Insights & Blogs

“The way you create deflation is you create an asset bubble. If I was ‘Darth Vader’ of the financial world and decided I’m going to do this nasty thing and create deflation, I would do exactly what the central banks are doing”
Stan Druckenmiller

The Federal Reserve is now responding with accelerating rate hikes following backward looking inflation data which showed a new high this week of 9.1%. However, the forward looking markets have started reacting differently.

Bond market volatility and the Global Credit Impulse indicate a risk hurricane.

Best Investors always focus on minimizing risk.

“[Ptolemy’s] Earth-centered universe held sway for 1,500 years, showing that intellectual brilliance is no guarantee against being dead wrong” Carl Sagan

“…at the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control.” Paul Tudor Jones

It has become an industry standard that asset management starts with a risk assessment of the investor. Once that is completed a portfolio is selected which in theory “matches” the investor’s risk profile. In most cases once the portfolio is allocated there is limited activity until the next review or interaction with the investor.

This process may have been sufficient for purpose for many investors in the relatively stable conditions and broadly benign investment environment of the last decade. However, in today’s markets it is likely to become clearer that risk based allocation and passive management is somewhere between suboptimal and simply dead wrong.

Central Banks and Wall street remain cycle blind.

A major problem but also an opportunity.

Why Wall Street earnings estimates are likely to be wrong at the worst time to be wrong.

It is important for investors to fully understand that current conditions are unprecedented in their own lifetime investment experience.

The scale of the credit cycle has continually expanded over the last 50 years, and policy makers are now confronting the biggest credit cycle peak just as they take on the largest inflation breakout in 40 years.

CB Investment Management has partnered with financial tech platform, Pontera, formerly known as FEEX. Pontera specializes in providing full access to all trading and managing of held away accounts (i.e. 401k, 403b, 529, Government IRAs, etc.). No transfer needed!

Last week the central banks displayed how far they are from resolving current challenges, and some made stunning inaccuracies in their assessments and statements.

Consumers and investors have had to react to a new economic paradigm in 2022, as initiated by yet another extreme shift in central bank policy. It is becoming increasingly clear that central bank policy is not working well as measured by increased market volatility and ever increasing misses in their forecasts and objectives. Investors will have to raise their game.

Make sure you have a robust full cycle strategy in place. This week the focus is on Paul Tudor Jones, the Best Investor system for outperforming Billionaires, and understanding John Hussmans’s long term road map.

Investor behavior and portfolios are struggling to transition from the biggest bull market in 100 years to a transformed environment, Stagflation. Investor allocations follow the markets and peaked with the market highs at the end of 2021.

Jerome Powell’s statements last week reinforced the Fed’s full policy reversal from the most reckless policy stance in history as confirmed by data on money supply, debt, QE, and real interest rates. The Fed now says it needs tightness of “financial conditions” just as the growth downcycle is gathering pace.