A report on China's stock market crash authored last year by former senior officials, including former central bank vice governor Wu Xiaoling, said Chinese retail investors are short-sighted, have a weak investment philosophy and a herd mentality.
If you believe the global economy is doing great and stocks are cheap, stop reading now; this post is not for you. We promise to write one for you at some point when stocks are cheap and the global economy is breathing well on its own - we just don’t know when that will be. But if you believe that stocks are expensive - even after the recent sell-off - and that a global economic time bomb is ticking because of unprecedented intervention by governments and central banks, then keep reading.
But here is a giant freebie for all those stupid, clueless oil executives out there in North America.
I bet OPEC never factored into their analysis the lifting of the US Oil Exporting Ban in 2015 after being a non-starter for so many decades.
"Don't run with sharp objects" ... "If everyone jumped off the cliff - Would you do it too?" ...and "Don't talk to strangers!"
They aren`t about to stand for a strong dollar in a world where it is a competitive advantage to devalue currencies from a multinational profits, tourism and global trading perspective.
This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates. It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.
For students of history, the China stock market crash looks eerily familiar. It’s playing out much like the Wall Street stock market crash of 1929. One of the factors fueling the soaring stock market of the 1920s was an influx of new, financially unsophisticated investors who saw the rising numbers and saw an opportunity for quick and easy profits. And that’s exactly what’s happened in China over the past year or so.
"It's starting to get ugly..."
Because the only thing more exciting than betting on the continuation of a margin-fueled, self-feeding domestic mania is betting on the exchange where the maniacs are trading...
Huxley’s words describe a psychological condition termed cognitive dissonance. According to the American Psychological Association, cognitive dissonance is induced when a person holds two contradictory beliefs, or when a belief is incongruent with an action that the person has chosen freely to perform. Cognitive dissonance is on full display today in the financial markets. The U.S. economy has been supported for seven years by a zero interest rate policy, record fiscal deficits and unprecedented surges in the money supply. Despite all of the stimuli, the economy is slogging along well below trend. The actions taken by the Federal Reserve, federal government and governments around the world are unprecedented. In a normally functioning economy such actions would generate massive growth and inflation. Since growth has been tepid and inflation benign, there is obviously something amiss.
"Ladies and gentlemen. A few weeks ago, in Riyadh, I was at a small, private function along with the British central bank governor, Mark Carney. Mr Carney asked me two questions. First, why did the oil price drop? And the second, where is the price heading? I will tell you today what I said to him then."
- Ibrahim Al-Muhanna, Advisor to the Minister of Petroleum and Mineral Resources for Saudi Arabia
I would say Apple is the most dangerous holding on the street right now for portfolio managers.
During the last several years of uber-accommodation by the Fed, both stock and bond prices rose. It would not be surprising if both fell in price as the Fed proceeds with a June “lift-off”. However, stocks might be the worse of the two performers. In a sense, markets are now beyond the control of the Fed. They were able to change investor behavior for a few years, but the herd mentality is now becoming dislodged: “lift-off” could possibly cause a steep reversal. We expect SPX to dip below 2000 by the time of the March 18th Fed Meeting.
Going into 2015 the economic outlook held by the U.S. investment establishment could not have been much more positive, and more unified. Pundits saw all the variables aligning to create the best of all investment worlds, a virtual "no-brainer" of optimism. High degrees of certainty can be dangerous. Herd mentality can cause investors to chase returns en masse and pile into positions that may already be overvalued. But herds can be spooked, most often by unexpected developments which can catch the herd wrong-footed and spark major movements when the masses scatter at the same time. When that occurs, those who resisted the herd may find themselves rewarded. We believe that we are approaching such a point.