Capital Flows and Asset Markets
Capital Flows and Asset Markets
LESSONS FROM THE 1970'S NIFTY FIFTY
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LESSONS FROM THE 1970'S NIFTY FIFTY

Why are rising yields are good for blue chips?

I was born in 1974, and even I have trouble believing that people really wore this stuff. When I first started working in fund management, I used to seek out older fund managers to ask them about previous bear markets were like. Two really stuck out as been brutal. The Asian Financial Crisis was one - where fund managers would tell you that they waited for stocks to fall 90% before buying, only to see them fall another 50%. The had a haunted look to their eyes when they talked about that bear market.

The other was the 1970s in the US. Even back in the early 2000s, there were not too many fund managers who had survived from the 70s, but there were a few. As opposed to the Asian Financial Crisis, which came and went like a storm, the 70s bear market persisted. The most telling comment was from one manager which had avoided the 1974 bear market, bought in at the lows thought he was set for a big bull market, and then saw stocks fall again in 1978. He said that 1978 bear market really broke the fund management community as no one was prepared for it. It was also an era of high inflation and high interest rates, so in real terms, stocks were very very poor indeed.

Why am I interested in this period? When I look at the long term graph of gold versus treasuries, we have basically three periods when this is inflecting higher - 1970s, 2000s and now in 2020s. In 1970s and 2000s, US stocks was not a great place to be invested. So far in 2020s, US stocks have been pretty good. Maybe there are similarities to the early 1970s Nifty Fifty and today? Maybe if I can understand this, then I can understand why my short selling techniques have proved less effective?

When I remembered back to my conversations with old fund managers about the 1970s, I remember them saying the Nifty Fifty ended up being a graveyard for fund managers. And when I look at markets now, there is a strong Nifty Fifty vibe.

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