Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

Three Things I Think I Think

Since I am still working through the Q&A from last week I figured I’d take some of the questions for a segment of three things:

Question # 1 – “How can one invest, as opposed to speculate, without knowing value?”

There are many factors that drive price outside of perceived “value”.  In fact, as I’ve made clear in recent weeks, I don’t think value is a very clear factor driving price because “value” is a rather nebulous concept.  No one really knows what the “value” of the stock market is the concept of value has to be dynamic.  Therefore, I don’t even see how this can be the most influential factor in price.

I could be wrong there of course, but the point is that there are lots of different factors that drive price.  Things like momentum, quality, yield, volatility, market cap are some of the more popular ones aside from value, but I’d argue that even that is too micro.  If you give me the macro direction of the economy, a general idea of what type of environment we’re in (high inflation, deflation, de-leveraging, etc) and the health of corporate profits (using Kalecki equation, etc) I’ll tell you which direction stocks are headed 75%+ of the time.  Combine that with general sentiment and I think you can put together a potent mix for making high probability directional bets on the market.  In other words, give me the direction of the current and I’ll tell you, with a high degree of confidence, which way the boats will move.  I could care less what “value” and all those other factors say so long as I know the direction of the current….

Macro modeling is complex and forecasting is difficult, but so is defining any factor that moves price.  In my view, a macro perspective gives you a much clearer perspective and results in a much higher probability of being right about the big trends.  And if you can get the big trends right then the details tend to fall into place much more easily.

Question #2 – Well done on publishing your book recently. Any tips for others writing and publishing/promoting a book?

Thanks.  I’m no guru in promotion of writing.  After all, Pragmatic Capitalism was my first book.  But I do have some advice.  First, go into the process knowing that books don’t make people rich these days (except for a very small percentage of them).  So you have to realize that this huge project is going to have a relatively small monetary payout in all likelihood.  The benefits of writing the book are intangible – maybe someone learns something from you.  Maybe it helps build credibility for you.  Maybe it’s just something you’ve always wanted to do.  I just think you have to go into it with your eyes wide open knowing that it will be a huge amount of work with little monteary payout, but a potentially large intangible payout.  That’s how I viewed it anyhow.  And I can tell you from the feedback I am getting that it’s helping a lot of people better understand investing and money and that’s hugely rewarding for me.

Question # 3  – Hi Cullen. Recently read and loved your book. Your analysis if central banking was very easy to understand. I particularly liked your point about how the US government has tremendous assets, which more than balance the debt. Can you comment on Japan in this regard? Are they tipping the boat over there at all? I do continue to feel like interventionist central banking will find its Waterloo in Japan, and fear this will lead global markets to ultimately lose faith in the other CBs. Any thoughts on this that you might have would be appreciated! Keep up the good work.

I am by no means an expert in Japanese monetary policy, but my understanding is that the MOF and BOJ essentially modeled their system after the Fed system.  So most of what I say about QE and deficit spending in the USA applies to Japan.  Also, Japan is what I describe in the book as a country that is high in terms of being an autonomous currency issuer.  This gives them a degree of flexibility that a country like Vietnam doesn’t have.

I have expressed my skepticism about how much the BOJ can really positively impact the Japanese economy in recent years, but the currency devaluing is certainly working better than I expected.  Not sure how long that can last though.  And I have a feeling that once that’s run its course that the BOJ will continue to run into the disinflation monster again.  It’s not the BOJ that worries me in Japan.  It’s the structural demographic issues that worry me more so.  And this is deflationary in nature and not likely to be inflationary or result in currency collapse.

3 comments
  1. BillieJones

    Cullen,
    with regard to the following excerpt from your last answer:

    “I have expressed my skepticism about how much the BOJ can really positively impact the Japanese economy in recent years, but the currency devaluing is certainly working better than I expected”

    What makes the BOJ’s QE policies “currency devaluing” , while the U.S. equivalent is just an asset swap? Thanks.

  2. Cullen Roche

    I think the BOJ has been targeting the exchange rate specifically. They claim they haven’t, but the decline in the current was too extreme to be anything other than direct or (at least) indirect intervention….

  3. Geoff

    I hope my first Disqus comment works. QE is indeed a simple asset swap but it may devalue the currency through the interest rate channel. To the extent that QE drives down interest rates domestically (debatable), it forces savers to look for higher yields in other countries, causing capital outflows and a resulting drop in the currency.

    But I think Cullen is right regarding Japan. The drop in the Yen probably has less to do with QE and more to do with direct currency intervention by the BOJ.

Comments are closed.