1 Feb 2022

I think the number one story on the geo-political front right now is the Russian – Ukraine conflict and whether this turns into a war. With our development team in Ukraine we wish everyone a speedy return to calm and lasting peace.

MarketWatch

That caps a pretty epic month in the world of trading. It’s all green at the moment as many of the equity markets bounce from their oversold positions. This now begs the trillion dollar question, whether to buy the dip?

Well let me answer that question for you and the answer is a record yes; according to a JP Morgan client survey, a record 78% of them are currently planning to buy the dip.

Let us go a little deeper and examine what buying the deep has meant to investors returns over the years since 1950. I love statistics until you have to reconcile them with an opposing fundamental view. Let’s dive in.

In the graph below you can see how you would have faired if you bought the SP500 after a 10% decline and held it for 1m, 3m, 6m, 12m versus if you just bought the SP500 with no entry filter (unconditional). You can see you do a lot better by buying after a 10% pullback.

As a numbers guy the next chart is very supportive of a buy and hold for 1yr after a 10% drawdown from a high, so anyone who has time on their hands and is a believer that the past 72yrs is likely to keep repeating themselves should jump right in as we see them doing right at the moment.

If you want to see where we are positioned right now in the 10% pullback story then you will see this is exactly what has just happened. We got the signal last week and the “buy the dip” crowd has climbed in. I am not a believer at the moment and I am keen to sell this sucker rally. From a trading perspective the fact that I have a high to place my stop losses at is a little more comforting than shorting without any clear resistance in site which is what I have been doing for the past umpteen months. By the way Jan was a really good month for my trading up more than 7% on the month coming mainly from my US500 shorts.

Money Complex

The RBA is meeting today to discuss monetary matters, would I love to hear the true conversation they have when considering whether they are behind the curve. Take a look at how the German Bund is trading, yields are starting to climb steadily and as for the Citi surprise index in the EU – Achtung!

Coming back to inflation in Australia, I nearly spilt my coffee this morning when I read what it costs to school a kid at a private school in Sydney. It costs A$459,000 to school a kid from beginning to end. Thank G-d I just completed putting my 2 kids through the private school system. The missus and I should go out for a drink to celebrate with our future savings or the waste of money we just incurred according to my daughter. Let Dr Lowe consider this and many other peoples inflation baskets when considering whether it is time to remove the stimulus from the system.

The UK has a celebrity food blogger who has posted a viral tweet about the huge spike in the cost of food basics for people on the breadline. So much so that a government minister commented on the thread saying that indeed there has been very unpredictable price surges and that there is no one inflation rate but many personal inflation rates that are much higher than the statistics suggest. It is for this reason that I have been so anti the free money that government and central bankers (same thing) have been pursuing as it almost always enriches people who need it less than the people who are at the lower echelons of the socio economic ladder needing it the most, it also produces bad money behaviour. The incentive to save is taken away and consumption or investment risk taking is encouraged. Ok enough on this you have heard it all before from me.

Crypto

The crypto market had a tough few months, but the one that is probably going to be doing it the toughest in the coming months is the NFT market. Quoting my friend Jonathan de Wet, the CIO of Zerocap in today’s AFR. “We feel it’s in huge bubble territory right now. It’s gone ballistic, and yes, the tech’s great, but there’s so much dumb money flowing in there that’s about to be wiped out in many ways.”

OpenSea the most popular NFT market place says that more than 80% of NFTs minted through its free creation tool are spam, scams, or fraudulent. I can attest from my little foray into the NFT space that it is highly complex and rife with opportunity for fraud. It didn’t stop me from minting my very first NFT of a genuine portrait of my dog Honey.

Politics

George Soros has spoken and written extensively about his prediction that Xi Jinping is about to be “cancelled”. He feels that the Chinese economic slowdown is going to lead to his undoing aided by his Covid zero approach. Soros feels he is too repressive a leader and will not be able to maintain the path that Mao and Deng set for the Chinese people. Apparently all this back stabbing is happening well beneath the surface as Xi and the Chinese Communist Party maintain a unified front to the western world.

Soros is way too left for my political leanings but he is one of my trading hero’s and frankly when it comes to major themes like this he is an unbelievable thinker who I would not bet against. I have been writing for some time about the Chinese economic slowdown. It is probably far bigger than we all realise. I learned today that the so called 1.4 billion Chinese population is overstated by more than 130 million people. Do not believe any state released statistics. I feel an ill wind brewing.

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