Two Mental Models (and 24 Things): Network Effects and Critical Mass - by Tren Griffin (LINK)
Utility Investor With Ties to Buffett Joins World's 400 Richest [H/T Linc] (LINK)
Travis Kalanick on Charlie Rose (video) (LINK)
Brian Chesky on Charlie Rose (video) (LINK)
From rags to riches to rags in 12 years: the extraordinary story of Nathan Tinkler [H/T @iancassel] (LINK)
The Billionaires' Loophole (LINK)
Iron Ore Jumps Most on Record as Market Goes 'Berserk' [H/T Matt] (LINK)
Iron ore soared the most ever after Chinese policy makers signaled their willingness to buttress economic growth, boosting the outlook for steel consumption in the top user and igniting speculation that some investors who’d bet against the market had been caught out.
Hussman Weekly Market Comment: A Continued Undertone of Risk-Aversion (LINK)Ore with 62 percent content delivered to Qingdao jumped 19 percent to $63.74 a dry metric ton, Metal Bulletin Ltd. data show. That’s the biggest gain in daily data going back to 2009 and the highest price since June. The surge was preceded in Asia by a rally in futures, with the most-active contract on Singapore Exchange Ltd. climbing 21 percent to $60 and prices on the Dalian Commodity Exchange rising by the daily limit.
Last week, the most historically reliable equity valuation measures we identify (having correlations of over 90% with actual subsequent 10-12 year S&P 500 total returns) advanced to more than double their reliable historical norms. When valuations have been near those historical norms, the S&P 500 has generally followed with average nominal total returns of about 10% annually. In contrast, current valuations are associated with expected 10-12 year total returns of about zero, with negative expected returns on both horizons after inflation.
Now, in the context of low interest rates, some investors may view the prospect of zero total returns on stocks over the coming decade as reasonable and competitive. That’s fine, but understand that through most of the period prior to the 1960’s, interest rates regularly visited levels similar to the present, yet these same measures of stock valuations typically resided at well below half of present levels. In my view, investors who view current valuations as “justified relative to interest rates” are really saying that a decade of zero total returns on stocks is perfectly adequate compensation for the risk of a 45-55% market loss over the completion of the current market cycle - a decline that would historically be merely run-of-the-mill given current valuations, and that certainly cannot be precluded by appealing to low interest rates.
...Put simply, my expectation is that investors will find 10-12 years from today that the relationship between valuations and actual subsequent market returns has played out exactly as it has across history. As a rough guide to how prospective returns will change over the completion of the current market cycle, we presently estimate that in order to establish expected 10-year S&P 500 total returns of 5% annually, the S&P 500 would have to decline to the mid-1500’s. In order to establish 10% expected total returns, we estimate that a decline to the 1000 level on the S&P 500 would be about right. Note that the completion of every market cycle across history has brought valuations toward or below levels consistent with 10% annual prospective returns.
Brain Pickings: Legendary Physicist Freeman Dyson on God, Unanswerable Questions, and Why Diversity Is the Ruling Law of the Universe (LINK)
Related book: A Glorious Accident: Understanding Our Place in the Cosmic PuzzleFor more from Freeman Dyson, see his book Dreams of Earth and Sky, which was released last year, as well as THIS previous post.