ARTICLES

Where to now

It is now possible to see that the latest downward move on Wall Street is in fact a major correction – mainly because it has fallen between 10% and 20% - at least on an intraday basis. Our expectation, however, is that the upward move on the four days from Friday 28^th January to Tuesday 2^nd February represent a “bull trap” - which means that the correction will fall further. In fact, we expect it to break down through the support level at 4300 and head to somewhere between 3800 and 4000 before it bottoms.

Obviously, this further fall will be accompanied by a disappearance of those bulls who have been intent on “buying the dips”. And some of them will certainly be afraid that what they are looking at is the beginning of a major bear trend.

But we do not think it is. Our reasons for believing that the 13-year-old bull market is still intact are essentially fundamental. The American and world economies are not heading towards a recession – very much the contrary. From a purely objective point of view, interest rates are at record lows in most first world countries, including America – and those same countries have been furiously printing and injecting money into their economies since COVID-19 began at the beginning of 2020 (and before).

In our view, quantitative easing (Q/E) will have to end, and rates will have to rise to at least 3% or 4% in America before they begin to have a material impact on the profits of listed companies. And we simply don’t see that happening this year – or next. So, our opinion is that, following the completion of this correction, Wall Street and the markets of the world will resume their upward momentum at least until the end of 2023 – and probably beyond.

This viewpoint is echoed in the continuing rise in the oil price:

As you can see here, North Sea Brent oil has recently made another post-COVID19 record high at $92 per barrel. It is rising steadily in a strong upward channel, which we have mentioned to you on a number of previous occasions. If the world economy is headed into a recession, then why is oil rising like this?

The simple fact of the matter is that economists generally have and are completely under-estimating the long-term impact of Q/E. It’s almost as if they believe that the $20 trillion or so that has been injected into the world economy over the past 11 years is irrelevant – that its effects are already somehow discounted. Our view is that the true impact of this massive monetary stimulation is only now beginning to be felt economically and that some kind of unprecedented asset blow-off is in the making.  

The world is awash with cash. That is why commodities like oil are rising and why stock markets are continuously make new record highs. Investors are seeking real assets to protect them from the impending debasement of paper currencies.

As a private investor your approach should be to prepare yourself to take advantage of the recovery from the current correction. Try to perceive the moment at which the S&P500 reaches its lowest point and then look for those quality shares on the JSE which have off-loaded the most. Be aware that the rand is more likely to strengthen from its current level than to weaken.

And then formulate a strategy for assessing the longer-term systematic risk in the market. Undoubtedly, this great bull market will come to an end eventually. Where do you want to be financially when that happens? And how will you know that it is imminent?

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PDSNET ARTICLES

The Anatomy of the Bear

As the bear market unfolds on Wall Street you either hold shares or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your stop-loss levels very closely because you are operating in a market where the odds are decidedly against you.

For those in cash, your position is

Bear Trend

We never regarded the COVID-19 fall of the S&P500 in March 2020 as a bear trend. In our view it was always a technical aberration caused by the “black swan” event of the pandemic. It caused a temporary downward spike which lasted from February to August 2020, but it was never a true bear market.

Then on Monday

Uncharted Territory

The world has entered a turbulent time, the outcome of which will largely determine the future order of things. There are six great areas of uncertainty which the private investor should formulate a coherent opinion on:

• The war in Ukraine is in reality the remnants of the cold war, a low-level conflict

Triple bottoms

Investors should be riveted to the progress of the S&P500 index these days. As we said in our article three weeks ago, the S&P is teetering on the edge of a bear trend. Following that article, the index climbed back up and then on the US Memorial Day weekend it encountered significant

Basic Fundamentals

Public, listed companies are required to report back to their shareholders on a regular basis. They must produce audited financial statements after the first six months of their financial year (interims) and then again at the end of the financial year (finals). Listed companies must produce these statements within 3 months of the end of their

Teetering on the Edge

Last Friday, the S&P500 actually dipped into bear market territory during the trading day. It went as low as 3811.28 before staging a remarkable recovery in afternoon trade to close at 3901.36. This resulted in Friday’s candle becoming what is known as a “hammer” – a candle with a very short body and a long downward

Bitcoin versus Gold

Cryptocurrencies cannot really be considered an investment because they have no fundamentals. Their value is derived exclusively from the belief of the people who invest in them. When belief in Bitcoin is strong the price rises and when it is weak, the price falls.

Bitcoin cannot be regarded as a “safe haven” asset

Uncertainty

Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce

Powells Punch

In November last year we wrote the following about the U.S. economy in the Confidential Report:

“…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5^th month where inflation was above 5%. If they are wrong, then they will need to raise interest