Manipulated Calmness
Pfäffikon SZ, Switzerland – October got off of at a bad start for investors. Since 2011 the S&P has not seen a start of October this dismal, where the September gains came undone in a single day. An important point of attention is that the drop came about with an increase in volume. Another interesting point is the price development of US treasuries. October conjures up memories among seasoned investors. In 1974 the S&P 500 rose 16.3 percent and in 1987 its loss was a whopping 21.9 percent. When it comes to volatility one will find October at the top of the list. How things will unfold this time around remains to be seen, but it is sure to be an exciting month.
Doping
The doping infused stock markets seem to be slowly coming to grips with reality. Recently it came to light that the Fed has been messing around with futures on the S&P 500. But all too often I’ve read on Dutch investment websites that certain movements on the S&P were not understood and that this behavior would usually take place during lunch time. The evidence to support this has now – it seems – been found. Since September 15th of this year the Chicago Mercantile Exchange (CME) has taken precautions against these disturbing practices. It should not come as a surprise then that the volatility on the international markets has increased.
Unhealthy
It is unhealthy and dangerous when central banks continuously drive prices northwards. Moreover the cheap credit entices many to run to the bank to buy a house which would supposedly be cheap. This is the case for the Dutch housing market which – according to the IMF – is still more than 30 percent overpriced. The manipulated relative calmness on the international markets creates a false sense of security. Everyone knows that the economy should be carrying its own weight. In summary, economic growth in Europe is not developing adequately, the US is running reasonably well and China seems to be cooling down.
Recession
For 10 years Germany has been pulling the cart in Europe and now it seems to be coming to an end. Germany is at risk of sliding into a recession. Due to, among other reasons, the sanctions against Russia the European Union is shooting itself in the foot. Politicians apparently do not realise that the European citizen is tired of crises. The reality is that stock investors have done well for themselves since 2008, but that the working middle class is being structurally exploited. I am not a socialist, but this development is detrimental for a structural recovery of the European economy. In the past, I’ve pointed out the problems in France. It is remarkable that the egoistic French have no respect for any budgeting rules whatsoever and in doing so, are bringing the future of the EU as a whole in jeopardy.
Worries
The investor is deservedly worried about the global growth prospects for the moment. 60 percent of the most important industrial countries are showing a weakening of their production. Moreover it is notable that the geopolitical problems – even to the current day – have been continuously ignored. But also the carefully hyped IPO market has been a clear sign to me for a while. The ‘Alibaba Peak’ is not a coincidence. The manipulated calmness is slowly coming to an end.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
