George Muzinich: «Leave Before the Party Ends»
The rapid growth of predictive markets now allows us to electronically bet on almost anything, even elections. We have developed a betting mindset together with a certain credulity to simply take things at face value. However, we should also pay attention to the warning signs, George Muzinich writes in his essay for finews.first.
In this section, authors comment on economic and financial topics.
This is a period of enthusiasm, excitement, and all manner of outbursts of predictive energy. It is January forecasting time. It is the beginning of a new year, the beginning of a new political order in Washington, and countless questions as to how the sociopolitical and economic landscape may change in countries across the world.
Will we go from war to peace in Ukraine and the Middle East; will we trend away from progressive to traditional values; will artificial intelligence (AI) better or threaten our economic and social well-being? The list goes on.
«We give credence to what appears before us without much thought or judgment»
It is human nature to try to predict the future, even if history shows how fruitless this can be. Everybody has something to say, but nobody really knows. A Harris poll last year reported that «70 percent of Americans either somewhat or strongly believe in astrology». Anything goes. We give credence to what appears before us without much thought or judgment.
The financial services industry is particularly fond of making predictions. It has, however, often proved unreliable at forecasting the timing of market turnarounds. Financial trends can take on a life of their own and become so entrenched in a population’s psyche, that they become an almost unquestioned part of our shared understanding.
«Nobody ever lost money taking a profit»
Bernard Baruch, a successful financier of a bygone age, was once asked how he had amassed his enormous fortune. He reportedly answered: «I made my money by selling too soon,» adding: «Nobody ever lost money taking a profit.» These are nuggets of wisdom the investors of today may wish to keep in mind when assessing equity valuations.
The US stock market has just reported a second consecutive year of 20 percent+ returns. What is to prevent this wonderful trend continuing?
There is great enthusiasm for the potential benefits AI will shower upon us. Conflicts in the Middle East and Ukraine may be coming to an end. Major central banks understand the desirability of lowering interest rates and are starting to do so. There is a new government in Washington that wants to create a more dynamic and entrepreneurial environment, unleashing the potential of an economy it feels has been fettered by bureaucratic regulation and heavy-handedness.
This decade has been heralded as a new «Roaring 20s». Neither war, rising interest rates, or political uncertainty have been able to stop the stock market’s ascent. The trend is our friend, the music is playing. We just need to keep in mind that trends have a way of changing rapidly.
«The warning signs are there for all to see»
Markets may continue to rise for a while, but the warning signs are there for all to see. The US federal budget deficit is already running at 6.6 percent of GDP.
US inflation, as measured by the Consumer Price Index (CPI), increased 2.9 percent in 2024, with core CPI up 3.2 percent. German inflation increased 2.6 percent in December, year-on-year, still some way off the European Central Bank’s 2 percent target.
This begs two key questions: How tenaciously will policymakers fight inflation if increasing prices become more entrenched in the economy? And how long will investors want to stay in riskier financial assets if the mood starts to shift and there is a realization that the balloon is losing air?
Generations ago, gambling was frowned upon and strongly discouraged. Today, it seems to be part of accepted behavior and is everywhere, present in our media and at our sporting events. We increasingly want satisfaction in the here and now. We crave that quick feedback loop to give us a short-term lift.
«There is a certain nervous frothiness in behavior»
The rapid growth of predictive markets now allows us to electronically bet on almost anything, even elections. We have developed a betting mindset together with a certain credulity to simply take things at face value. Perhaps we increasingly need the instant gratification that social media and instantaneous communication seem to offer. There is a certain nervous frothiness in behavior that characterizes this period in our history.
The extraordinary rise of day trading is a testament to the short-termism that increasingly influences financial markets and people’s relationships with them. A father and son, neither of whom works in finance, recently asked me about the merits of day trading. It reminded me of an incident in 2007 when I overheard a group of nurses discussing the stock market, with one volunteering that she was leaving nursing to trade full-time.
«We have been here before»
Short-termism has always existed in financial markets. It is in those periods it becomes excessive that one needs to be especially vigilant. Our concern is that we may experience a prolonged period of inflation, an insidious pollution of steadily increasing prices. If this inflationary bias proves correct, it will coincide with an increasingly frothy mindset among some investors, an anything-goes attitude, and a level of speculative behavior that is troubling.
We have been here before. This may be another of those periods when investors need to focus their attention on protecting capital and trying to stay one step ahead of inflation.
George Muzinich, Founder and Executive Chairman of Muzinich & Co.
Previous texts by: Rudi Bogni, Rolf Banz, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Nuno Fernandes, Richard Egger, Dieter Ruloff, Marco Bargel, Steve Hanke, Urs Schoettli, Maurice Pedergnana, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-Bisang, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Hans-Martin Kraus, Gérard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frédéric Papp, James Syme, Dennis Larsen, Bernd Kramer, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Markus Winkler, Thomas Steinemann, Christina Böck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Möbert, Ursula Finsterwald, Michel Longhini, Stefan Blum, Nicolas Ramelet, Søren Bjønness, Gilles Prince, Shanu Hinduja, Salman Ahmed, Peter van der Welle, Ken Orchard, Christian Gast, Jürgen Braunstein, Jeffrey Vögeli, Fiona Frick, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Mark Hawtin, Fabiana Fedeli, Kim Fournais, Carole Millet, Swetha Ramachandran, Thomas Stucki, Neil Shearing, Tom Naratil, Oliver Berger, Robert Sharps, Tobias Müller, Florian Wicki, Jean Keller, Niels Lan Doky, Johnny El Hachem, Judith Basad, Katharina Bart, Thorsten Polleit, Peter Schmid, Karam Hinduja, Zsolt Kohalmi, Raphaël Surber, Santosh Brivio, Mark Urquhart, Bruno Capone, Peter Hody, Agniszka Walorska, Thomas Müller, Ebrahim Attarzadeh, Marcel Hostettler, Hui Zhang, Angela Agostini, Guy de Blonay, Tatjana Greil Castro, Jean-Baptiste Berthon, Dietrich Grönemeyer, Mobeen Tahir, Didier Saint-Georges, Serge Tabachnik, Vega Ibanez, David Folkerts-Landau, Michael Welti, Mihkel Vitsur, Roman Balzan, Todd Saligman, Stuart Dunbar, Carina Schaurte, Birte Orth-Freese, Gun Woo, Lamara von Albertini, Ramon Vogt, Andrea Hoffmann, Niccolò Garzelli, Darren Williams, Benjamin Böhner, Mike Judith, Jared Cook, Henk Grootveld, Roman Gaus, Nicolas Faller, Anna Stünzi, Thomas Höhne-Sparborth, Fabrizio Pagani, Guy de Blonay, Jan Boudewijns, Sean Hagerty, Alina Donets, Sébastien Galy, Roman von Ah, Fernando Fernández, Georg von Wyss, Stefan Bannwart, Andreas Britt, Frédéric Leroux, Nick Platjouw, Rolando Grandi, Philipp Kaupke, Gérard Piasko, Brad Slingerlend, Dieter Wermuth, Grégoire Bordier, Gianluca Gerosa, Michael Bornhäusser, Christine Houston, Manuel Romera Robles, Fabian Käslin, Claudia Kraaz, Marco Huwiler, Lukas Zihlmann, Sherif Mamdouh, Harald Preissler, Taimur Hyat, Philipp Cottier, Andreas Herrmann, Camille Vial, Marcus Hüttinger, Serge Beck, Alannah Beer, Stéphane Monier, Ashley Semmens, Lars Jaeger, Shanna Strauss-Frank, Bertrand Binggeli, Marionna Wegenstein, George Muzinich, Jian Shi Cortesi, Razan Nasser, Nicolas Forest, Jörg Rütschi, Reto Jauch, Bernardo Brunschwiler, Charles-Henry Monchau, Nicolas Ramelet, Ha Duong, Teodoro Cocca, Jan Brzezek, Nicolas Mousset, Beat Weiss, Pascal Mischler, Andrew Isbester, Konrad Hummler, Jan Beckers, Martin Velten, Katharine Neiss, Claude Baumann, Daniel Roarty, Kubilaqy Yalcin, Robert Almeida, Karin M. Klossek, Marc Taverner, Charlie T. Munger, Daniel Kobler, Patrick Stauber, Anna Rosenberg, Judith Wallenstein, Adriano Lucatelli, Daniel Goleman, Val Olson, Brice Prunas, Frances Weir, Luis Maldonado, Nadège Lesueur-Pène, Massimo Pedrazzini, Eric Sarasin, Dina Ting, Christopher Gannatti, Shaniel Ramjee, Mihkel Vitsur, Nannette Hechler-Fayd'herbe, Ralph Ebert, Mark Denham, Francesco Mandalà, Mariolina Esposito, Maryann Umoren Selfe, Dominique Gerster, Christian Kälin, Nadège Dufossé, Benjamin Melman, Brigitte Kaps, Florin Baeriswyl, Marc Reinhardt, Thomas Holderegger, Bruno Cavalier, Gary Burnison, Louise Curran, Adrian Cox, Philip Adler, Serge Fehr, Marc Lussy, Axel Brosey, Colin Vidal, Vivien Jain, Ralf Zellweger, Maria Vassalou, Nico Fiore, Gary Burnison, Thomas Signer, Brigitte Kaps, Andreas Ita, Leon Curti, Remo Badertscher, Alexis Marinof, Olivier Kessler, Beat Wittmann, Jacques Aurélien Marcireau, Patricia Ordody, Marc Palahi, and Francesco Magistra.
