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The Run In Small Caps. Will It Continue In 2017

The stock market went on quite a tear in the 3+ weeks immediately following the election, with the month of November especially beneficial for small-cap stocks.

Before delving into what it all might mean for small-cap investors, here's a quick rundown to help contextualize just how dynamic a month it was:

  1. This was the best November in the history of the Russell 2000 Index. featuring its highest monthly return since October 2011 when small-caps were just emerging from a precipitous decline.
  2. The performance spread between…

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Bonds Are 'Housing' All Over Again

As German bond yields breach unthinkable levels, BK was struck by a chart from Deutsche Bank – it is a chart of German yields since 1807.

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Take a moment to reflect on this chart – in over 200 years, German bond yields have never been lower. This period of time includes such notable and notorious events as:

  • US Civil War
  • The British Railway Mania Bubble
  • The Panic of 1873 and The Long Global Depression
  • Industrial Revolution
  • Thomas Edison’s Invention of Electric Light
  • Invention of the Automobile
  • Stock Market Panic of 1907
  • World War I
  • 1929 Stock Market Crash
  • The Depression of the 1930’s
  • World War II
  • Japan’s Real Estate Bubble and Crash
  • The Dot-Com Bubble
  • 1987 US Stock Market Crash
  • 1997 Asian Currency Crisis
  • 1998 Russian Default and Long…

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Admin

After writing “Here’s The Perfect Metaphor For Recent Fed Policy,” I had to pick up a copy of The Dao of Capital. Mark Spitznagel just has a unique way of looking at the markets that really resonates with me.

One thing that really jumped out at me while reading it was Spitznagel’s research regarding Tobin’s Q, (though he calls it, “The Misesian Stationarity Index”). It struck me for two reasons. First, I haven’t seen much research like this elsewhere and second, the opinions I have seen regarding it are all of a dismissive nature.

Just Google “Tobin’s Q” and you’ll find all sorts of pieces proclaiming, ‘Don’t worry about Tobin’s Q,’ and,…

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The Fiscal Cliff Doesn't Matter

So the markets now are driven by the fiscal cliff.  What will happen?  If they don't do something, the markets will plunge.  If they come to some sort of agreement, the Dow would be up 1,000 points. 

Nobody wants to be long on a failure to come up with a solution, and nobody wants to miss the boat on a 1,000 point Dow rally.   OK, 1,000 points is not much.  Maybe I should say 2,000 points.

In any case, this reminds me of a recent Howard Marks interview where he talked about the European situation.  He says there are three things he can say for certain about the situation:

  1. He doesn't know what will happen in Europe
  2. Nobody knows what is going to happen in Europe
  3. If you ask an expert what they think will happen and take their advice, it would be a mistake.


So to apply this to the current situation:

  1. I have no idea what will happen in Washington with the fiscal cliff
  2. Nobody knows what will…

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