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“How did we get here?”

A summary from the March 2020 teleconference

Posted by: Brian Dennehy
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Membership level: Free
 
The below blog is much of what we covered in the March teleconference, there are many pertinent points and takeaways from the presentation that are still crucial in helping to understand how we got where we are so that we can make informed investment decisions today.
 
So, how did we get here?
 
November 2019
 
In November 2019 we asked
 
“Did the bell just ring for the top?”.
 
Was wave 4 was behind us?
 
Were we now moving rapidly towards finale of the complete move since March 2009?
 
“US stock market… within 1% of another significant peak… falls of 25% to follow… Has the bell just been rung for the top?”
 
“Is it the end of the complete uptrend since March 2009 (falls 50%+).  Or is it a lesser top?  Falls in excess of 50%, perhaps over years, or a mere 25% fall over months, after which will be another profitable upswing.”
 
And I concluded:
 
“My sense is that the US market could briefly touch another, final, high this side of the New Year, but that’s probably splitting hairs.”
 
Also, on that day, in a separate blog we said there was a “very strong sense that right now the US stock market is running on empty.  Pay attention. Guard up.”
 
January 2020
 
From our blog “Global Risks – you can’t Trump these” Jan 2020 we said…
 
“Major stock market fall concerns us.  A fall of 50% or more, typically occurring over a number of years. Such a bear market typically requires two things:
  • a shock
  • and this shock to occur on top of inherent vulnerability
This shock plays a vital role because the positive state of mind of investors appears to change overnight. 
Can you see the shock coming? 
 
No. The shock, by definition, cannot be anticipated.”
 
We all knew we already had global vulnerability
 
Debt and demographics – valuations – debt mountain, terrible quality – liquidity – computer trading – political risks/Trump.
 
Other “Shocks in the wings”
  • Cyber risks (Iran)
  • Oil (Iran)
  • Debt default (US corporate)
  • Banking instability (Europe)
  • Financial infrastructure (Repo market)
  • Political instability (populism)
  • Downturn (China)
  • Climate “event”
Whatever shock, the required action is always the same:
 
The most important takeaway from glancing at this globally febrile environment, and the fragile financial infrastructure, is to tread carefully, and you can do this in various ways:
  • Have a higher than usual cash level
  • Have a stop-loss strategy,
  • Reduce your investments to a more manageable number which is easier to monitor.
And the shock did come…
 
But it was none of the above shocks or vulnerabilities, this was a health shock.
 
Health shocks are difficult to manage and understand, and have unique qualities when compared to the ‘typical’ financial & political shocks, which we have become almost accustomed to… Brexit referendum, Trumps shock election, China trade wars… (the list goes on and on!).
 
Tiptoeing…
 
In subsequent teleconferences in March, April and May we have looked in more detail at the vulnerabilities, action (or inaction) by governments and how you can tiptoe through the uncertainty.
 
There is no financial remedy for a non-financial shock, only sticking plasters keeping the patient alive until the (unknown) point when the virus is under control.
 
For us as investors, decision-making with such limited visibility, and the possibility of such extreme outcomes, means the only obviously rational response is to sit on the side-lines until there is some clarity. But that doesn’t mean inaction. We’ve covered a lot of ground in those subsequent teleconferences, such as:
And I also looked at what I’m doing (1ST May Teleconference). Remember, my approach suits my situation. Yours will be specific to yours and one with which you’re comfortable.
 
Do keep feeding back with your thoughts and comments on email and in the Facebook group (Gold Members).
 
FURTHER READING
Topic: Market commentary


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