All posts in category: Harlyn's Process (24)

International Bears

Wednesday, October 18th, 2017

Excess volatility as an indicator of trouble ahead

After last week’s note about excess volatility in the US, we look at the experience of other developed markets in 2000, 2007 and 2015. In a majority of occasions, material increases in excess volatility signaled the onset of a correction and/or the transformation to a full-scale bear market. There are no such signals at the current time, which we regard as comforting, though not conclusive, evidence in favour of our equity overweight.
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The Hurdle

Thursday, June 29th, 2017

Excess volatility & how central banks respond to it

We use excess volatility as the hurdle rate by which equities must beat bonds, in order to be risk-efficient. In the US, it has just hit a new low going back to 1995. In the Eurozone, it is at a new 20-year low. Risk conditions have never been more benign. This means that they are very likely to deteriorate, possibly quite soon. We also think that central banks want this to happen – but not too much.

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The Hurdle

Thursday, June 29th, 2017

Excess volatility & how central banks respond to it

We use excess volatility as the hurdle rate by which equities must beat bonds, in order to be risk-efficient. In the US, it has just hit a new low going back to 1995. In the Eurozone, it is at a new 20-year low. Risk conditions have never been more benign. This means that they are very likely to deteriorate, possibly quite soon. We also think that central banks want this to happen – but not too much.

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Prices Move Before News

Wednesday, May 10th, 2017

Our focus has switched from Europe to China

Newspapers like to argue that events are unforecastable, which is why you need to pay for access to news. We agree that forecasts don’t really work, but we don’t think news does either. We think that prices move before news. Very often the change in price is the news.

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