27th August 2021
As you know I’m generally a very positive person but there’s a limit. It’s like picking through an abandon gold field saying “I’m sure there’s value here somewhere” but knowing deep down that there’s not. For well over a year now the markets have been clinging to every speck of information that say’s everything is gold and we shouldn’t be concerned, indeed we should jump on that wagon and ride it all the way to the top and as I said to a client recently, when your faced with complete uncertainty, where all logic has been tossed out the window and things have as much chance of going well as they do of crumbling in a heap of mangled wreckage, you may as well ride it till the wheels fall off!! So what’s changed?
We’re all aware of how crystal clear things are in hindsight. How in the past we’ve looked back and said “wow…….how did we not see that when all the signs were there?” Are we now on the verge of that moment? A colleague, stockbroker and manager of a large Australian Equities fund Marcus Paddley, recently asked his clients for their observations of the “signs” with some classic comments around the question of “when do you know things have essentially gone too far?” what follows are some of my favourites and I quote…..
Coinbase floating at $100 billion and being valued higher that BP
Massive market capitalisations of companies that don’t make money – but nobody cares!
Tesla – Worth US$700 billion, more than Mercedes $115 billion, Volkwagen $69 billion, BMW $46bn and Toyota $295bn combined.
When people say “Meme stock” with a straight face
When you’re making more in your residential home than your annual salary by a factor of x3.
Governments are holding up consumers and there is a consumer boom!
Stocks hit record highs because inflation and interest rates drop and then hit record highs because inflation picks up (?)
Reddit stocks – A social media army created a stock market frenzy irrelevant of fundamentals.
Anything negative is twisted to a positive
Street artist Beeple sold an NFT (Non Fungible Token) of his digital catalogue for $69 million at Christies. Six months prior to that the most he had sold a print for was $100. In the six months prior to the Christie’s auction he sold a pair of NFT’s for $66,666.66. One of them resold for $6.6m. He became one of the “Top three most valuable living artists”.
A very wealthy business owner pocketing $3.5 million in job keeper payments and buying a beach house.
And lets not forget that absolute gem and smack bang on the money sign of – when you begin getting stock tips off your taxi driver it’s time to sell.
So yes, I believe the signs are there right now and things are beginning to buckle. Once again, as I said two weeks prior to the beginning of the market fall of CV-19, it’s hard to pin a correction on any one event because there are simply so many wobbly wheels at the moment but I do think we’re there now. Inflation is a major problem because there’s zero wage growth to support it. The blindingly fast Taliban takeover of Afghanistan that took the entire world by surprise is another concern and will definitely impact Wall Street but closer to home, our economy is a mess and nobody seems to be noticing this as our focus is more on when we can end lockdown and regain our freedoms. The fact that some people are actually smuggling themselves and their furniture over our domestic borders in the boot of their own cars on the back of a tow truck….. really!!!!
Our GDP figures will be released next week for the June quarter and if they’re negative, I believe the economy will go into recession. If not it’ll be close to it and the September numbers will be the clincher. Will our markets drop as a result? I don’t think anyone can answer that question right now but as you have heard me say many time before, sometimes it’s just wise to keep some powder dry. Maybe, just maybe some logic will enter the market and well get an opportunity to buy well. I’m not saying we’ll experience a crash but a correction of over 500 – 700pts would take the heat out of everything, sober things up a little and give the market a platform from which it can begin laying better foundations for the future. Much good has come from the last 18 months in terms of business innovation. We just need an entry point to take advantage of it.
Personally, I’m selling down roughly 30% of my portfolio to cash. If you’d like to consider any changes to your portfolio just let me know. If your already in cash as I know some of you are, sit tight or if your happy to ride things out and see where the rabbit hole goes no problem either. Have an awesome weekend.