To be mislead from his own sensitiveness about the movement of the market is one of the most typical mistakes each stock-market player the can make. For example after a continuous development of the indexes many investors believe that the markets will grow the same way in the future, especially when а substantial part of their financial assets are in stocks. And vice versa – those who didn’t dare to buy stocks believe that indexes will drop because, according to them, the prices are very high. This fact urges the investors, who “are satting’’ on many stocks, to look at those who are not in the game with self-satisfaction and irony.
After talking with Paul Marson (whom I met at the official start of MONOGRAM Capital Management in London), I realized that at a particular level I am playing the role of the self-satisfied investor. Paul is an investment banker with vast experience in macroeconomics in institutions such as Bank of England, and a long carrier in JP Morgan and Goldman Sachs at a high level management in investment banking.
During this year he has become a co-founder of MONOGRAM Capital Management, an investment boutique, which manages the assets of rich investors (the minimum entrance amount is 5 million USD) and those of Monogram Fund, with the minimum payment of 100.000 USD.
Paul’s market analysis shows that the American stocks have never been more expensive, which creates a great risk for crash of the fond markets. For example, the correlation between the capitalizations of the American stocks and GDP is 171% – a level reached only at the end of 1999 when the NASDAQ balloon cracked. Margin accounts are on the record hight.
The fact that the global debt market is also at record level is also negative for the world indexes, however the infusion of liquidity on behalf of central banks had a minimum effect on the economical activity. Especially these inefficient investments (buy-out of the government bonds) lead to a deflation.
Paul Marson’s thesis is not something new. Similar voices have been heard for many years, but they were silenced by the breathless development of the indexes during the last 5 years. The things which he is focused on are so called “filters”, which, according to him, can protect the investors from the big corrections. 
Paul draws a parallel between his models and the weather forecast in London to illustrate the principle. The totality of definite values of the weather indexes (temperature, dampness, atmospheric pressure, cloudiness, etc.) matches a certain percent probability that it will rain. According to the statistics there is 70% per year probability that it will rain in the city and that is why he is always carrying an umbrella. And in order to prove that he is right about that, the weather during my stay in London was in contrast with the official forecast. The official forecast was that the weather will be sunny, but instead it was raining all the time.
Paul Marson doesn’t think that the correction of the markets will come from the raise of the interests from the Federal Reserve – something which most of the analyzers are focused on.
His opinion is that in 2015 the Federal reserve will not change the interests, because, with the exception of the decrease of the petrol price, the deflationary pressure comes also from the strengthening of the dollar, which allows the importers from Japan and Europe to sell at lower prices on the American market. Actually, the deflation is the biggest threat because it can stop the economical progress observed in USA in 2014.
The philosophy of the Fund is based on some researches in the markets in the last 200 years. They show clear signs that the future movement of the American indexes can be forecasted, no matter how unbelievable it sounds. I was surprised to meet an investment banker who observes the market in the light of the complicated statistical analyses and comparisons. 
These analyses, illustrated with graphics, are not interesting – interesting are the conclusions which we can make from the analyses. I was shocked because these conclusions showed that in the foreseeable future (weeks, months, and a year) the market will level down.
According to Paul Marson in the next 10 years the incomes from the stocks will be 0% comparing to the current levels. I read analyses and forecasts like these with serious doubts, however they help us with the construction of the whole picture and indicate what we cannot “see” on the capital markets.
In the last 5 years it was sunny on the transoceanic markets, but it would be good for us to have an umbrella at hand, because, despite the good forecasts for S&P500, the indicators give us a hint for a big storm coming along.
This article is part of the series: “How to invest? Words of advice for my sons”, by Lyubomir Lekov, founder of INVESTOR.BG and LEKOVI Foundation
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