What’s in a day?
Monday just gone, was the third Monday of January, so that makes it “Blue Monday” in the UK. The fabled most depressing day of the year. Meanwhile in the US, the exact same Monday was Martin Luther King, Jr. Day. A public holiday and a day to celebrate.
February 2nd is Groundhog Day. According to folklore, if it is cloudy when a groundhog emerges from its burrow on this day, then spring will come early; if it is sunny, the groundhog will supposedly see its shadow and retreat back into its burrow, and the winter weather will persist for six more weeks.
The film Groundhog Day was made in 1993 starring Bill Murray. You know, the main guy in Ghostbusters. The plot was simple enough and I remember it as being laugh out loud funny.
Murray plays Phil Connors, an arrogant Pittsburgh TV weatherman who, during an assignment covering the annual Groundhog Day event in Punxsutawney, Pennsylvania, finds himself in a time loop, repeating the same day again and again.
Replay
It’s nearly Groundhog Day in more ways than one. It looks like history is about to be repeated.
All that lovely growth in our portfolios that was achieved in the last 12 months has been taken away from us. Much of that loss occurring in this last two weeks.
2015 now counts for nothing. We start over again. Every doomsday merchant has been out revelling in “I told you so”. However these pundits are just like broken clocks. Even a broken clock is right twice a day.
As I have said many times before “I eat my own cooking”. When my clients lose some of their growth, so do I. I know times like this come around. The last time was in 2011. Back then I spent no time dwelling on what had just happened, I simply planned what I was to do next. Nothing changes.
New clients
Due to the generous recommendations from our existing clients, 2015 brought a dozen or so new clients. Many of my new clients however haven’t just lost some growth, they start February with less than they invested. Long term investors know that this hurts more at the beginning but does get better over your investing lifetime.
What has just happened?
The markets are not rational. They behave like any group of individuals. They behave much like kids in a playground. When a fight broke out at Farnworth Grammar School (It wasn’t ever me), every kid wanted to watch or join in. Many kids missed seeing it, the fight was usually over before word got out. But the playgrounds of our school days have changed. In today’s playgrounds, every child has a smartphone. The second a fight breaks out, all the other kids know and come running.
Investment theory demands markets are rational, filled with rational investors. I don’t buy it. I’ve never met an investor free from all biases and bad behaviours. Myself included. We can feel worried and we contemplate doing irrational things. The markets today are mostly inhabited by supercomputers that buy or sell in a fraction of a second. The computers are pre-programmed with complex algorithms, set to sell at the first sign of probable fisticuffs. One computer sells, triggering another and so on. The speed of change has become breathtaking and of course introduces much more volatility.
China’s fault, eh?
What triggered this stampede for the exit?
It would be nice to blame China but that’s not the likely answer. Their fumbling stock market is state run and closed to foreigners. A crash there maybe should only cause falls in Hong Kong.
The Chinese can’t buy our exports now, so every countries economy is now doomed?
Er, no again. Only 1% of US exports go to China, therefore the US market shouldn’t have fallen. The answer is more likely due to problems in the Middle East.
David Bowie, Glen Frey & the Organisation of Petroleum Exporting Countries
All recently dead I’m afraid. Even though OPEC refuses to acknowledge it just yet. When it kicked off in the Middle East playground in the past, it was bad news for us punters. Oil leapt up in price as production looked like it was set to be disrupted. But look now. Absolute bloody carnage and turmoil right across the Middle East but oil sits at $27.00 a barrel. It should be $127.00 based on history being repeated. $27.00 is great news for us punters now, so why have stock markets crashed?
Supply & Demand
The number of buyers versus the number of sellers always dictates the price. Saudi Arabia is skint and getting more skint every day. They are not making any money by flogging overpriced oil to the rest of the world anymore. They have the worlds largest Sovereign wealth reserves of any country. Since last year reserves have fallen by 10%. They were once regular buyers of everything, but now they are regular sellers. Many members of OPEC are in the same boat. With billions of dollars of shares, bonds and gold being sold, it’s not surprising the markets are struggling to rise and the sell computers have been triggered.
Many good companies’ shares are being given away by the oil rich (poor) nations at the moment. Needs must. Babies out with the bath water. A regular contributor to my blogs mentioned that the Al Saud family could fall this year. Many think the same.
Where’s the positive
Well computers sell first and think second. So the selling pendulum will undoubtedly swing too far, and should change when the buy side computers feel prices are now cheap enough.
Saudi Arabia and much of the rest of the Middle East has made obscene fortunes by running the cartel that kept oil prices artificially high since the 70’s. Indeed ever since my days at Farnworth Grammar School where I hardly ever got into a fight. But now the tables have turned. Every man, woman, household and business in the world is slowly becoming more profitable and saving money because energy costs have fallen. Oil prices will stay low for longer too. Interest rates will rise slower, again good for borrowers and businesses and stock markets .
Mind the gap
The world is adapting. It’s a whole new world order. The oil producing nations triggered the panic selling. There won’t be any panic buying I’m afraid. OPEC are immediate losers. We are all the winners but our benefits will take longer to be seen. But as the outlook continues to gradually look rosier for businesses, share prices will continue to rise. As everyone saves money on fuel, we will spend it, making businesses even more profitable as turnovers rise. We are currently in the gap.
OPEC 0 – 10 Everyman
Fourth quarter Chinese GDP grew by an amount slightly less than the GDP for ALL of 2005.
If growth is becoming more like a geometric curve rather than the exponential curve that it once looked like, then so much the better! IMHO.
I have just bought a book, The Bin Ladens: Oil, Money…. ‘As new’ copy 70p.
P&P 2.70p Royal Mail shares look a steal!
Hi Dick
As always thanks for your input. I’m not sure we can believe any figures the Chinese put out there. But I’m with you on this. The thought of the Chinese exponentially growing and taking over the world is frightening. Slower steadier growth is much better.
I’m glad you found the book I recommended. It tells you everything you need to know about business in Saudi Arabia.
The difference with the Post Office and Amazon is that the Post Office has to pay UK tax!
As usual Mr Scott , very concise and I understand the world a lot better for that, thank you 😉
Thanks Chris. I bet your transport costs are a fraction of what they were!
Thanks for the upbeat blog Howard, I guess you are saying do not panic, so we remain in a positive mood and we are not cancelling the Porsche.
Barrie and Val
Hi
Absolutely! Let’s hope the sun shines down on the Boxster! It’s time I got my finger out and sorted out the rest of your plans and policies. 🙂
I remember in the late 70s I held shares in LASMO London And Scottish Marine Oil. I bought at the top end and as the price continued to drop I kept buying until they bottomed at which time I increased my holding substantially, Eileen ( my wife) thought I had gone nuts. I sold the whole stock when the price rocketed, needless to say I made ten times as much as my total investment in three years, not a bad return. Howard Eileen and I have total faith in you and by the time you receive this message no doubt the markets will have returned positive. Regards Eileen and Denis
” .. don’t panic Mr Mainwaring..” Thanks for your calming views Howard, it was very disconcerting to get up on the 4th January to see what was happening. I’m glad you responded quickly, positively and calmly. We’ll get back to planning holidays and spending and leave the clever stuff in your safe hands.
I have to say I’m somewhat concerned about Saudi Arabia. At the turn of the century they had to ride the storm of oil wavering around $11 a barrel for a few years but that was when they had a strong King. If the House of Saud falls there could be chaos in the Middle East.