Strategy Thoughts newletters

Strategy Thoughts

March 2024

The problem with ‘Liquidity’!

Is a Top in and how long does it take to Forget?

There is currently great comfort being taken from ever rising and increasingly speculative markets. Just at a time when warning bells should be ringing the majority appear to be forgetting whatever disciplines they had previously felt were of value. This is not healthy behaviour, but it is a behaviour that is always seen ahead of market turns, both up to down and down to up. In this edition of Strategy Thoughts I explore this tendency and also some of the lessons that have now been forgotten, along with an update on the ’Magnificent Seven’ and a look and the long term use of market valuation.

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Strategy Thoughts

February 2024

The Generals may have made their last stand!

Thirteen years ago I wrote an article titled ‘The San Juan Hill Theory’, in it I discussed the deteriorating breadth that was being experienced across global equity markets and likened it to what had been seen four years earlier in 2007, just nine months prior to the onset of the GFC. In last month’s introduction I again referenced the narrowness that was being seen in the US market. In this month’s Strategy Thoughts I revisit the San Juan Hill Theory and again broaden the review out from the US to look at all major regions of the world. I will also look at the marked divergence that has been seen between the two global rivals, China and the US, and also update on the two positions I mentioned last month; gold and uranium.

Strategy Thoughts February 2024


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Strategy Thoughts January 2024

Things may not be as rosy as they appear!

It has been six months since the last edition of Strategy Thoughts. In that time markets as a whole have sold off a little and then rallied, some, especially those with greater exposure to the so called FAANG stocks, to new all time highs. Not surprisingly this very narrow strength has spurred investors to become increasingly hopeful and aggressive in their investing behaviour. In this edition of Strategy Thoughts, I question whether such behaviour is sensible and look at the motivations of those offering ever more aggressive investment options. I also revisit the prospect of an imminent Fed Pivot, something I discussed at length earlier this year, and what it has historically meant for the stock market. Finally I will touch on a couple of investment themes that I have personally been taking a far greater interest in than the overall stock market over recent months, Uranium and Gold.

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Is HOPE still alive and well?

The danger of Underestimation!

I concluded last month’s Strategy Thoughts with, “There currently exists a lot of ‘hope’. Hope that central banks will continue to buy gold, hope that the Fed will pivot or pause, hope that authorities will contain the current banking crisis, and hope that all of this will continue to justify still very high valuations. None of this presents the kind of back drop typically seen at a long term bottom or buying opportunity”.

Perhaps the single most important question now is encapsulated in this month’s title, is hope still alive and well, and it seems it certainly is with markets having held up despite there being so much investors could choose to worry, or even panic, about. Adding to the list of ‘hopes’ covered last month is the ‘hope’ that the US will not default on its obligations and that the debt ceiling will once again be raised, as it always has in the past. This month’s edition will once again review the many signs of hope and also explore the very real danger of forecaster underestimation. But first it probably makes sense to quickly review the old adages of bull markets climbing a wall of worry and bear markets sliding down a slope of hope, from an expectational point of view.

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Bank runs, Gold

Is it ‘Deja Vu all over again’?

Over the last five weeks markets have had a lot to worry about, not least one of the largest bank failures in US history and a rapid bailout of depositors by authorities. Throughout this period markets have initially panicked and then recovered, seemingly comforted by the reassurances that have been given by various figures in authority and the majority of market commentators. This entire period brings back many memories from fifteen years ago, and whilst history never repeats itself, as Mark Twain is supposed to have said, it does rhyme. Or, paraphrasing the legendary baseball player and manager Yogi Berra, is it Déjà vu all over again? This month’s Strategy Thoughts explores some of those echoes, or rhymes from fifteen years ago.

Also, this month I look into the apparently growing attraction of gold to central banks and question whether it implies that a continued rise in the price of gold is as assured as so many now seemingly believe.

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The Cycle in Investor Attitudes to Risk

I concluded last month’s Strategy Thoughts with; “Investors should remain sceptical of this current bounce, and myriad of comforting economic forecasts. There will be another great long term buying opportunity, but we weren’t there last October and are certainly not there now.”

Since then, despite markets meandering sideways to down, attitudes, expectations and hope have become even more inflated. This edition of Strategy Thoughts reviews some of the evidence for this increase in risk appetite and examines what history indicates it may mean. It will also question the trend of investors shifting their attention away from the US market, that has certainly out performed globally since the GFC, in favour of international markets, and whether international markets may offer a reasonable alternative if a major bear market lies ahead for the US.

But first I will review what ‘cycles in investor attitudes to risk’, a phrase popularised by legendary investor Howard Marks, may be telling us, and also what risk actually is.

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What a bounce, is the bottom in?

Don’t trust this bounce!

Last month I concluded with the comment;

Hope still abounds, hope that inflation will subside, hope that interest rates will fall and hope that growth will continue or resume. This is not the backdrop seen at major long term buying opportunities.

This is still very much the case, and is perhaps understandable given the magnitude of the rallies that have been seen since October of last year. Nonetheless, investors should be reminded that renewed, and in some cases extreme, optimism are not found in the early stages of a new bull market. In its early stages a new bull market is generally dismissed as just being another ‘dead cat bounce’, just like all the other failed rallies that have fallen short throughout the preceding bear market.

This current rally may be the best that has been seen for some time, but mood and expectations were never what would be expected to be seen at a bottom at the lows last year and this is perhaps why so much hope has so quickly rushed back into the market.

In this edition of Strategy Thoughts I review the evidence supporting the case that this is just another ‘dead cat bounce’, and further revisit the futility of waiting for a Fed pause but raise the optimistic possibility of a very different kind of Fed pause actually being constructive for investors. But that pause still lies some way in the future.

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Are we there yet?

Over the last few weeks I have been encouraged to write an updated version of Strategy Thoughts by a number of longtime readers. The last Strategy Thoughts came out in March 2021 and a lot has happened since then; the pandemic has largely passed, lockdowns, generally, have become a thing of history, inflation has soared, as have interest rates, and equity markets have clearly corrected or begun bear markets and economic forecasts have been, and continue to be, ratcheted down almost daily. This has understandably raised the question as to whether or not a sustainable bottom has been seen and whether a new bull market may soon be at hand. Those long time readers mentioned earlier have kindly reminded me of the remarkable timing Strategy Thoughts showed back in early 2009 in identifying what we then described as likely being the best buying opportunity since 2003. It certainly was, and it turned out to be a far better opportunity than I ever imagined possible. I had expected a cyclical bull market, much like that from 2003 to 2007, what we got was obviously substantially greater than that. This edition of Strategy Thoughts will focus on the question of whether or not we have seen, or are soon approaching, a bottom like that of 2009, and it will conclude with a very emphatic NO!

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