from Jesse’s Café Américain:
The timing may be tricky, but such severe distortions in valuation as shown in the chart below can often set up special opportunities for investment profits when the eventual reversion to the mean, or norm, occurs.
I think it may be more difficult to trade on these sorts of sweeping macro changes now because of the pervasive corruption and insider operations in the markets which prey on the mispricing of risk and the calculated asymmetry of information. I am comparing this to my own investment decisions on behalf of my family in the early 1980s, that pre-HFT period when the customers’ man still thanked you for your order, when it became obvious to most informed observers that Volcker’s interest rate policy had peaked at twenty percent, and the long decline in rates had begun. I remember a colleague coming in to my laboratory and writing the date and rate on my chalkboard, and he was right. For the astute longer term investor, those were the days of zero coupons, high grade and high paying annuities, longer term Treasuries, and high quality dividend DRIPs.
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