Thanks to all who managed to tune in to the webinar last Friday, our biggest yet.
We covered a great deal, including the three risks converging simultaneously that most investors simply are not prepared for, and a hidden risk within the investment industry itself that few ever talk about.
I believe it was the most important presentation I’ve given in 40 years, and if you have not yet seen the recording and would like the link, just reply to this email.
I mentioned the late Queen’s response to the 2008 crisis (“why did nobody see this coming?”). One reason why financial markets implode every few years is a toxic mix of complacency, greed, and bad maths. As promised, here is a link to chapter 5 of my book, “Maths: the solution or the problem?”. Enjoy.
Back to today, Trump is now a month into his war of choice, and, as expected, the financial markets have forced his retreat via a concoction of tweets and juvenile twittery. Markets are responding more conventionally, opening up some interesting opportunities.
In October I identified support for the S&P was around 6400, and on 20th February suggested that war with Iran could be the trigger for a move to this level, before a finale and a new high. So far the pivotal US index is unfolding in line with this road map, and if it remains valid the index should be turning around and up now, or very soon. It is interesting to note that a variety of other indices and asset classes around the globe are now also sitting about important support points.
This is important news for investors:
· A healthy market is one which has regular corrections, whatever the trigger.
· The correction to date is an almost perfect Fibonacci ratio applied to the S&P move up since 21st April 2025 (for the wonks amongst you, that was wave 3, and the correction now is a wave 4).
· This clear support around 6400-6500 is an obvious point from which the S&P can bounce to a new all-time high, to end the whole move up from 7th April 2025.
· The target is a minimum of 7100, though this feels a bit short, so don’t be surprised by a bigger move.
· The implication is a Summer peak in the S&P, followed by a not untypical Autumn fall.
· If this analysis holds water, it creates a window within which a range of asset classes can bounce, and outperform the S&P in doing so. These were set out in the webinar.
This is our extended road map for the few months ahead.
In the meantime, much media coverage verges on the hysterical, whether covering geopolitics or financial markets. UK smaller companies were one victim of this.
What were very cheap stocks have become ridiculously so. In many instances a significant proportion of these shares are held by a selection of specialist small cap funds, who are long term investors. In contrast, any selling likely originated amongst jumpy retail investors, and into a relatively illiquid market this is always going to have a disproportionately negative impact. Expect opportunistic buying from funds as the dust clears.
Last but not least on UK smallers, and despite some share price moves suggesting the contrary, the results season has been strong. The drivers of these results were not macro-related, but rather sound management in an environment of slow growth and macro and political challenges. The war is a bit of a sideshow for the management of these businesses. Of course a broadly-based recovery in their share prices did assume lower interest rates, and the hit to oil prices has certainly put this on hold for now - yet negativity on this point has gone too far.
Turning to commodities, there have been a number of loud headlines in the last week or so along the lines of “OMG we thought gold was a safe haven!”. It never was. As covered many times, for most investors over the last year gold was just a punt, though of course rationalised as a safe haven, insurance, money, etc.
As per the 30th January note:
“Gold is FOMO dressed up as wisdom, wrapped in 5,000 years "store of value" mythology.”
Though our current expectation is for the gold correction to persist for some time, it might enjoy a decent bounce in tandem with the S&P as punters re-enter. One to keep an eye on.
Taking a multi-year view on the larger commodity complex, Goehring and Rozencwajg (G&R) point out in their latest research that the commodity bull market has barely got going, and can stretch to 10-15 years. The opportunity arises because these markets have been starved of capital for years, and eventually growing demand meets the barrier of limited supply and prices explode.
Commodities don’t all move as one. As G&R put it, “the recent surge in gold and silver appears less like the end of a commodity boom than the closing scene of its first act”. There is time to act on this one.
One final thought, and not a comfortable one. Cyber war is the dog that hasn’t barked so far. Be wary of sudden Iranian attacks on the essential infrastructure of Western democracies.