The big winner when the crash comes….

Thursday, 22nd November 2018

The big winner when the crash comes….

Global stocks continue to take a pounding….

For sure, there was an element of bounce-back at work yesterday. But across the board, major indices were trading at the lower end of their respective 52-week range….

That was the case in London on the FTSE 100 and the FTSE 250….

It was the case on the major US bourses – the Dow Jones Industrial Average, the S&P 500 and the NASDAQ Composite….

It was the case on the European mainland – on the German DAX and the French CAC 40….

And it was the case in Asia on the Nikkei 225 and the Hang Seng Index in Hong Kong….

They say trends are made for bucking – but nowhere on the planet are markets or investors bucking this one….

  • This is not a massacre – not yet….

Of course, it’s tempting to look at the action on global indices over the last month or so and to see it as some sort of massacre….

But let’s not get ahead of ourselves. Let’s not lose our sense of perspective….

It doesn’t pay to get too caught up in the here-and-now – at least where markets and big issues are concerned. It is almost always better to step back and to take a longer-term view….

And when we do that, we see that despite the recent drawdowns on the major markets, stocks have done very well over the last few years – and remain very close to the highest prices they’ve ever been.

Markets haven’t really given much back in the wider scheme of things during October and November….

In other words, if this is a correction – it is not a particularly earth-shattering one. If there is to be a genuine run-for-the-hills-crash – then it hasn’t really gotten out of first gear yet….

The massacre – if it is heading our way – is still out on the road. Some folk believe it will never show-up….

You don’t have to dig very deep below the surface of any news search engine to locate stories that describe the current market situation as one ripe for investors seeking-out a bargain or two….

To hack journalists worldwide, the markets are currently drooping under the weight of low-hanging fruit – all you need do is reach out and take it….

What comes down must go straight back up again. That appears to be the stock market mantra these days….

  • A case of the jitters….

Maybe the hacks know something we don’t….

Maybe some of these laptop jockeys even think before putting pen to paper and rewriting the same old agency bulletin everybody else is using as ‘source material’….

Maybe they really do believe the market is a rubber ball that just keeps bouncing back – time and again. And, of course, they are free to believe whatever they choose to….

But, here at Money Truths, we either do not share their confidence or cannot buy into their delusion….

Volatility is back with a vengeance. The old CBOE Volatility Index (VIX) – which effectively measures how complacent or fearful S&P 500 investors are at any given point in time – has been hitting new highs these past few weeks….

Investors have got a proper case of the jitters right now….

The confidence and complacency that existed in markets across the summer has been replaced with anxiety and fear. And when that stuff takes hold it can breed plenty more of the same….

  • The worst is yet to come….

And it’s not just some dry old set of numbers and a chart that say the downturn has the potential to turn into something more sustained – something more damaging….

Real people – folk with skin in the game – are antsy….

For example, CEOs are losing faith in the US economy. The latest CEO confidence index from trade publication Chief Executive, reveals that confidence in business conditions across next 12-months among CEOs is at its lowest levels since October 2017….

Investment bank Morgan Stanley are warning their clients that the worst is yet to come for stocks. In their weekly Warm Up report analysts wrote this….

‘Not only does the price action this year suggest we are in the midst of a bear market—more than 40% of the stocks in the S&P 500 are down at least 20% — but it also trades like a bear market….’

And this….

‘Historically, when the 200-day moving average turns down it typically takes months, if not longer, to turn up again….’

And they have some sobering words for the ‘buy-the-dip’ brigade – currently out on maneuvers….

‘A buy-the-dip strategy has not worked this year, the first time since 2002….’

  • Take your pick of potentially damaging headwinds….

Of course, just because ‘buy-the-dip’ hasn’t worked so far this year doesn’t mean it won’t start working again before Christmas or get right back to business as usual in 2019….

We don’t know how things will turn out and anything is possible. The market can always go up. But it can go the other way too – and harder and faster than you think….

Right now, you can take your pick of potential headwinds that could serve to blow global stock markets further off-course….

Falling corporate earnings…. an escalation in the ‘Trade War’ between the US and China…. a disorderly Brexit…. debt default in emerging economies…. debt default in Italy that has the potential to blow the euro project apart….

And these are just the things that markets are already aware of and already pricing in….

What about the stuff that markets aren’t aware of? The stuff that Donald Rumsfeld once described as the things we don’t know we don’t know?

That stuff we don’t know we don’t know about is dangerous….

It is often the punch he doesn’t see or anticipate that puts a boxer on the canvas. Most likely it will be an unforeseen event – which cannot be anticipated – that puts the still-high-flying market flat on its back in the not-too-distant future….

  • Gold – the common-sense play in dangerous times….

If or when that unforeseen event makes itself known, it will be too late to exit high-flying markets. The right moment to leave the party – before the guests start smashing up the furniture – will have been missed….

At that point it is likely stock investors will have no option but to take a big hit – a really big hit. A hit that demands a ten-count….

Stocks have done nothing but rise across the last decade – hitting all-time highs in the process….

There is a long way to fall from such dizzy heights. Here at Money Truths it is our contention that losses of 50% or more are not just possible – but probable….

I am not an investment advisor. I cannot tell you what to do with your money. I am not qualified to do so. And I would not presume to try….

But I would urge anybody concerned with current market conditions to think seriously about getting at least some of their money out of stocks and into gold – either by buying physical gold or investing in a gold-focused Exchange Traded Fund….

That’s just common sense….

Gold has been used as a safe-haven asset for centuries and does well in times of crisis. The precious metal tends to thrive on bad news. There’s plenty of that set to come down the river. When the market crash comes, gold will likely be a big winner.

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths