What We Think

Philosophy

Having an investment philosphy is important if you are going to risk money in the markets. A good investment philosphy not only helps clarify market behavior, but it also tells you how you should react to changing economic and financial conditions.

Our investment philosophy yields a three-pronged approach to managing investments:

1. The tendency of the economy to cycle between periods of boom and bust - the business cycle - implies a similar cyclicality in every investment option that is tied to it. Each type of investment will, as a result, have a favorable period and a not-so-favorable period within that cycle. Therefore, investment risk comes from the cyclicality of the economy and it behooves the investor to know where we are in that cycle at all times.

2. If "timing the market" means trying to stack the odds of success in your favor by aligning investments with the business cycle, then we can time every market whether that market is for bonds, stocks, commodities, currencies, or any other. Real diversification requires us to time as many disparately correlated markets as is possible and practical.

3. The willingness to short an asset class is necessary to minimize portfolio drawdown. Drawdown is the term used to describe the drop in value of a portfolio from the most recent high value to the subsequent lowest value.

Blog

Our blog is a clearing house for ideas. Normally, those ideas will relate to markets, the economy or the news dominating the headlines. Be forewarned: we have an admitted free market bias. You don't have to agree, but you do have to be civil. If you have a take on the topic, feel free to leave comments.

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Article Commentary

The Recent Spike in Money Supply

Posted on 10.03.11 by Chris Butler

If you've spent any time trading markets, you've likely heard that increases in the money supply lift the price of assets, like stocks, for example. You can read more about that here and here.

Well since March of 2011, stocks have done this:

President Obama's Jobs Proposal Misses the Point

Posted on 09.17.11 by Chris Butler

The most interesting point to be made about Obama's jobs proposal is not whether it will pass, nor if it will "work," but rather if it's sound public policy based on firm economic footing. It is not.

Problems and Costs Unique to Public Sector Unions

Posted on 03.04.11 by Chris Butler

I was doing an interview for a radio station in Philadelphia this month when the conversation turned to the protests over "anti-union" proposals made by Wisconsin's governor Scott Walker. I was asked if I found it strange that various private sector unions were demonstrating in sympathy with the public sector unions. No, I don't find the pervasive sense of union "brotherhood" between private and public sector unions strange.

Is Gold an Adequate Hedge Against Inflation?

Posted on 01.04.11 by Chris Butler

How often have you heard the old maxim that gold is a great hedge against inflation? Most investors have heard that saying hundreds of times from hundreds of sources. But is gold really an inflation hedge? How can we know? That's the subject of this week's post.

Attempting to Create a "Long" Leading Index of the Economy

Posted on 12.09.10 by Chris Butler

Those who have been following us through blog posts, media interviews and The Capitalist Pigs radio show know that we use the fact that the economy is cyclical to manage investments. The economy alternates between expansion and contraction, and periods of boom and bust. To gauge where we are in that cycle at any given time, we use indices of leading, coincident and lagging indicators.

How Investors Can Use Manufacturing Data to Predict Growth

Posted on 11.05.10 by Chris Butler

The ISM Manufacturing Survey contains two sub-indices that, when related to each other, give investors a way of ascertaining the most likely trend in future economic growth. Investors need to have an opinion about the economy that is based on sound logic and confirmed empirically. Alerting investors of a tool that can assist investors in this endeavor is the subject of this paper. We will use two sub-indices from the ISM Manufacturi

Quantitative Easing 2.0- What It Means for the Investor

Posted on 10.07.10 by Chris Butler

It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. — Henry Ford

What is Quantitative Easing?

Are Stocks Undervalued?

Posted on 10.05.10 by Chris Butler

The month of August 2010 was one of the worst Augusts ever for stocks. The S&P 500 lost 5%. After a big drop in the value of stocks, it’s common to hear the question, “Are stocks undervalued?” We will endeavor to answer that question.

Who's to Blame for the Recent Spike in Oil Prices?

Posted on 03.07.08 by Chris Butler

Everyone likes playing the blame game. High oil prices often get translated into high gasoline prices. So when oil recently hit an all time inflation-adjusted high at a price over $100 a barrel, we want to blame somebody. And that's understandable, so let's play the blame game!

Too Much Greed in the Oil Industry?

The Long-Term Cycle

Posted on 03.01.08 by Chris Butler

We believe that secular, or very long-term, trends in the economy impact the nature of shorter cycles, commonly called business cycles. Two respected investors have written extensively about how this impacts the investment decision-making process and we've mentioned them before - George Dagnino and Martin Pring. Of particular interest to investors is how the longer term cycle impacts the shorter term cycles. Why?