STOCK SLIDE TO CONTINUE
September 20, 2021
Good morning everyone,
While so many are still talking about how the recovery is going in the USA, the reality is, as with Australia, we had the recovery. That's been over for quite some time. We are now well and truly in an entirely different in character, fresh downturn.
The economic fundamentals do not stack up at all at the moment.
Delta is not the biggest problem. It is a catalyst for the bedrock fractures that already exist in the economy. Over-regulation, over-taxation, and the shift to services and consumption to drive economic growth leave the future cupboard a little bare in terms of real fundamental productivity.
Inflation is already at what would normally be viewed as alarming levels. Current narratives are filed with escape clauses, such as inflation is a short term supply disruption, Delta is short term because of vaccinations, debt is not a problem because of low interest rates, a slowing economy is not a problem for stocks because the Fed will maintain stimulus. All of these commentaries, side step that each of these is a real problem in real time.
They all assume we have some underlying miracle economy that will just bounce back and power on?
Well, it didn't happen last time.
What happened in the US last time, as with Australia, is that enormous amounts were borrowed from the future to make us all feel comfortable today. Australia rebounded to above pre-covid economic activity because we had the highest per capita stimulus, while experiencing very little actual Covid The USA injected a whopping 30% of annual GDP just so the economy could barely crawl back to where it was before, in aggregate data, with 5 million less jobs. And markets celebrated? Without the artificial stimulus measures the US economy would still be 10% to 30% less in size than pre-covid.
All through this, markets partied like there was no tomorrow.
Everyone is taught the market is always right. In fact, the market is never right. It is always wrong. Which, is why it swings about so much. It is seeking the right price, and if it ever finds that mystical number, it usually rushes straight by without even noticing.
The more 'wrong' a market is, the further sentiment has stretched a market from it's true fundamental value, the bigger the trading opportunity.
In March 2009, I seized on such a scenario at a turning point long term, and went on national television to 'ring the bell' for the start of a new bull market. Alongside, saying there would be no inflation despite massive quantitative easing. Today is looking very much the exact opposite. This time, we are going to have on-going high inflation with a significant weakening stock market risk.
I hope I am wrong for most investors sake. For us though, there is tremendous opportunity in trading, and hedging of current investments that will stand us in good stead to really make a quantum lift in our investment power over the long term.
As for Australia, specifically, it remains a sell, across the currency as well. The RBA has it wrong on inflation and the nature of any opening recovery as well. This means monetary policy will be ill prepared for a volatile economic period ahead.
ARE WE IN A TULIP BULB MANIA?
Extract from model x portfolio report 11 February 2021.
Good afternoon, we have remained largely out of the market for an extended period, after being whipped about a little during exaggerated volatility.
We have just sat on our hands really, as what is going on in markets generally, is perhaps even more extreme that the great Tulip Bulb disaster of the Netherlands a long time ago. What happened then, was that a whole society became obsessed with getting rich quickly and easily by speculating.
IS THIS 1927-1929 AGAIN?
January 12, 2021
Good morning, and we just closed an incredible trade in Tesla.
At the time, it felt we were buying late near the top, but it worked out as one of the best trades ever. So, we know respecting price action, even when disbelieving the levels achieved, can be highly profitable.
That said, the price action now, for Tesla, and the Tech sector as a whole, is heavier than the broad market. Tech needs to stabilise here, or risk becoming a downward snowball, quickly impacting other sectors and particularly the Australian market and extremely so in stocks like Afterpay that have never made a profit.