What has been, is not what’s going to be

Tuesday, 3 January 2023 — Gold Coast, Australia

[10 min read]

Dear Reader,

Whether it be on a conscious or subconscious level, every single one of us is making a prediction about the future.

From experience, my observation is that most people rely on ‘what has been, will continue to be so’ to factor heavily in their predictive reasoning.

Whether the ‘what has been’ is good or bad, it’s expected the future will consist of more of the same.

Will the prediction be right or wrong?

That depends on your time frame.

Short term, the prediction could be right…the good or bad times might continue.

Medium term, it can be a coin toss…conditions may or may not last longer than the average.

Longer term, the present day ‘what has been’ fades away and is always replaced by a new and altered set of conditions.

What was once good turns to not-so-good or goes really bad, and vice versa.

The nearer the future we’re trying to predict — like, what will the market or cryptos do next week or next month — the tougher the exercise.

In the investing business, as in life, we have to accept not all our choices, guesstimates, and/or reasoned decisions are going to be correct…that whole ‘best laid schemes o’ mice an’ men’ thing.

There are times when we’re going to be right on the money and others when we’re dead wrong.

The secret to managing the risk associated with wealth creation AND retention is ‘how much you make when you are right, and how much you lose when you are wrong’.

Finding the appropriate balance of risk versus reward for your personal situation and tolerance for pricing volatility can be a moving target.

I know from my years in the personal advice business that when markets are good, people tend to overestimate their capacity to handle risk.

Conversely, amid a brutal bear market, risk profiles tend to shift to the more conservative end of the scale.

The ‘what has been, will continue to be so’ syndrome massively influences our predictive senses.

Trying to stay grounded and making asset allocation choices appropriate for your personal situation and market conditions is a constant and evolving quest.

The Gowdie Letter and The Gowdie Advisory are very personal projects for me. These are like my weekly ‘dear diary’ entries.

Putting thoughts on paper is a cathartic exercise, so the journals are written as much for me as they are for you.

Behind each ‘diary entry’ there’s a myriad of thoughts, questions, doubts, and assumptions. Just to name a few:

Due to where I’m at in my life cycle, predictions about the future are seen through the prism of ‘avoiding the BIG LOSS’ (a life-changing level of capital destruction).

In my youth, the prism bore a different label…it was ‘making the BIG GAIN’.

That’s no longer my objective.

Therefore, my decisions are based primarily on ‘what can go wrong’ and, if it does go wrong, is there an acceptable level of downside? One that avoids the BIG LOSS?

History and experience suggest there’s NEVER been a more critical time to be concerned by the prospect of a BIG LOSS.

However, due to complacency, belief in the Fed, and industry assurances, a collective undisturbed subconscious has (in my opinion) many people sleepwalking towards a cliff.

Gauging the recent action on Wall Street, confidence in the resumption of ‘normal’ market conditions remains elevated. Having ‘seen this movie before’, my view is that this confidence is not warranted.

I’m going to share with you some observations and predictions based on ‘what has been, is not what’s going to be’.

Recentism — the selling of past performance

In late 2006, I was invited to attend a private boardroom meeting with a high-profile CEO of a well-known institutional funds management firm.

At the time, the institutional manager was running an ad campaign that just so happened to highlight the solid performance of its flagship funds.

For a little context, the US housing bubble was within 12 months of busting.

I suggested to the CEO, ‘this form of advertising was a little misleading…after all, past performance is no guide to future returns’.

The CEO’s almost clinical response was, ‘that’s true, but past performance sells’.

End of conversation.

Industry super funds — compare the pair — adopt the same past performance marketing approach.

The industry’s subtle and not-so-subtle messaging on performance is designed to influence investor predictions about the future.

A superannuation member who remains invested in a balanced or growth fund that has performed reasonably well is expecting (whether they realise it or not) the future to rhyme (more or less) with the past.

But, if our future is ‘going to hell in a handbasket’, then making the wrong prediction with the entirety of your retirement capital could seriously derail those ‘well-laid’ plans.

In the event members are subjected to a sustained period of negative performance, you’d expect a good percentage of investors in balanced or growth funds to experience an awakened consciousness…predicting ‘more of the same pain’ awaits and consciously switching to portfolios heavily weighted in cash.

In the short term, this switch could be the right move. However, in the longer term, it’s likely to cost them dearly…as they missed participating in the inevitable recovery.

The term ‘recentism’ is defined as recent experience — be it good or bad — influencing future choices and/or predictions.

Positive recentism is why ad agencies, fund managers, and industry funds dedicate considerable resources to promoting (what is essentially) past performance.

While watching the World Cup, memories of that 2006 boardroom meeting came flooding back last week.

Colonial First State (CFS) recently launched a four-part ad campaign.

One of the ads is for the CFS Wholesale Global Tech & Comms (Communications) Fund.

Here’s a screenshot from the ad.

19.78% P/A NET RETURNS — 10-YEAR AVERAGE…looks good, doesn’t it?

Do you think the Global Tech & Comms Fund’s past performance offers more appeal compared to, let’s say, the CFS FirstChoice Wholesale Defensive Fund?

If you were responsible for running an ad campaign, which fund would you choose to promote?

The Tech & Comms fund is a no-brainer.

Why?

For all the disclaimers on ‘past performance is NOT a guide to future performance’, the recentism reality is that past performance sells.

Solid double-digit numbers for a decade make predicting the future easy…more of the same awaits.

But does it?

Here’s the compound return calculation on $10,000 over 10 years at 19.78% per annum — a six-fold increase in capital value.

A truly excellent result…on the small, but not insignificant, proviso you were invested in the fund.

But how was this level of return possible?

The product title — Global Tech & Comms Fund — gives us the crumbs we need to trace the performance history back to the source.

Guess what the Nasdaq Index has returned over the same period. Isn’t that a surprise?

Of all the major global indices, the Nasdaq was (by far) the best performer during the inflating of the most speculative asset bubble in HISTORY.

Therefore, it stands to reason a fund (which, more or less) mirrored the Nasdaq performance would rack up an impressive decade-long compound rate of return.

But that was then.

Is it likely ‘what has been’ is going to become ‘what will be’?

That’s the prediction anyone who’s been swayed by the power of the advertising message has to make.

Before falling into the past performance trap, they should consider…

Will Apple fall from the Nasdaq tree?

Apple — a global tech and communications giant — represents almost 13% of the Nasdaq Index.

Year-to-date, Apple’s share price has resisted the worst of Wall Street’s bearish actions. But is that resistance about to crack?

Momentum Structural Analysis (MSA) produced a recent update on the momentum trend in the Apple share price.

The title says it all: ‘Apple: massive trend structures snapping…’

The bottom chart (labelled Momentum) is the one to focus on.

When the upper trend structure (dashed red line) was broken in February 2022, MSA issued a SELL signal on Apple. The price was US$165.

Since then, the share price has fallen as low as US$130 and is currently around US$148:

While the share price has bounced around, momentum has been steadily falling back towards the longer-term (almost 14 years) downside structural support line.

Recently, momentum went through this support level.

Here’s an edited version of the MSA commentary that accompanied the chart (emphasis added):

‘Of the big three — Amazon, Apple, and Microsoft — AAPL [Apple] is the one that has declined the least since MSA first declared a top (in February 2022 for AAPL with price above $165).

‘But frankly it’s not looking good for this holdout symbol. Not good at all.

‘AAPL’s momentum closed below that structure in September, up-ticked in October, and is now below the major line again…And once again credibly below the massive dozen year-old trend structure. It’s rare indeed to see such a clear and massive structure developed by momentum.

‘We think it means a lot. Very negative.’

If Apple’s pricing resistance gives way to the momentum of selling persistence (Phase 2 of the Bear Market), we should expect the Nasdaq Index to be hit hard…taking funds like ‘Global Tech & Comms’ with it.

In this scenario, the prospect of ever receiving 19.78% per annum in the short or medium term is highly unlikely.

But this is what happens at the tail end of bull markets.

Managers with good performance figures tell their tales. They know how powerful the ‘what has been’ syndrome is when it comes to investment selection choices.

Making predictions about the future is a little easier when you have some experience, an appreciation of history, and access to quality research. But that doesn’t mean the Apple share price is going to fall tomorrow or next week…but what about in 2023?

If, as is likely, Apple does fall from the Nasdaq tree, then so goes the Dow and S&P 500 Index…

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

Dear Reader,

As every sentient biped now knows, Mr George Santos lied to get himself elected to Congress. The poor man is now the butt of jokes for stand-up comics all over the country. He provides the Democrats with evidence — if any more were needed — that Republicans can’t be trusted…while distracting the public from their own agenda, which is ruining the country.

But here, we judge not. We just keep our eyes and ears open. We don’t really care about George Santos, but we’re very curious about the system of government that selects a low-life hustler like him as a decider. In the interest of understanding better how our democracy really works, we let him explain himself:

Trust me, I’m lying

‘Alright. So, I lied. Big whoop.

‘I said I graduated from Baruch College. I never actually set foot in the school.

‘I said I went to the prestigious Horace Mann prep school. Nope.

‘I said my grandparents were holocaust survivors. They were not.

‘I said I worked for Goldman Sachs. I never did.

‘I said I was Jewish. Then, I clarified. I was ‘Jew-ish’, but not a Jew.

‘I said I was ‘half-Black’, Ukrainian…and lost employees in the Pulse nightclub mass shooting. None of those things are true.

‘I said my mother died on 9/11. (She was shocked to hear it! She didn’t die until 15 years later.)

‘Somehow, I went from being penniless in 2020…to having millions of dollars to spend on my campaign in 2022. I claimed to own apartment buildings…and made money by selling used yachts. I was the key man in a hedge fund. Of course, there is more to that story…and I’m sure it will come out in due time.

‘After a seven-year marriage to a woman I realised I was gay…and now have a ‘husband’…which you can take any way you want.

‘And so now the press — which asked almost no questions when I was running for office — is having fun catching me up in what must seem like an almost never-ending series of falsehoods. The public is appalled. The voters say they were ‘deceived’. And the media is feeling proud of itself…for ‘unmasking’ a Republican fraudster.

‘But there is more to the story. And I’m grateful to Bonner Private Research for giving me a chance to tell it.

‘After all, to accuse a politician of lying is like accusing a prostitute of being unchaste. Of course, he lies. That is just the nature of his work.

‘Imagine the candidate who didn’t lie. The voters would want nothing to do with him’:

‘I have to tell you that if I’m elected I won’t make any of you richer. You have to do that yourself. And if I, as a member of Congress, slip a little earmark into the budget so someone gets public money, it just means we’ll have to take it from someone else. Or, if I vote for a program where the feds ‘do something’ for you, it will have to be done at your own expense. The federal government has no money…and no power…that doesn’t come from you.

‘I’m not going to build a house for you. I’m not going to plant cabbages or raise cattle to lower your food costs. I’m not going to teach your children. Or lower the price of gasoline. And I can’t make you any healthier either. You know how to do that. Just don’t eat so much, exercise…and so forth.

‘And the Ukraine? Are you serious? As near as I can tell it’s just an excuse to send more of your money to Pentagon contractors and neocon think tanks.

‘So, if you want your government to give you something, or to do something for you, vote for the other guy.’

Big f**king deal

‘That candidate would be quickly consigned to the graveyard of political careers. Because he wouldn’t give the voters what they want. Then, what good could he do?

‘I, on the other hand, was practically born for Congress. I got elected. That proves it. Yes, I embellished my resume. Big f**king deal. The important thing is that I’m a good liar…practiced…and confident. I can make connections with the voters, by telling them what they want to hear. Isn’t that what it’s all about?

‘So what if I didn’t have grandparents who were Holocaust survivors; that’s not my fault. And what if I didn’t really go to Horace Mann; my parents couldn’t afford the US$60,000/year tuition; so what? So what if I wasn’t always gay; what business is it of anyone else?

‘Compare those lies to the trillion-dollar fibs embedded in the New Deal, the Great Society, the War to Make the World Safe for Democracy, Make America Great Again, the War on Terror. My lies are harmless…and more important, free. They cost the voters nothing. I only lie about myself.

‘But wait. They show that George Santos is untrustworthy…that he is a rascal. Yes, of course they do. But those are just the threshold qualifications for a Member of Congress; I passed the entry test with flying colours. And now…throw him out because he lies? If you were to apply that test, how many politicians would survive?’

(Santos is right. The lies that matter are those that involve spending other people’s money…squandering the nation’s wealth…and turning its people into dependent numbskulls. Since press reports have exclusively focused on the lies that don’t matter, we know nothing about his lies that do matter. He is said to be a disciple of Donald Trump, so we assume he is a cretin. But giving him the benefit of the doubt…his policy predilections may be no worse than the other 534 benighted scoundrels on Capitol Hill.)

Decent dishonesty

‘Am I really worse than the others?’, Santos asks. ‘Yes, in a sense…my lies are more obvious and more disprovable. But they are the kind of lies that reveal the truth…they help “The People” see the real nature of their political system. And it might inoculate them against the real liars.

‘Suppose I, rather than Colin Powell, had stood before the world and made the fraudulent “Weapons of Mass Destruction” accusation. Who would have believed me? The US might have been spared the Iraq War.

‘And suppose I had been on watch last week, when Congress voted on the US$1.7 trillion, 4,000-plus page budget bill. Maybe my endorsement would have been enough to make New York Times reporters wonder what was in it.

‘And who better than I to rise to my feet and applaud that showman Zelenskyy, in his preposterous military get-up? It takes one to know one. And if I had made the case for military aid to the Ukraine, the war might have ended six months ago. Last year, the Ukraine got US$120 billion — twice as much as the whole Russian defence budget. Anyone who looked into the affair for more than a minute knows that the whole thing — like the First World War, Vietnam, or the War on Terror — is a deadly scam.

‘That’s why having recognised liars in Congress is so important. It helps remind the press and the voters to ask questions. And the questions bring out the truth.

‘And I, Santos, can make it happen. I am the liar who lets the truth out of the bag. I am also what the voters want. I am gay. I am straight. I am a Jew. And a Catholic. I am a Trump man…and an LGBTQ+ representative. I am a conservative; I’m a liberal. I am Black. I am Ukrainian. I am a Republican…and ready to support any fool cause the voters want. Do they want Green Energy? They got it! Do they want to bomb the Russkies back to the stone age? I’m their man. Do they want more stimmies? More unemployment toppers? More fake money at more fake interest rates?

‘I’m the guy they want. The perfect Member of Congress. With something for everyone…and nothing for everybody.’

Regards,

Bill Bonner,
For The Daily Reckoning Australia