Shh, don't mention the budget!
by Doug Brodie
/1. Avoiding those black swans
They do exist, and of course, we know they are prevalent on the river in Perth (Western Australia).
However, this pair were photographed at WWT Martin Mere, six miles from Ormskirk, by Morag Jones:
In investment terms a Black Swan event is one that is so rare we should never have to live through one, however, you and I have lived through a larger number of financial disasters than any other generation and we have had the good fortune to see the markets simply turn round and ride back up. Again and again.
The global financial crisis of 2008 was a Black Swan event, so was the LTCM collapse in 1998, also Covid in 2020.
When these happen the big funds sell to cash and in so doing they themselves cause markets to crash. You and I don’t have enough money to make any impact on the $48 trillion S&P 500 never mind the $3 trillion of the UK.
There are two ways to deal with the market volatility, in much the same way as sitting beside a swimming pool in summer, contemplating the water temperature – either leave the pool and go somewhere else, or jump right in, being reassured that you can only get wet (not wetter) and that skin is waterproof. Either stay away from the markets and sit on the sidelines, or jump in knowing that this market crash, like all the others, will simply turn round at the bottom and climb all the way back up.
The FTSE 100 collapsed by around 35% from May 08 to March 09, and had climbed back up by November 2010, the whole catastrophe taking around 2.5 years from start to finish. Remember, this was the end of the financial world when this happened - Lehman’s went bust, blank cheques were offered by the UK and US governments to keep high street banks afloat, this was the end of fiat money, and yet…
No matter what happens, tomorrow the sun will rise, dogs will bark and babies will cry. We’ll need power to put the kettles on, to switch on our lights, milk and nappies from shops for the babies, food for our dogs, money to pay for it all. Human society is exceptionally resilient.
Come on in, the water’s lovely.
/2. Middle East virtual war, US fractured election and the markets rise -defying gravity?
What does it take to pull the rug from the markets? We grew up watching the news with Leila Khaled and BOAC jets being blown up:
And shortly after President Nixon gets caught lying and spying with the Watergate affair whilst more recently Trump collected an array of indictments and his Republican party still believes he is the best statesman to lead their country.
We even have an incomprehensible situation in Europe where political and military leaders have deemed it relevant to re-introduce trench warfare, surely an unfathomable position in 2024 society?
Source: https://uwecworkgroup.info/
So with all that on our front pages, happening in real-time today, the capital value of companies around the world keeps rising? Pourquoi, et comment?
Like a long cargo train being pulled by an 11,300hp locomotive, markets are pulled along by powerful leaders: the Magnificent 7 drove 49% of all the S&P500’s gains in the first half of this year. Over the past year, they are up +58% compared to the rest of the US market at +32%:
The fuel this locomotive runs on is cash; the difference between now and 1999 is there is no such aspirant entity like Boo.com, all seven leaders are generating significant revenues and material sums of cash.
Source: finchat, Valerie Noel
These are the companies that have generated, and now hold the most cash, and all 7 are there. In fact the seven hold over $448,000,000,000 in cash.
It’s the cash piles that provide the security and stability that retain confidence in the markets.
/3. Reassuring email from a duly elected MP.
Posted by the ever articulate Nick Lincoln on LinkedIn. (We note the MP was elected last year, seven years after leaving school, so he’s probably not been thinking much about pensions yet.)