Do you remember the movie “WarGames”? I sure do, even though the Cold War thriller was released more than three decades ago. The plot centers around a powerful computer system that’s designed to simulate global thermonuclear war — but that doesn’t realize the difference between a fake war and a real one.
A series of events almost triggers the launch of U.S. ICBMs, one that would be met by an equally devastating strike from the Soviet Union. But at the last minute, the computer system, nicknamed Joshua, “learns” the difference between simulation and reality. It decides it has to stand down and stop playing because there is no way to win otherwise.
So what does this have to do with the markets? A lot, according to this fascinating Wall Street Journal story.
The article chronicles how the millionaires, billionaires, corporate executives and other elites holed up in Davos, Switzerland, for the last week’s World Economic Forum, are taking the WarGames approach. They’re selling assets, raising cash and deciding not to “play” in the markets.
|Are some investors deciding not to play?|
Why? Relentless, ongoing, over-aggressive central bank activism and policies have created incredibly fake markets and wildly inflated asset prices — but that façade is now starting to collapse around us. So the only solution to preserve wealth is to stop playing along and get the heck out of the way.
One CIO for a European insurance giant said: “The trade now is to hold as much cash as possible.” The chairman of Swiss banking giant UBS said: “There may be no limit to what the ECB is willing to do but there is a very clear limit to what QE can and will achieve.” And still another financial CEO said: “The sickness is not inflation, it’s the mispricing of assets.”
What I find most interesting about this line of thinking is that these are the very same people who feasted off the booms/bubbles those policies helped create.
How was the auction house Christie’s able to sell a record $853 million in art in a single day in November 2014?
Just a few months earlier, why did a 1962 Ferrari GTO Berlinetta sell for $38 million at a California auction, the highest price for any car in history?
Why did we see record M&A, record stock buyback activity, and record high-end real estate pricing and sales in 2014 and early 2015?
Because easy, nearly free money was pouring out of almost every central bank vault around the world, that’s why. Now the profiteers are packing their bags and going home.
|“If the rich and powerful are now selling into rallies, that’s a potentially very powerful ‘sell’ signal.”|
So sure, oversold bounces like we saw last week are nice. We may see this one carry a bit further depending on what kind of happy talk we get out of the Federal Reserve and Bank of Japan meetings later this week.
But if the richest and most powerful people on the planet are now selling into rallies, that’s a potentially very powerful “sell” signal. If you don’t want your portfolio to get nuked, maybe it’s high time you take additional protective steps.
Now, the floor is yours. Do you think this new line of thinking is a solid one? Or are the elites overlooking something? Have we reached a point where central bank action is ineffectual, not even able to spur a rally for more than a couple hours or days? Or can fresh action from the Fed, ECB, and BOJ get the party going again? Let me know.
I hope you had a good weekend. I certainly enjoyed mine (as disappointing as Sunday’s football action might have been for this New England fan!), and I’m glad that several of you took the time to weigh in on my “Bear Market Playbook” column.
Reader Frank T. responded by saying he is raising and lowering his stock exposure along with the ebb and flow of the market. His advice: “Buy into the blips going up; for me, that’s being as much as 90% invested. Sell after two to three weeks of up blips; for me that’s going down to 75% invested. Use some skim for R&R.
“Do the same drill until the market comes out of correction to let the bear have some rest. When the bull appears, get on the bull and ride until the bull needs some rest.”
Reader Peter takes a different approach, saying: “I don’t try to time the markets. My strategy is a long-term one that started around 1990. I buy bullion gold on a regular basis. To date, I have sold only one coin — at a 500% profit. Just recently I bought back the same type of coin and will continue to buy.”
Reader MP suggested another way to approach this market: “My strategy is to short all rallies as long as there is a debate in the media about whether this is a bear market or not.”
And Reader Kevin A. offered this take: “I closed out many of my positions last week and did okay on most. As I watch the market and many individual stocks move, I feel they are erratic and tense. We truly are seeing bear market rallies. Thanks for your steady hand on the tiller preventing me from being drawn in before the final plunge.”
What about the outlook for stocks down the road? Reader Chuck B. said: “The markets peaked in May of last year, found a low in August, rose to a lower high in November, then a lower low in January of this year. The chart forms a slowly descending channel, which seems likely to break to one side or the other fairly soon.
“If there aren’t fundamentals that would put it higher, it can only go lower. I don’t see those positive fundamentals.”
Lastly, Reader Jbizzle said: “This market will soon nosedive. I look at the order books and all the fake bids. The black boxes are trying to pump up the market and when they give up, there will be no bids.
“They all have similar algorithms and this will happen all at the same time. Look for ginormous blocks being sold in the order books. They won’t be able to disguise it.”
Again, I appreciate the feedback — and I know your fellow investors are thankful for the strategy suggestions. These are clearly some of the most volatile markets we’ve seen in several years, and that creates both significant risks and significant opportunities.
Didn’t share your ideas yet? Then feel free to head to the comment section below and add them now.
Remember how I told you the IPO bubble was turning to an IPO bust? Well, so far in 2016 there hasn’t been a single initial public share sale in the U.S.
That makes January the slowest month going all the way back to December 2008, when the Great Recession was raging. Nineteen companies went public in January 2015 by comparison.
Two industrial products makers — Johnson Controls (JCI) and Tyco International (TYC) – are merging in a deal that would create a company with annual revenue of around $32 billion. The two firms manufacture everything from car seats and batteries to fire safety and video surveillance products. One motivation behind the deal: Lower taxes, as the company will adopt Tyco’s Irish “only on paper” headquarters to reduce Uncle Sam’s tax take.
Now that sanctions have been lifted, Iran is looking to modernize its air fleet with the purchase of more than 100 planes of various sizes. It’s turning to Europe’s Airbus, and reportedly planning to buy everything from smaller A320s on up to the gigantic A380 superjumbo plane.
The Super Bowl 50 matchup is now set as a result of yesterday’s conference championships. The Carolina Panthers will face off against the Denver Broncos in Santa Clara, Calif., two Sundays from now. The Broncos-Patriots game was a thriller that went down to the wire. Panthers-Cardinals? An absolute blow out for Carolina, courtesy of what seemed like 20 turnovers by Arizona.
Is the collapse of the IPO market a significant worry for stocks overall? Or does this large industrial deal signal there are still signs of life and liquidity on Wall Street? What do you think about Iran’s latest purchase plan, or on a lighter note, the upcoming Super Bowl? Share any thoughts you might have on our website.
Until next time,