Complexity Risk, Investments

Complexity Risk – the silent killer of investment returns

Jack Duval

Investors face a risk that has gone virtually unnoticed, unmentioned, unmeasured, and which from time to time destroys their capital.

Complexity Risk walks the investment world freely.

Five years ago I published a white paper entitled "Complexity Risk: A New Risk Category". In it, I defined "complexity risk" as the potential for an investment to generate returns that are different than those anticipated. Investments like short term U.S. Treasury bills are the least complex. Indeed, they're so simple

they don't even have a prospectus. You buy them and in three months you get your money back, plus interest at the stated rate. However, other investments appear to be just as simple but are wildly complex under the surface. Like Double Jeopardy, the investment "scores" can really change…

Investments

The Fastest Four Minutes in Finance

Jack Duval

Everyone is focused on the stock market, but the bond market will call the ball.

bantam inc jack duval multi-family office MFO UHNW manhattan new york city - 30 year yield chart

The downward step function in 30-year U.S. Treasury Bond yields.

In this video, Bantam CEO Jack Duval revisits his January 31, 2019 blog post about the Jerome Powell pivot, and takes a quick tour of the stock and bond markets.

https://youtu.be/DipEp_uWJN4 Topics discussed include: The S&P 500;2-year U.S. Treasury Note;MOVE Index;Deutsche Bank, and;The downward step function in 30-year U.S. Treasury Bond yields

Investments

Fed Rate Cuts – A Near Perfect Sell Indicator

Jack Duval

Investors should use any rallies to reduce equity positions.

Federal Reserve rate cuts

What is thy bidding, my master?

The S&P 500 rallied 2.1 percent yesterday on the back of Jerome Powell's comments that the Federal Reserve would cut interest rates if the trade war continued to affect the economy. Investors are foolish to buy on such news. Historically, when the Fed cuts rates, you want to be well

out of the stock market. Indeed, falling Fed Funds rates and a steepening yield curve have almost always coincided with U.S. economic recessions. Chart 1: Federal Funds Rates v. Economic Recessions Chart 2: Yield Curve Steepness v. Economic Recessions Currently, the yield curve is steepening and the Fed is likely…

Investments

The Participant Ponzi – Endgame

Jack Duval

The truth goes through three phases: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident.

bantam inc jack duval multi-family office new york manhattan - participant ponzi - jim cramer image

This guy will not save you.

In my first two blog posts in this series, I introduced the idea of the Participant Ponzi and then explained how the U.S. stock markets have been in a Participant Ponzi. In this post, I explain how the U.S. equity Participant Ponzi could end. The End of the Participant Ponzi Funding is

the key to the Participant Ponzi, as it is for all Ponzi schemes.  Like a traditional Ponzi, the Participant Ponzi fails when the sources of funding have become exhausted.  New buyers are not available to take out earlier buyers who want to sell. I believe we have entered…

Investments

The Participant Ponzi and the Basilisk Eye of the Fed

Jack Duval

The Fed has shifted its basilisk gaze from the economic cycle to the credit cycle.

bantam inc jack duval MFO UHNW multi-family office New York City Manhattan - basilisk image

Jerome Powell, speaking Parseltongue.

In my first post, I introduced the concept of the Participant Ponzi.  In this post, I will show how the current Participant Ponzi in the U.S. stock market has come to exist. The Participant Ponzi in Practice In my previous post, I outlined the necessary conditions for a Participant Ponzi to exist.  They include:

One or more sources of consistent, indiscriminate (value indifferent) buyers;Steadily rising prices with no sustained or extreme drawdowns;Supply constraints, and;Rationalization.  All these conditions are currently present in the U.S. equity market. Condition 1: Consistent, Indiscriminate Buyers There can be no debate that there have been multiple…