Tuesday 4th July 2017
Devastating earthquakes seldom arrive unannounced….
There are signal tremors. Sophisticated geological equipment picks up the warning signs deep underground. Birds and animals behave strangely….
I believe an earthquake is headed our way. One that will reduce the global financial system to rubble.
I wouldn’t describe myself as the lone voice crying out in the wilderness. Others have been saying the same thing….
But there’s been a step-change of late. More voices are joining in. Bigger voices. More powerful voices. Voices that represent a real warning tremor….
- A change of tune….
Last week, signs that big banks are changing their tune….
They’re starting to feel uncomfortable. The truth they’ve been tap-dancing around for years can no longer be avoided. The bogeyman must be faced. Bankers are now acknowledging facts they previously weren’t….
This from Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch….
‘Central banks, the reason behind high asset prices and low volatility, are now in a desperate dilemma….’
This from Marko Kolanovic, head of macro quantitative and derivatives research at JP Morgan….
‘Risky assets have been rallying for years and market volatility is near record lows. Valuations are high, arguably supported by low interest rates and [the] record pace of central bank monetary expansion….’
- The lights are going out….
Years of record low interest rates and money-printing have created a bubble in asset prices.
Money created out of thin air was made available cheaply and has fueled an orgy of speculation – driving asset prices ever higher….
Now, interest rates are starting to go back the other way. Now, central bank doves have grown talons and are becoming hawks….
Some printing presses have already been switched off. The plug will be pulled on the others real soon….
The lights are going out on central bank monetary stimulus….
- Starved of synthetic nutrition….
Markets will no longer get the unremitting supply of synthetic nutrition they’ve relied on since the last global crisis….
Markets will no longer get the mineral-rich breast milk central banks have drip-fed them night and day for 9-years….
That which enabled markets to thrive and flourish and grow fat and tall is to be cut off at source….
Soon, the well-fed chick must fend for itself – in the harsh and demanding environment of the real-world….
Analysts are starting to wonder if the pampered chick is robust enough to cope with the challenge. They wonder if it can thrive on its own.
They wonder if the new environment will provide sufficient sustenance to keep the chick in the style to which it has become accustomed….
Analysts, like Hartnett and Kolanovic, are beginning to acknowledge that the signs are not encouraging….
|Profit from the unexpected at Wimbledon….
Wimbledon is not as predictable as the markets say….
Ageing champions of yesteryear are vulnerable to the champions of tomorrow….
The market hasn’t factored that reality into the prices….
Right now, players with ‘live’ chances are trading at MASSIVE prices. The time to back them is NOW. BEFORE the market latches on….
- Prices – out of kilter….
Markets have been flying high for years despite sluggish global economic growth….
A sustained bull market – including a series of record-breaking highs – has endured for 100+ months….
This despite real economic activity levels puttering along like a two-stroke lawnmower in need of a service….
GDP figures have disappointed across the board. Recent years have produced no boom time. There have been momentary signs that a corner has been turned. But it has not been sustained. Now things have flattened out again – particularly here in Britain….
Yet markets have been going hell for leather. The sea has been still, there’s been barely a breath of wind and yet the sail boat has been cutting across the water like a tornado is blowing it along.
Market prices have been completely disconnected from the environmental factors that are supposed to drive and adjust them. Prices have been wildly out of kilter with conditions and circumstances….
That’s because the buoyant markets have not been fueled by genuine economic growth or the genuine bottom-line performance of individual businesses.
Instead, they have been inflated by the central bank’s long-term supply of cheap money and a speculation bubble….
The markets have been flying on the back of monetary stimulus rather than genuine economic growth. Now that stimulus is coming to an end. The market will have to adjust to a new set of drivers….
- The new market reality – a stalled and flat economy….
The price of oil is well-down from its 2008-level. In recent weeks, it’s been on another downward trend.
There’s a lot of politics surrounding oil. And that background politicking has some effects on price….
But the bottom line is this: not much gets done without oil.
When the price of oil is falling, it’s mostly because demand is falling. If demand is falling, that’s because nothing much is happening. In other words, the wider economy is stalling….
This is the harsh new environment markets will soon be introduced to – one where activity is stalling and growth is flat-lining.
What will drive new gains? What will send stock prices higher still? What will even sustain current market valuations?
My best guess is that current market valuations won’t be sustained. And prices won’t grow. In the absence of monetary stimulus there is nothing to maintain recent momentum.
Instead, prices will tumble – from current artificial highs to levels consistent with economic reality.
The truth is about to come out. The towel is about to be whisked away. Things are about to be seen for what they really are. If you’re invested in the stock market, now is a good time to head for the exit….
- Calling top….
It is notoriously difficult to call the top – or the bottom – of a market. Only a damn fool would do it in public. So here goes….
We might not be right at the very top of the market. But we’re not far away….
There might be a few more points to be gained by staying put. But there is potential to lose much more….
The market has climbed and reached heights never previously scaled. There may be another summit ahead. There may be a little more distance to run….
But with prices higher than ever (inflated by stimulus), how much more juice can the lemon deliver when that stimulus is removed and non-assisted economic conditions must finally be factored into prices?
Risking a lot to gain a little never did make any sense to me. Personally, I’m prepared to forego the little more that might lie ahead if it means hanging on to gains already made.
The writing is on the wall. Markets are going to experience turmoil. I don’t want my money there when it happens.
I’m out of the market and sitting in cash – for the moment. I’ve got another little move up my sleeve. I think it’s sensible under the circumstances. But more on that next time….
That’s how it looks from here….
All the best,