Not a good week. I’ve been saying for sometime that the DOW looked expensive at 26500 and even at 23000 it is not exactly cheap. Unfortunately, markets are so Algo Bot driven these days that if the DOW drops then the numbers of sparrows also fall in outer mongolia. You may need to verify that last point. Just about everything seems linked to the DOW’s movements. It’s like the market lost its brain about a decade ago (it did have one at some point, I promise) and the rest is history. Volatility is now the norm. Get used to it. Index swings of 5% daily is good for business if you trade daily. Long term investors will acknowledge that there are good times and there are bad. But at present, it’s like riding a banana boat on choppy waters. The Hedge Funds and Investment funds are using other peoples money so the pain feels less to them than to a Retail investor who has lost his/her savings. That’s why these markets are dangerous places for the Retail investor. It’s also why record numbers are now deserting the markets. Brokers in UK are seeing the lowest recorded interest from PI’s in decades since Crest certs were swapped for their digital equivalent.
New EU regs have reduced Retail investors ability to place larger bets. That’s not a bad thing at all and at present most should be grateful. But the effect on market volume is clear to see. It’s like a ghost town on some AIM stocks. Neglected by II’s and practically a feeding ground for wonga style or death spiral funding outfits like YA Global and co.
For those that follow the markets closely, many will tell you that the market is a very different place now. It’s changed. And not for the better. Investors are losing faith in a broken valuation tool. If a company’s market cap is determined by Algo Bots rather than fundamental analysis then what hope do we have? The fact is, Algo’s and volatility are here to stay so you best get used to it or exit for good. At the moment, many are doing the latter. There is of course another option. Depart now and come back in a year or two? Pop your head in and if you see the same old rubbish, just walk away. That’s an option open to Retail investors. It’s not an option open to Hedge Funds or II’s. Their job is to churn money over. For the last decade their job has actually been more about taking free cash from QE and turning it over, taking a nice cut and hoping what’s left makes its way back into the economy. Stabilising the Banks balance sheets after Lehmans at the expense of governments / tax payers money was and is the number one goal. That should have been achieved by now. Just in time for the next recession? The FED Reserve seem hell bent on getting US rates higher as fast as they can. The main reason for that is that they need higher rates simply because they need to have some firepower to stimulate the economy when they eventually start cutting them again! The UK and EU are less fortunate. Hiking rates would have been the goal but due to Brexit woes this has been placed largely on hold bar one UK raise. Super Mario might have to dip into his pockets again in 2019 the way the EU economy is going.
Headwinds ahead? Absolutely. And not helped one bit by China v US trading wars. Talks have been booted down the road until late Feb. If Trump is not careful he will be remembered for boosting the stock markets to all time highs and then fumbling it into the next recession and biggest crash since Lehmans.
One measure that suggests we might still be some way from armageddon is GOLD. The go-to safety metal is trading some $100 per oz below this years highs. In theory, if market woes were serious, cash would be heading into Gold and fast. Seasonally, Gold rises into Dec as festive periods bring in shoppers around the globe. So Gold at $1250 is more like Gold at $1150 if you strip out seasonal exuberance. Keep an eye on GOLD as an indicator. If it tips $1400oz, then I suspect we’ll be in full swing of a market correction by then. Assuming we are not there already. There’s a chance markets may recover going into the Santa Rally period as this wednesday’s Fed Reserve interest rate meeting is virtually the last big news event before 2019 kicks in. If the US holds rates then fears might grow that a recession is around the corner. If the US raises rates, then fears could grow that a recession is around the corner. And … if US raises rates, then markets can fear global growth slowing. Damned if they do and damned if they don’t. Which when viewed like that makes the event a bit of a non-event. Status quo or will the Algo’s go all banana boat on us? We’ll know in about 36hrs time.
Week 50 review: All stock picks are limping or walking wounded. Most would prefer calling an end to 2018 right now. For TheShareHub picks, a recovery in PoO is needed if a blue finish is achieved. Still possible considering the Oil price correction of late. OPEC+ have a habit of stabilising things and putting the Hedge Funds in a difficult place. I would expect some headlines from OPEC to arrive very soon if WTI falls to $45pb. The newspaper picks look down and out. A poor year for all those expert/professional analysts who selected them.