Land of confusion….

Tuesday 20th February 2018

Land of confusion….

What we just witnessed in the global stock markets was not a replay of Black Monday 1987….

The global stock market crash on 19th October 1987 represented a rout….

By the end of that month UK stocks had dropped 26.4%. The US S&P 500 index had lost 30%. In Hong Kong, Australia and New Zealand, losses amounted to 45.5%, 41.8% and 60%….

Yes, the recent correction in global stocks – a correction equates to a 10%+ drop in value from recent highs – wiped trillions off global values….

But it did not register 1987-standard readings on the financial Richter scale….

Events of the last fortnight were more akin to a big warning tremor than a massive quake….

But, don’t worry. It is only February, after all. The year is yet young – hardly out of nappies. Give 2018 more time to mature and wreak its destruction….

The big shifts in the markets’ tectonic plates are yet to come. The big cracks still lie ahead. That’s what we believe at Money Truths. But ours is just one opinion among many….

  • Truth that can’t be told….

In a crisis, no institution is more confused than the mass media….

Except, perhaps, the public who rely on the mass media for a version of events to believe in and to cling to….

The problem with the media is that it can never sit out a crisis and alert the public to the actual truth: that it doesn’t know….

‘We don’t have the first clue what has happened today or why….’

The newspaper that goes to press with that front-page headline (however truthful) won’t be in circulation very long….

The news station that leads with that same story might just as well turn off the transmitters and go home….

The media must know what is going on. It has no choice. Knowing what is happening – and why – is its job, its role, its purpose and its one function.

Whether the media is up to the job or not is irrelevant. Whether the job is even do-able at all is by-the-by. The media must be seen to know anyway….

  • Savor the racket….

In the event of a crisis, newsrooms the world-over spring into action like crack military units….

Airtime must be filled. Column inches must be printed. ‘Facts’ must be located and nailed down. Reports from the frontline must be filed. Definitive and authoritative editorials must be thundered….

The illusion of complete and utter comprehension must be maintained without fail in any given situation or set of circumstances….

Journalists are briefed. Experts sought-out. Analysts consulted. Columns commissioned. Quotes hunted down. Impressive graphics produced. Captions written. Interviews recorded. Talking heads wheeled out and lined up like so many coconuts at the fairground….

It’s impossible to know if any among them really does know what is happening or why….

No single voice is strong enough to rise above the cacophony produced by every man Jack under the sun speaking his own version of truth and events simultaneously….

Nevertheless, confusion is tremendously entertaining – if, like me, you are the proud owner of a warped mind and enjoy that kind of thing….

  • The blame game….

What the mass media lacks in knowledge and genuine insight, it makes up for in its prowess at finger pointing….

‘Who is to blame?’ That’s the question favored by earnest-faced news anchors above all others….

And it’s the question the slack-jawed viewer at home demands immediate answers to. He needs to know who or what to chastise. The man on the street needs to be told, without delay, who or what he is for or against….

But trial by media is like a police line-up with everybody present picking out his own bogeyman….

When it comes to who is to blame for the recent stock market correction, there’s a list of suspects. Everybody has his own idea of the guilty party….

Quants – computers that trade using algorithms derived from statistical models. When prices fall, the quants deepen declines because they automatically respond to falling prices by selling themselves….

Greedy asset managers – these fools bid stock prices beyond what economic fundamentals justified. Their stupidity created a bubble that had to pop….

Inexperienced and complacent asset managers – they lost their nerve. They got so used to flat-line VIX readings that when volatility picked-up they panicked and created a snowball effect….

Central bankers – responsible for a decade of loose monetary policy that produced a stock market bubble vulnerable to rising interest rates or ‘forward-guidance’ suggesting such rises are in the pipeline….

Good economic news – an improving world economy produces rising employment and rising incomes which in turn lead to rising inflation and rising interest rates which in turn lead to depressed equity prices….

The Russians, the Chinese, the Brexiteers, the snowflake generationDonald TrumpTyson Fury and Jose Mourinho might all be involved….

None has yet been linked directly to recent market declines. But in a climate of bald guesswork and chaos, everybody is a potential suspect….

  • After the bull has bolted….

If we can’t know exactly who or what to blame, we can surely identify new lessons to take away and inwardly digest….

But even this is not straightforward….

In the absence of real knowledge or insight, the media can only remind us of old lessons – lessons we already learnt; lessons that should never have been forgotten….

This past fortnight, I’ve been collecting gems of sage market wisdom from various sources….

‘This time’ is never different – markets don’t grow to the sky and, when they go beyond where they should be, they correct….

Markets go down and up – a statement of the bleeding obvious but apparently investors forgot or ignored the basics after a bumper 2017 blinded them to reality….

Investors should always be vigilant and take hedging measures – especially when the market is full of complacency….

Investors need to be switched on to risk – they cannot afford to ignore situations where prices are elevated beyond what the economy supports….

I’m sure all of this amounted to excellent advice ahead of the recent correction. Indeed, I believe this column offered some of it….

But, published after the correction, as it was, the ‘advice’ amounts to little more than glib posturing and self-absolved finger-wagging….

But at least the media can pose like it knows the time of day and stands above the fray like the all-seeing eye….

  • The best move….

So, if the media can’t tell us who or what to blame and if it can’t deliver any genuine lessons of substance, can it at least tell us what to do now?

Yes. But it all depends on who you listen to. And the more media folk you listen to, the more advice you get exposed to and the more confused you get….

I’ve been reading, watching and listening for two weeks solid. I haven’t shaved. I’ve barely eaten or slept. The wife is close to calling in social services or the RSPCA….

I’ve been sifting through all the information the media has generated. I’ve taken it all onboard. I’ve been doing my best to figure out the shrewdest move in the market. And I think I’ve got it nailed it down….

The best thing to do right now – according to everything I’ve heard and read – is this:

  • Buy the dip – there are bargains to be had at corrected prices….
  • Buy the dip but be careful – not every faller is a bargain price….
  • Don’t buy this dip but buy the next – that’s when the real bargains will appear….
  • Don’t buy the dip at all – not any of them – sell the rallies instead….
  • Stick and hold long-term – ignore short-term fluctuations and play long….
  • Liquidate immediately – get into cash and gold ahead of the real crash….

Confused? Me too….

But that’s what happens when you buy into the land of confusion created by a mass media that doesn’t really know anything – but is merely reacting on the hoof, speculating and guessing like everybody else….

You often end up knowing and understanding less than you did before you started. You know everything and nothing simultaneously….

Right now, I’m sure of just one thing. The recent correction in global stock markets was just the start of something – not the end. It was a warning. A sign of things to come. No more. No less. The end will be a lot more turbulent – and a lot more destructive….

More to follow on this….

That’s how it looks from here….

As of next week, your weekly edition of Money Truths will be with you on Wednesday morning. See you then.

All the best,

Dave Gibson

Money Truths