Crestmont Research develops provocative
insights on the financial markets and on the hedge fund industry. The
primary focus of the research has concentrated on the drivers and characteristics of
secular stock market cycles, the impact of inflation and interest rates on
the stock and bond markets, and various aspects of hedge funds and the hedge
fund industry.
The intention of the research and its publication on this site is to present
rational perspectives based upon a diligent analysis of historical data.
Through organizing the data logically, information is created. Through
understanding and developing perspectives on the information, knowledge is
generated. With knowledge, one can then start to make informed decisions.
Crestmont’s research is intended to be observation-based rather than
prediction-oriented. It intends to provide information and perspectives to
assist in rational decisions. The research does not provide predictions or
recommendations on investment alternatives, although you may find the
implications quite
compelling.
Harry Markowitz, Nobel
Prize co-recipient for Modern Portfolio Theory and the Capital Asset Pricing
Model, published “Portfolio Selection” in The Journal of Finance during
1952. He led with: “The process of selecting a portfolio may be divided
into two stages. The first stage starts with observation and experience and
ends with beliefs about the future performances of available securities. The
second stage starts with the relevant beliefs about future performances and
ends with the choice of the portfolio. This paper is concerned with the
second stage.” As Markowitz emphasizes, it is the investor's
responsibility to use “observation and experience” to develop “beliefs about
the future performances.” Crestmont's research is developed to provide
practical insights for investors that
don't have 75 to 100 years to wait for historical average returns.
Highlights from each section include:
Stock Market
The overall market is highly volatile and affected by
generally long secular cycles. You may wonder "Is it worth the
risk?". As well, returns in the stock market depend upon the level
of and trend for
inflation. You'll gain insights toward the obvious question "What can we expect from here?".
Twenty years is not enough to ensure positive returns in the
stock market; from current and recent levels in the P/E ratio, expected
returns appear disappointing. Pundits are professing: "Returns will
improve when the economy begins to recover!". Hope is not a strategy: see
the "It's Not The Economy" chart for an historical perspective.
Though traditional wisdom relates P/E ratios to interest
rates, that relationship only works in periods of positive inflation.
With the risk of inflation or deflation on the horizon, the analysis titled "P/E Ratios &
Inflation" will clarify that P/E's are driven by inflation. As well,
see "Stock Market Returns & Volatility" for a surprisingly strong
relationship between the level of volatility in the stock market and its
direction.
Interest Rates
Short-term interest rates (one year or less) are generally determined by the
Federal Reserve; long-term interest rates are driven by inflation
or inflation expectations in the economy. The relationship between interest rates and inflation
was not evident before the 1960's. The research and dynamic model
begin to develop perspectives toward "What are the implications into the
future?".
Our prediction: "Interest rates will change by at least 50
basis points (0.5%) within the next 6 months!". There's
almost 40
years of history—virtually without exception—in our favor. Chances are
that it will be a good bit more than that, too. See the details and
charts titled "The 6/50 Rule."
Hedge Funds
Whereas stocks and bonds depend upon trends in their markets
to provide returns, hedge funds seek to generate profits from inefficiencies
in the markets or from enhanced risk management. You'll receive
insights relating to "Will investments that seek consistently positive
returns from skill-based strategies, rather than passive participation in
the markets, become an increasingly popular choice by investors?".
Pictures tell the story that statistics understate.
We present a series of graphs reflecting the return pattern of various types
of investment funds. The contrast demonstrates some of the differences
between mutual funds and hedge funds. In addition, you'll see an
assessment of hedge fund performance in relation to the stock market in a
colorful, statistics-packed chart titled "Stock Market Return Environment."
Financial Physics
Financial Physics represents the interconnected relationships
among several key elements in the economy and the financial markets that
determine the stock market’s overall direction. This section and its
presentations will provide a highly provocative and insightful perspective
on the relationship of the economy ('the source of wealth') and the equity
markets ('the measure of equity wealth'). Whereas other sections present
analyses of historical data to provide perspectives, this section is
dedicated to exploring the fundamental factors and economic relationships
that drive trends and valuations in the financial markets.
Crestmont Research primarily develops and publishes research in the form of
charts and graphs to provide investors and market spectators with poignant
perspectives on the financial markets. The objective is to impart
insights about the reality of the markets. Occasionally, articles are
written when graphics would not be appropriate or when requested by specific
publications or clients. Crestmont has retained all rights to the
following articles and welcomes inquiries regarding publication in
periodicals and newsletters.
We solicit your insights at Info@CrestmontResearch.com, whether supporting
or contradicting our presentations. They will assist in furthering our
research.
