Fragile Juncture
Pfäffikon SZ, Switzerland – For years, investors are bivouacking between hope and fear. Central bankers are the gladiators of the 21st century; they distort your financial picture as if it were a piece of tinfoil. To navigate this economic landscape is not easy. As the historical awareness by many is reduced to virtually zero, the risk of accidents is large. The juncture is fragile.
Grip
The erratic volatility of the past few months says a lot about the peace of mind of investors. They are torn and seem to have little grip. The value investor with a long horizon and a proper mental frame, however, will survive without problems. The market gives you many opportunities, which are often overlooked by emotion. First and foremost, I do not compare the current situation to 2008. This does not mean that the probability of a market rollover has increased indeed. In 2007, 2008 and 2011, we saw similar patterns in preparation for an actual correction.
ETF
A thorough examination of an index is needed to understand what is going on. In this case, ETFs put you continuously on the wrong track. They work disruptive, are one-sided and designed to have a major impact on the price trend of some shares. The shell around the ETF is outrageous rigged and is making supposedly cheap investing suddenly foolishly expensive. The ETF commune tries admittedly to correct this adverse effect, but I wonder how? The men are successful in selling the product, but if there is a need to sell, no one is at home; it is a matter of time before this statement will be presented to the ETF investor.
Local
The recent rebound of the indices is mainly driven by local shares. This confirms my impression that the cause of a possible correction must not be sought at an upcoming recession; a structural economic downturn will be probably some time away. The motif of a possible correction must be found in a combination of factors; the confidence in central bankers, the volatile oil prices and the Chinese (debt) developments. The confidence in monetary policy is crumbling off to different investors for years. At all costs, Mario Draghi of the ECB wants to shrivel the debt mountain at the expense of many. It was a right decision of President Klaas Knot of The Dutch Central Bank (De Nederlandsche Bank) to vote against the ECB this month. The rising oil price is likely to create a reverse action, which many investors do not realize yet. In this way, the oil-knife would just cut wrong on two sides. On the one hand, investments in the oil sector are sharply scaled down, and on the other, the consumer will suddenly face higher expenses again due to the accumulated price of oil.
Reducing
In my market outlook last week, I wrote that the third largest U.S. pension fund (CalSTRS:. $ 191 billion AUM) is considering to structurally reduce her stock portfolio of roughly $ 105 billion. The fund wants to cope with an upcoming correction in any case. Additionally, it wants to hire active hedge funds to manage a future decline. I still have no evidence that institutional money is behind the current rise; this is food for thought, and it looks like that the current increase is set up by traders. The undersigned is certainly preaching no repeat of 2008. However, the era is fragile and a period of humility on the global stock markets seems to have arrived.
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.
