2008 on Repeat
Pfäffikon SZ, Switzerland – Investors have been smacked around for nine months, which has caused much stress and emotions among them. According to many market participants a new crisis is lurking around the corner. Granted that the likelihood of a new crisis is never zero, it is very far fetched at this moment in time. Investors are hypersensitive with 2008 still fresh in their memories. Moreover, the bull market is coming of age and that is making many investors suspicious because they only have an eye for the calendar and have no idea about the fundamentals.
Banking System
2008 was mainly about banks and insurers that had bitten off more than they could chew. The international banking system was rocked to its foundation as the possibility of a total system standstill became real. The consequence was that this pending doom could be felt throughout all layers of the market. With all respect to the growing mass of doomsayers; 2016 is not 2008.
Sector Driven
2016 is more about a sector driven correction in mainly the oil and gas sectors, but really, the entire commodities sector is the victim here. This is not entirely unexpected as many have called themselves “experts” in the commodities sector in the past several years. This created a strong attraction between investors and issuers who promised the moon. Every fabel draws to an end, however. Even in the commodities sector. We’ve seen this before in 2002 in the telecom sector, but the inflated housing sector is also a good example of too much greed. Without a doubt there will have been some banks that issued too many loans to the oil and gas sectors. But this doesn’t mean that the entire banking sector is at the verge of collapse. The financial sector is in a lot better shape than in 2008, but there is always room for improvement.
China
Many point the finger at China, where the mountain of debt has increased substantially since 2008. Some hedge funds are aggressively speculating against China, after being full of praise initially. China’s mountain of debt is definitely worth noting, however, every loan in China is covered by a Chinese deposit. China is a nation with sizable reserves which it has built up over the past decades. Even George Soros won’t get the Chinese central bank to its knees, regardless of what he’s trying to tell you. Moreover, I read very little about the global worry that China would possess too many U.S. treasuries. China is a nation in transition, with deep pockets and the economical world, in the long run, will derive benefits from this.
Selective
The recent developments make painfully clear that investing highly selectively and actively will take preference in the coming decades. The current investing climate is one of the trickiest since the 30s, but calling for a repeat of 2008 is premature. In the meantime the oil and gas sector will be rough, but eventually the dust will settle calmly. An excellent opportunity for investors with a long term vision and a lot of patience to carefully position themselves for the future.
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 mentioned shares and has no intention of doing so in the next 72 hours.
