Did you feel the Earth shake and judder? When dull, boring, predictable retail giants crash 25% intra-day, time to take notice. Boom/Bust is back – and this time its serious. Anyone for the last few choc-ice?
Markets look distinctly soft, and vulnerable to further downside pressure. The gaps between value, hype and narrative are becoming clearer – spelling opportunity, but also raising the risk of a crash.
Yesterday’s market meltdown was heralded as a “capitulation trade”, but who knows? What we do know is there an awful lot to worry about, and the conditions for the BIG ONE have been building for decades. Time to re-read The Great Crash, 1929.
Some investment banks are picking up cheap Russian assets – which negates the purpose and aims of sanctions, and will simply fuel Putin’s propaganda machine. Meanwhile, Blain’s stupidity index is only down 38% - which shows there are still greater fools out there…
How much longer can the market madness continue? Traditionally they remain irrational for longer than you can stay solvent. Central banks must be terrified – damned if they act, damned if they don’t. The basis of markets is under threat from unbridled speculation fuelled by their actions.
Markets are never as bad as you fear, but never as good as you hope. The Threat Board has seldom looked so complex: we can try to predict outcomes, but its notoriously difficult. The list of potential ignition points seems to be expanding exponentially: Energy Prices, Oil, Inflation, Stagflation, Supply Chains, Recession, China, Politics, Consumer Sentiment, Business Confidence, Property Markets, Liquidity, Bond Yields, Stock Prices.. you name it and someone is worrying about it.
Markets are full of noise about everything from inflation, risk, leverage and politics, but the reality is we are approaching “Peak Speculation”. It doesn’t mean a crash in imminent, but that investment strategies and approaches are going to have to factor in a new reality, and be far more suspicious, questioning and smart as a new reality takes hold. The consequences of QE and other factors that fuelled the speculative age could be with us for decades.
As Greensill and Archegos roil markets and cause losses, they beg the question – who is next? Why is 2021 turning into the year the scams are unravelling? Will leverage on leverage trigger wider implosion or will it be something else, like liquidity?
Central Banks are playing the “lower for longer” interest rate card to reassure markets on growth. There are always consequences of such actions – ranging from bubbles, delusion and fraud. Eventually consequences trigger change, and reassessment – which is driving the rotation from Hope as a Strategy Tech into Fundamental stocks – Autos are a good example.
Seven factors to understand the market shift that’s roiling markets; bond yields and inflation, distortion, recovery, leverage, tech vs reality, exuberance, and value.