BTFD 2.0?
the last time drawdowns hit this level, retail went all in...
COVID lock-downs brought a lot of retail investors into the market and they know only two things: the market always goes up, and when it doesn’t, just buy the f**king dip. The current selloff might seem relentless but the same thing happened just three years ago.
While the June 2022 bottom formed after almost a year of sideways markets, the current selloff has been a fairly swift six month affair.
With indexes down 15-25%, we are right where the markets turned in 2022.
Not just that, a lot of parabolic moves have been reversed. 40-50% drawdowns might seem harsh but that’s exactly what the doctor ordered.
The whole distribution of returns of stocks that went parabolic looks crushed.
And quite a few stocks have round-tripped.
While its impossible to pick market tops and bottoms, it makes sense to be more aggressive when the most recent history points to an impending turn in the markets.
Alternatively, you can avoid the whole narrative by allocating based on your pain threshold.
The whole premise of our allocation models is that you can mix momentum and bonds to get to a volatility level you are most comfortable with.
Even the most aggressively allocated model is under an 18% drawdown compared to midcap-momentum’s 26% right now.
The best time to buy an umbrella is when its not raining.
Markets this Week
FIIs exiting India en masse…
… Gold was the one asset that was still going strong…
… Last day of the month “paint the tape?” …
… Indian equities weren’t the worst, so that’s something…
… crypto not having a great year…
… or a great week. Simple Trend-following would have saved you some tears.
Links
Research
Dissecting Momentum in China (SSRN)
Why is price momentum absent in China? We argue that price momentum does not exist in China because of a cycle of retail investors’ over-reaction on news days and institutional investors’ price corrections on non-news days.
Can Enhanced Street Lighting Improve Public Safety at Scale? (SSRN)
Results show a 15% decline in outdoor nighttime street crimes and a 21% reduction in outdoor nighttime gun violence following the streetlight upgrades. The upgrades may account for approximately 5% of the citywide reduction in gun violence during this period.
Do Temporary Cash Transfers Stimulate the Macroeconomy? (NBER)
Evidence suggests that temporary cash transfers to households likely provided little or no stimulus to the macroeconomy.
The Political Economy of Tariff Exemption Grants (cambridge)
We investigate whether firm-level political connections affect the allocation of exemptions from tariffs imposed on $US 550 billion of Chinese goods imported to the United States annually beginning in 2018. Evidence points to politicians not only rewarding supporters but also punishing opponents: Past campaign contributions to the party controlling (in opposition to) the executive branch increase (decrease) approval likelihood. Our findings point to quid pro quo arrangements between politicians and firms, as opposed to the “information” channel linking political access to regulatory outcomes.
Guaranteed Employment in Rural India (NBER)
I investigate the intra-household labor and resource allocation consequences of an employment guarantee targeting rural households in India. The guarantee insures household earnings, replacing women as added workers and shutting down a motive for saving. Despite sizable program-job take-up, the guarantee decreases participation in other working activities, and, thus, the labor force participation of married women and total time worked by their husbands. The guarantee accounts for up to 30% of a recent countrywide decrease in rural female labor force participation. Though it increases household consumption, the guarantee reduces the command of household earnings by women, and, thereby, their well-being.
Investing
India
There are simply no bullish triggers (business-standard).
The Indian government is seeking to cut the federal tax revenues that states receive (reuters).
India’s coal-fired generation hit record high in 2024 (jkempenergy).
India’s Family Office Boom Is Littered With Deals Gone Bust (bloomberg).
India is home to 1.4 billion people but around a billion lack money to spend on any discretionary goods or services (bbc).
Indian industry continues to derive its competitive advantage mainly from cheap labour rather than technology and innovation. India’s capitalists have deployed one strategy after another to ensure that they have at their disposal a large labour force willing to work long hours for low wages (thehindu).
India’s car market stares at stagnancy (livemint).
In December, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) passed an order citing three Supreme Court judgments and one Madras high court judgement that do not exist. In just a week, the order was withdrawn, citing “inadvertent errors" (livemint).
DBS Group plans to cut 4,000 temporary jobs over the next three years as it expects artificial intelligence (AI) to increasingly take on roles carried out by humans (reuters).
The role of developers may shift from writing code themselves to supervising and refining AI-generated output. India’s software industry, long focused on producing meticulously reviewed code within rigid frameworks, may struggle with this shift (livemint).
Delhi exchequer lost over ₹2,000 crore due to AAP government’s excise policy: CAG (thehindu).
Crypto trading booms in India's smaller cities as job growth and incomes disappoint (reuters).
row
Trump floats $5 million 'gold card' as a route to US citizenship (reuters).
Trump is installing “patrimonialism”. Patrimonialism is distinguished by running the state as if it were the leader’s personal property or family business. Patrimonialism’s antithesis is not democracy; it is bureaucratic proceduralism (theatlantic).
The Kremlin’s guiding framework—where power is truth, principles are weakness, and cronyism is the only real ideology—now defines the White House as well (codastory).
Since taking office five weeks ago, Trump has made a series of announcements and reversals that have left even seasoned observers of trade policy struggling to keep up (newyorker).
BlackRock, the world’s biggest asset manager, is finally allowing Bitcoin into its $150 billion model-portfolio universe (bloomberg).
Chinese authorities are rolling out fresh measures to limit capital flight, including increased scrutiny of overseas investments (reuters).
Alibaba makes AI video generation model free to use globally (cnbc).
Why Japan Succeeds Despite Stagnation (unchartedterritories)
