21 July 2017: House prices rising faster and faster

House prices in the Netherlands are rising. And they are rising faster and faster. The average price of private homes rose 8 percent in comparison to the same month in the year before. This is the fastest price rise since March 2002. In the major cities of the Netherlands, prices are now 2 percent above the peak level that was reached just before the subprime crisis of September 2008.
Should stock investors be concerned: could this be another bubble? This single fact will not tell you the full story. But if you combine it with the seemingly unstoppable rise of equities in the US, it would be a good idea to reflect on it.

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US stocks finished mostly lower on Thursday. But the NASDAQ was (once again) the exception to the rule. The S&P 500 dropped 0.02% and the Dow shed 0.13%. The NASDAQ gained 0.08%, closing at another record high and rising for a 10th session in a row. Volatility eased further, with the VIX diving deeper and deeper into single-digit territory. The VIX closed more than 2% lower at 9.58 points. UVXY ETFs fell victim to the very low levels of volatility and lost almost 2%. XIV ETNs closed almost 1% higher.
Danny Daredevil saw his RSS sink to just above 200%. Adventurous Anny is still holding cash and her RSS remained at 33%. The return of Solid Suzy and Lazy Larry since their start took the barrier of 40% for the first time yesterday.
None of our models gave a trading signal at the end of yesterday’s session.

Model Holds Start date

RSS

YTD

QTD

AAR

Danny Daredevil UVXY 1 January 2016

200.59%

-25.43%

-30.94%

103%

Adventurous Anny Cash 6 March 2017

32.57%

32.57%

-4.39%

112%

Solid Suzy XIV 6 March 2017

40.18%

40.18%

11.99%

146%

Lazy Larry
XIV 6 March 2017

40.18%

40.18%

11.99%

146%

RSS = Return Since Start | YTD = Year-To-Date | QTD = Quarter-To-Date | AAR = Average Annual Return

 

 

RS_v05-smallRené’s Reflections @ Friday: Creative destruction

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory [..] illustrate the same process of industrial mutation [..] that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. – Joseph Schumpeter (1883 – 1950), Capitalism, socialism and democracy (1942).

In an interview with Scarlet Fu at Bloomberg Markets yesterday, Janus Henderson Fund Manager Bill Gross spoke out on the benefits of economic reversals: “I actually think that a growth slowdown or a recession would probably do the economy some good. Like a forest with dead wood: you clear out some of the dead wood and you prevent forest fires. It’s the same thing here with concepts such as Schumpeter‘s creative destruction and so on. So, slowdown is fine with me because it produces ultimately in the long term a healthier economy, as Minsky proved five or ten years ago.”

I am convinced of the fact that everything in and around us moves in cycles. Cycles that lock into each other on such scales of endless complexity that we will probably never comprehend it completely by using our human intelligence. (With the help of artificial intelligence we might get much further, much faster, but that is another discussion entirely.) In the economy, it is as in nature: the waste and the unsustainable on one side becomes a resource on the other, while the total value of all elements is retained. The driving force behind all this is the concept of growth. Without it, everything would come to a screeching halt. Growth is the omnipotent power that always gets its way. In order to reach its goal, it is in continuous need of space. It is not discriminatory, in that both new space and old space will do. When it runs out of space, it will simply create new space. Figuratively speaking to stay in the analogy of the forest: you clear out the dead wood to create space, so new seedlings will catch enough light to grow. If you don’t, nature will take care of it by itself rather drastically. Forest fires will then eventually create the necessary space for new trees to grow. If no one does it, growth will all by itself make sure it gets done. Something to keep in mind, next time a recession hits the economy: there can be no long-term growth without it.