Author: John King, Quacera
Covestor model: QPM Radar
The QPM Radar™ system that guides our Covestor model is not focused on prices per se but is designed to measure the strength of market moves, which tells us more about risk. This also allows us to see when that strength is waning or turning in the opposite direction.
The political atmosphere surrounding market activities has much to do with the relatively low volume and narrow, zig zag movements that characterize current trading. If the algorithms were removed as many have suggested, volume would be worse and the reason lies in the nature of Debt Destruction Depressions.
These periods are for the most part long drawn out affairs that take, according to Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff, in their recent study “Debt Overhangs: Past and Present,” an average of 23 years to work themselves out. Most of the problem is caused by government intervention meant to prevent the implosion, but only succeeds in prolonging it.
The debate over solutions to our present state of economic affairs has been narrowly one-sided and all center on how the government should act to force a change in economic direction and which kind of stimulus or tax or program(s) will do the trick.
But with all that has been done to stimulate us out of this mess, we find ourselves deeper in debt and no better off in any respect than when this started. The power base resists addressing the problems in any other way but merely looks for new twists on their pet theories or ways to increase the force of schemes that have clearly not worked.
They have tried re-regulation known as Dodd-Frank named after two of the most notorious cheerleaders and abettors of the debt build-up that led us to this collapse. This bizarre law, written with the current governmental inclination toward fill-in-the-blanks legislation, now has about 25% of its specifications completed and is more than 8,000 pages in length or approximately 10 times the number of pages in the combined Torah, Qur’an & Christian Bibles both Old & New Testament.
According to Rogoff, Reinhart & Reinhart, the history of Debt Destruction Deleveraging is very clear. In every instance deleveraging was accompanied by interest rates that averaged 2%. Each included a protracted period of low GDP growth - 1.5% below normal. Sadly, especially for our current clique of political hacks, no matter the potions they prescribe, it really does take a long time to eradicate decades of debt build up that collapses of its own weight when it ceases to promote economic growth.
From this, we can expect to continue to see the choppy directionless markets that have accompanied our present era. If you invested in the markets in July of 2008 you are at almost a break even position with only massive volatility to show for it and if you bought an S&P index fund in 1999, you’ve had the same joyful experience.
With this in mind, we have developed what we believe to be the most advanced tool for gauging market moves and helping our subscribers to find better methods to preserve their wealth in this oppressive investing climate.