This was originally written on Saturday 25th June 2016 under ’Weekly Performance’ on the Homepage and I wanted to keep it for Posterity:
Last Week, ending 24th June 2016, Results were as follows:
Wow, what a Week !! Or, should I say, what an End to the Week !!
Regular Readers (must be the All-Bran) will know I was not convinced by the pre-Vote Rally and I had serious doubts - as it turned out, I was right to be thinking like this and I am extremely pleased that my Cautious Stance all year so far and my Hedges look to be exactly the right approach. Obviously I am not happy to have lost money on the Week but when you look at how the FTSE250 etc. got whacked I really cannot moan too much. The FTSE100 had a strange rally late on Friday but I doubt that can be sustained (my hunch is that this was due to a 'Flight to safety' where big Defensives like GSK AZN IMP got bought and these are huge Weights in the Index) - the Close in the US looks ominous and I think we will see a lot more Falls. My Unit Trusts rising is a bit weird - I think this is because of the Quid falling against the Buck (my remaining UTs are mainly US based) and also because the Valuations on the Funds are a day behind - so Friday's falls are not in the numbers.
The outcome of the Vote is arguably the most profound Political (and perhaps Economic) Event in my lifetime - or certainly it's on a par with when the UK joined the EU (or EEC or whatever it was called back in them days) and it is a truly seismic Change. I am too young to remember when we joined the 'Club' and the big Political Events of my Life have been around things like Thatch getting Elected and Rejected and Tony Bliar coming to power - in my view this by far eclipses the enormity of those Events. However, from an Economic standpoint, I don't think it comes even close to the Credit Crunch in 2008 - that really was a terrifying time and I do not get the same sense now - we have the opportunity here for things to be much more organised and controlled - the problem with the Credit Crunch was that no one had seen it coming and nobody had a clue what was going on - and the Panic by the Man and Woman on the Street as they plundered their Bank Accounts was on Greek Tragedy proportions. I was very pleased to see Mark Carney come out on Friday and say he would be pumping the Banking System with Cash and suchlike - for all their talk of doing no Brexit preparations prior to the Vote, it is clear that they were.
Just to clarify a Tweet I whizzed out on Friday - yesterday was totally on a par with some of the Days I remember back in the Credit Crunch (which, by the way, made the 'Dotcom Bust' look like a breeze) when many Stocks just dropped like a Stone with falls in excess of 10% across the board in my Portfolio, and the Choppiness was off the scale and it was truly terrifying. My Point on the Tweet was that yesterday was pretty much as bad as an individual Day can be - however, I do not mean we have seen the last of the Falls, I expect many difficult Weeks ahead now.
However, there is a big problem that has arisen which really was avoidable and it does not paint David Cameron in a good light at all - and sure as hell enforces the view that many of these 'Elites' are in it for themselves and do not care about the UK or its people and the old-fashioned honourable tradition of 'Public Service' seems to mean nothing now. I had hoped that David Cameron ('Piggy' to his mates) would 'do the Right thing' and keep a firm hand on the Rudder while the Country transitioned to a Post-EU World, but sadly this is not the case and it is clear that the UK is now holed below the waterline and drifting aimlessly on the Seas of Global Money Flows.
I see this as an extremely serious issue and I think it will put immense downwards pressure on UK Stocks and Risk Assets in general until probably around October/November time when we should get a new Prime Minister (Boris or Theresa May perhaps), and of course we have the US Election around the same time - so when you combine this with the like-clockwork Autumn Sell-Off it is not difficult to imagine things being very difficult until probably November/December. On a more positive note, I think the final 2 months of the Year could see one of the Strongest Rallies ever and I will be looking at Charts and feeling the temp of the Markets with this in mind - I want to be 100% Long going into these Final Months as the potential for Big Fast Gains is very high.
In terms of GDP I think we will see a serious Slowdown in the UK Economy over the next few months, but once we get a new PM and assuming He/She can get a firm grip on the Tiller, then I think we can see a big rebound as Confidence Returns. I think the Delay in getting Article 50 Notification issued adds to the Uncertainty but I also think that it is in the UK's Interests for this to be delayed - we certainly shouldn't let Napoleon and his buddy Junkers boss us about. I was very pleased to hear that Frau Merkel is being much more conciliatory - she has to be because we buy all her VWs, BMs and Mercs. I will not be one bit surprised if we find that UK GDP grows over the Year but merely has a blip for the next few months. I also note that UK Government Bonds got put on Negative Watch yesterday - I don't see this as an issue because Bond Yields are determined by Buyers driving up the Price of Bonds and much of this is Bank of England QE and 'Financial Repression' anyway. I see absolutely Zero Chance of Interest Rates going up - if anything, Monetary Policy will be loosened - both here and in the Eurozone (where it has arguably been too tight for a long time) and you can be damned sure that Grandma Janet will not be raising Rates in the US (she must be chuffed to bits to have this excuse not to as it was all a silly dance with the Markets anyway that she was going to raise Rates).
In my experience, these Macro 'Cygnet Noir' Events (can we say that now?) tend to mean Short, Sharp drops followed by rapid Rebounds - I see no reason why this will be any different and I expect it will be nowhere near as bad as the Credit Crunch. Remember, the bottom line is that after an initial bout of paralysis, the Consumers and Businesses of the Country always get bored with that and open their Wallets again. There is much talk about Foreign Investors ceasing to buy UK Assets but I don't agree with this at all - the reality is that there is a serious Glut of Savings around the World and the Big Players will see through the Short Term Issues and a Low Pound will mean they can buy Assets of the Highest Quality at very attractive Prices - Don't forget, very few Countries have the kind of Legal Property Rights that the UK has and even many parts of Europe have extremely dubious Legal & Political Systems. London is arguably the predominant World City and this will not change.
In terms of my Strategy, I am already about 60% Hedged via FTSE100 Short Spreadbets and XUKS and I also have a tiny bit of Gold exposure via GPM (see my 'Trades' page for details on this and I think I wrote a Blog on it). Many Stocks, especially the Housebuilders, got royally spanked on Friday but I think we could see them go lower - I think we will see a superb Buying Opportunity in some of these Stocks and for things like Commercial Property and the Banks - but I see no rush to go diving in just yet - let the Nuclear Fallout Cloud fall to earth first. I feel quite well placed, but because I am a bit greedy, I am thinking of upping my Shorts a little bit and might add to my FTSE100 Short Position late on Sunday Night if the Price is around 6000 - I might even consider a Short on the S&P500 with a Stoploss just above the All Time High. I am also considering buying a bit more GPM in my ISA - I have some Cash lying around and I think it would be a decent Hedge. I intend to do a Blog on the Charts tomorrow Night and this should show why I am thinking this way. If you want to get a feel of what Indexes and Individual Stocks might do, have a look at the Charts from 2008/2009 because I think they will give a good indication of what is 'Defensive' (not much) and what tends to get butchered (but remember, these are the Stocks that will bounce back the fastest).
It's too early for me now, but later in the Autumn I might start closing my Shorts and I might do some of this in a Tactical Manner in coming Weeks. Around the same time as closing the Shorts, I might do a few small Nibbles of Stocks I already hold if they look silly cheap and oversold - I won't go crazy and will probably just use Cash in the main to buy proper Shares not via Spreadbets - although I might do a couple of Spreadbets but I am nervous of taking on too much Leverage on the Long side (at least until we get into Late Autumn, although I will be guided by the Charts to a large extent).
My large Short Position on the FTSE100 is now worth about 60% of my Long Exposure (see my 'Trades' page for details) so this will drag on my Performance if the Markets move up but of course it means I have decent Downside Protection and that is what I really am concerned about. It seems highly improbable to me that Stocks will rise in the next few weeks.
If you are really at a Loose End, you could have a dig through my Blog Archive - lots of stuff in there which might help your Trading/Investing activities.
It is clear to me that 'Capital Preservation' is the name of the game this year - Bottom Fishing will be very dangerous - 'Cheap' can get a lot cheaper. It is most definitely a Trader's Market and the focus for Long Term Investors should be to keep Capital Erosion to a minimum - hopefully I will achieve this via my Hedges.
Good luck to all this week, WD
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