The chart below shows the US Wilshire 5000 total return index (incl. reinvestments of dividends) against gold, both rebased at 100 starting 40 years ago.
The stock market has obviously outperformed gold over the last 40 years, and it's likely to do so in the future.
Why?
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Stock market total returns are mostly driven by dividend yields, earnings growth and changes in valuations.
The distribution of dividend yields and earnings growth are skewed to deliver positive returns on average (dividend yields are positive, and earnings tend to grow).
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Changes in valuations can be very volatile, but the real return on risk-free rates alternatives (bond real yields) tend to influence BOTH valuations in stocks and gold prices.
Basically, gold gets a tailwind from lower real yields.
Stocks too, but also from DY + EPS growth!
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Gold plays an important role in portfolios, as argued in this article of The Macro Compass
That doesn't mean gold will outperform every asset in the long-term, though
Actually, it's more reasonable to expect stocks to outperform gold in the long run
The prevailing narrative regarding the pandemic seems to be that Omicron will turn it into a harmless endemic straight away in 2022
Peer-reviewed pieces in The Lancet and Nature partially confirm this thesis, but on a big picture basis we are heading in the right direction
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The Lancet piece shows how effective antibodies to C-19 have a median life of around 165 days - that means the median person infected with Omicron today should get ''natural immunity'' until summer.
Sometimes, antibodies can last much longer though.
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Research continues, luckily
C-19 pills (e.g. Pfizer or Merck) are being approved, and they seem to be able to reduce severe symptoms by 90% or so - that's great
The not-so-good news is that large scale production will only happen in 2023, so benefits for 2022 are limited
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While US mid-term elections draw quite a lot of attention, market commentators often overlook one of the most relevant political events: the Chinese Politburo meeting.
In Oct/Nov 2022, the CCP Politburo will hold its 20th National Party Congress.
A short thread.
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To Xi or not to Xi?
Chinese officials are generally asked to retire when they reach 65-68y of age - this rule is often applied for some but not for others, and for sure Xi will not be upheld by this.
But there are other relevant CCP members who could be influenced.
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Assuming we get another 5y of Xi, how will he handle the inevitable real GDP per capita slowdown China is and will be facing?
Even if you are China, you can't fight demographics: labor supply growth will turn negative (!) in this decade and real GDP growth converge to 3%
The most important thread of mine in 2021: the 5 must-follow food laws in Naples (mostly applicable throughout Italy).
I am from a small town close to the Amalfi Coast, where GDP per capita is $20k/year and youth unemployment rate is >30% but we know how to make a pizza!
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Rule #1
NO cappuccino or any other types of coffee containing milk after 11am (the strictest Italians would say this is not allowed after 9am).
Milk after 11am is for kids, and adults are allowed to drink it in any format only early in the morning.
Later?
Just. Don't.
Rule #2
Pizza is not crispy, not crunchy, not <1mm thin
The proper Neapolitan pizza has a fluffy & airy outside crust, it gets thinner towards the center and it melts in your mouth
Looks different than what I described?
Then it's NOT Neapolitan pizza
One of the great privileges I had while running a large portfolio was to be able to network with super smart people in the industry.
Here are the most compelling quotes from the real, big risk takers out there - hedge fund PMs, big market makers, very large and active funds
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Friend and successful PM at a top-tier HF, clocking in $25m P&L/year
“Alf, I don’t have a crystal ball. It’s all about risk management: I approach every trade as if I’ll lose money. I ask myself how much money I am willing to lose on the trade, and size accordingly.”
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One of the biggest market makers in fixed income out there
“Every morning my alarm goes off, and my display asks me how much am I into consensus trades? When the dance floor gets crowded and the exit door is small, it’s very tough to get out if there is a fire…”
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