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While the Bombay experience is the most memorable in my history book, these
remaining emails except the last one are a few examples of where I have used
that knowledge.
For perspective, consider this chain of thought:
Institutions generally drive the major trends in the equity markets
globally. The mutual fund (and now the macro hedge fund) phenomenon is a
central participant in the markets.
After reading a few thousand prospectus documents from such companies over
the past decade, actively investing myself and comparing notes with the
"Who's Who" of the institutional world to strive to learn, it strikes me as
odd that a bulk of these funds are caught long of stocks to about 80% of
their corpus all the time, come bubble or bust, come rain or drought.
In other words, IN NOT ONE CASE have I found a mutual fund to be long of
anything over 20% cash even as the target country - or sector - for that
fund was imploding.
Odd, because trading is trading - the goal for a money manager sitting on
big money, or on small money - is to make money from investing.
True, their bulk often moves markets and that is an undesirable.
True, their footsteps are difficult to conceal - as difficult as that of a
gorilla in a rain forest.
True, they get paid to be invested, and not to sit on cash.
True, we the common small investor believe that they the money manager are
wiser than us, and in that collective feeling of security, conduct our
investing decisions and heap even more money on their unsuspecting wallets.
But it strikes me as odd that none of their comments ever acknowledge being
anything less than 80% invested at any time.
So for purposes of analysis, I take it that their mandate is to be as close
to fully invested at all times.
Having said that, consider this little factoid of recent history:
After the Nikkei bust in the early 1990s, the global "hot" money flowed into
Latin America.
Within Latin America, in 1994-95 during the Mexican crisis, money first
flowed into Brazil. Then the Brazilian market collapsed, taking all of the
Latin American investing world with it.
This money then evidently moved to the more speculative Eurasian markets
(Russia, Poland, Chinese red chips, Korea, Taiwan, India, Malaysia,
Indonesia, and to a lesser extent Japan, HK and Singapore).
The ascent-descent profile on price charts is too coincident in timing to be
anything other than money flowing en masse from Latin America to Far East
Asia.
But more striking is the appearance of money moving from more speculative to
less speculative market WITHIN a region before flowing out of that region
entirely.
In 1994-95, Mexico went down the drain but Brazil actually went to new highs
before all of LatinAm went down.
In 1997, when the Thai market went bad, HK actually went up to new highs for
a few weeks before all of Asia went down.
In 1998, Russia went to new highs and then went bust, but the First World
markets actually went up for a few weeks into July before taking the whole
Equty world as an asset class down the chute.
The US equity market, strange as it may seem, has been a relative
underperformer to overseas markets.
While the above trend is clear, it is not clear to me as to where that money
supposedly flowing out of here is finding a home. And will probably not be
clear until well after it has moved out.
Thus none of the above is predictive - it is descriptive of a phenomenon.
If the Nasdaq has been last year's parabola riveting world attention, then
the price action in March is suggestive of a parabola imploding here in
America and that final nail in the coffin feeling of money moving somewhere
else. Not evident in the short term, but will soon be evident somewhere.
Charts attached:
Kuala Lumpur index: The parabola began as Mexico started crumbling. It ended
roughly where it began.
Kospi (Korea): The parabola began sooner than Kuala Lumpur, but had
essentially the same kind of ending.
Gitanshu
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