial troubles even close to the levels we've seen after a $3 trillion dollar fail in home values?  Their conclusion is basically that homes are much more leveraged than stocks and thus the financial sector takes huge losses when home values fall.

I couldn't resist posting and responding to this Glenn Beck video (1/29/09) because I know that he has been advised by multiple parties against the arguments that he is pushing. We all should have reason to be worried about the economy, but not for the reasons Beck is trumpeting.

Some sentences I'll be thinking about over spring break (from Gary Gorton's "Subprime Panic"):

"How do banking panic's come to an end?  Some history is instructive.  During the 19th century, in the USA, the solution to banking panics was the institution of the private bank clearinghouse, which evolved over the century to the point where banks' response to panics was fairly effective... This system was abandoned with the founding of the Fed and the subsequent adoption of deposit insurance.  These were institutions aimed [at] preventing a panic from happening.  But they are not equipped to solve the information problem that arises if a panic does happen.  Clearinghouse loan certificates attacked the problem directly."

I was pretty inactive here from mid December-early January.  During this time I was preparing for and attending the annual ASSA meetings, where many first-round interviews for economics PhDs are held.  

The following chart highlights my amazing ability to time the market.  The shaded areas represent NBER recessions, the first vertical red line is the date I graduated from college, the second is the date that I completed graduate school. 

John Tamny had a post today on Real Clear Markets arguing that the way to make the value of the dollar more stable against currency depreciation is to tie it to some commodity like gold. I would argue that his timing is off and his argument is flawed.