Saturday night without Sunday morning?

Thursday, 6th September 2018

Saturday night without Sunday morning?

I wonder if everything I think I know is wrong….

Maybe the beanstalk does grow to the sky after all….

Perhaps what goes up doesn’t necessarily have to come back down to Earth as I previously believed….

Could it be that we live in a new world in which the good times really can last forever?

Might it be the case that the excesses of Saturday night need never give way to a Sunday morning hangover?

  • Defying gravity….

I thought stocks had topped-out back in January….

I thought that one of the longest-running bull markets stocks had ever known had peaked early in the New Year….

The subsequent drop-off in prices seemed to signal a change in direction, in sentiment and in momentum….

From there, I thought the long-term trend would be one of falling stock prices – across the board. I thought the bear had finally got the run on the old bull….

But I was wrong. There was still some life in the old bull yet. There was still lead in the pencil….

In the US, the S&P 500 hit another record-breaking high at the end of last month….

The FTSE and other leading European bourses didn’t manage to pull off the same trick, but the US market is the primary barometer….

And that fresh high recorded on the primary barometer told us that stocks worldwide can defy gravity for a little while yet….

  • A market jamboree for the ages….

Of course, stock holders are clapping their hands and clicking their heels. It’s been non-stop gains for 10-years now….

Stocks have done nothing but grow in value. At whatever point in the last decade you put your money down, and whatever you chose to put it on, chances are you did well….

There is hardly an investor in the stock markets who doesn’t gaze into his shaving mirror each morning and see a gold-plated financial genius staring right back out at him….

It’s been a bandwagon ride that will never be forgotten. It’s been a market jamboree for the ages. The profits have been flowing like strong drink. Hardly anybody can remember when this party wasn’t swinging….

It’s been a market in which even out-and-out fools could hope to make money both fast and easy – and many fools have taken advantage and done so….

Many even greater fools expect more of the same all the way down the road – as far as the eye can see….

Maybe they have only just arrived at the party. Maybe they have been there for a while and are not yet ready to head back to reality. Either way, they don’t want the music to stop….

‘This party is only just getting started,’ they yell at one another before cracking open a fresh bottle and joining the merry throng in the mosh pit….

  • A new high is just a new high….

You might feel like joining them. Everybody’s having a great time. Maybe this party really does have a long way still to run….

But I wouldn’t be betting on it….

Calling tops and bottoms in the markets is notoriously difficult – a job that requires a better and cleverer man than I could ever hope to be….

January’s peak didn’t turn out to be the turning point in the long-term trend that I thought it was. But that is not to say that the turning point is not so very far away….

The bull is not yet depleted of steam. Stocks continue to ride high. Stock holders continue to call out for more of the same….

But a new high is just that and nothing more. A new high doesn’t mean that stocks are now destined to climb in value for evermore. It just means they will eventually have that bit further to fall….

And there is plenty going on in and around the markets that could trigger that fall much sooner than most stock investors are prepared to believe or concede….

I can think of quite a few potential triggers off the top of my head….

  • China, for example….

The Chinese economy has been the primary engine providing the thrust behind global growth in recent times….

But growth in the Chinese economy is showing signs of faltering….

The Chinese stock market has recorded the worst performance of any major financial market so far this year. The yuan is about 8% down on the dollar since June….

Back in 2015, a Chinese slowdown sent stock markets worldwide into free fall….

It could happen again. The American President appears to be doing all he can to make it so….

  • Donald Trump and his Trade Wars….

Trump wants to Make America Great Again….

One plank of that project is to ‘protect’ American industry and business from cheap foreign-sourced imports – a lot of them from China….

That means tariffs on imports of things like steel and aluminum. And it means tit-for-tat tariffs imposed on US exports….

In such an environment, nobody benefits. Prices are forced up….

That upward trend in costs will test reduce global demand. It will test the strength and resilience of the Chinese economy. It could lead to shockwaves in the markets….

  • Quantitative tightening….

For almost a decade central banks have been pumping freshly-minted and freshly-printed money into the system – a process called quantitative easing….

The process has helped produce the high-flying asset markets we are experiencing today….

But as central banks try to turn the spigots of new cash off, there are big risks attached….

Turning the spigots off effectively boils down to central banks reigning back on bond buying….

That could see yields rise, which increases the cost of borrowing and puts pressure on heavily indebted companies….

The ability to borrow plentifully and cheaply has served to bolster businesses and stock prices. Nobody is quite sure how businesses and markets will react when the flow of easy money is stemmed….

  • Stock prices don’t exist in isolation….

That’s three potential triggers to be going on with….

I could think of several more. I’m sure you could too. But we don’t want a big list….

My primary point is this….

Stock prices don’t exist in isolation. They factor in issues and events in the external world….

Right now, stock prices continue to fly higher than ever before.  But developing situations out in the real world will urge adjustments sooner or later. Bet on it….

No tree grows to the sky. None ever has. None ever will….

This market, like every other bull market before it, will eventually head back to the median. Events in the wider world will see to it….

Stock holders are advised to leave the party before the music finally stops and the bright lights come on….

  • I want to improve my trading skills….

Once the long-term trend turns and prices start to fall, the stock market is not generally an attractive place for long-term investors with a buy-and-hold policy….

But it’s different for traders who seek to profit from calling shorter-term price movements correctly….

A falling market can produce just as many profit opportunities as a rising market for traders….

I’d like to be positioned to take advantage when the time comes. I want to improve my trading skills. I want to become a better-informed, more effective and more profitable player in the markets….

That means I need to seek out a first-class source of education to fill in some blanks and to deliver tips and tricks it might take me years to learn by dint of my own experience….

I’ve been digging around and I’ve narrowed the best options down to a shortlist of three sources. I’ve got some calls to make and some questions to ask. But I’m getting closer to making my decision….

More to come on this….

That’s how it looks from here….

All the best,

Dave Gibson

Money Truths