There’s so much bad publicity for shares and financial markets these days that there’s a new theory going around as to why, despite it all, stockmarkets keep rising.
There is, quite simply, too much doom and gloom around and the shorters are getting squeezed all the time.
Despite the scary headlines of rising rates, there’s just too many investors convinced they won’t rise that much and too many gripped by good earnings, the upbeat global economic outlook, and of course the prospect of tax reform in the US.
Not even a new chairman at the Federal Reserve spooked investors.
And a day after the OECD warned that the Reserve Bank of Australia would have to start hiking rates sooner than later the reaction in financial markets to that warning said it all.
The sharemarket was back above 6000, a gain of almost half a per cent, the bond market was flat, the interest rate betting unchanged and the $A was lower, when it should have headed north on that sort of talk.
In short, it’s still safe out there to invest.
But there was more bearish talk to come.
For example, in Sydney on Wednesday at the Association of Superannuation Funds of Australia conference, almost 2000 people that help manage $2.3 trillion, listened to, among others, Gideon Rachman, the well regarded chief foreign affairs commentator at the Financial Times, and Kim Beazley, former Australian Ambassador to the United States.
Both men gave those investors in the super industry plenty to think about as they warned how the change in politics and economics between China and the US could suddenly explode.
Rachman spoke about the changing face of power around the globe and how the West’s 500 year domination of world affairs is now coming to an end thanks to Asia and China.
He also said in another 100 years history will look back at 2016, with Brexit and the election of Donald Trump as President of the US, as a turning point in that monumental switch.
It’s caused a “crisis” in Western politics and should prompt investors to think about how Donald Trump’s foreign policies could end badly not just for the United States but also for the rest of the world.
So far Trump has issued all sorts of signals about how he intends to deal with China, and has back tracked a little from his early hard line rhetoric, but Beazley then warned of a trade and military war with North Korea and how the US right now is getting ready for both, make no mistake.
Timely then that also on Wednesday North Korea fired a ballistic missile that some say shows Kim Jong-un has the technology to send a missile that could reach Washington DC.
The challenge for the delegates will be how to invest with so much going on.
Geoff Wilson gets ready to sell
The world is going to be so different from now on and yet business and sharemarkets like nothing but certainty.
Then at at a local level there was Geoff Wilson from Wilson Asset Management, one of the stockmarket’s biggest investors.
Speaking as the chairman at the AGM on Wednesday he warned that sharemarket investors around the world have mispriced risk.
They’ve got it wrong, totally wrong.
Indeed, they have got it so wrong that it’s going to be like 2008 all over again.
Back then he said the sell off was the “greatest buying opportunity in my lifetime”, which turned out to be correct, and he’s now getting excited that it’s all going to happen again, soon.
Why?
Well, the bull market is about to chalk up nine years and is the third longest in history, which implies the end is nigh.
Falling interest rates over the past 30 years have also given valuations a free kick but now that rates are about to head higher, Wilson is very worried.
It comes as all these ETFs have flooded the market and helped pushed asset prices to record highs.
“I believe that the bear market that will inevitably follow this bull market will present significant investment opportunities as emotion takes hold and quality assets become substantially undervalued,” he said.
Sell now, so you can get ready to buy later.
There’s always the chance that some more bad news – perhaps from Trump and North Korea – could turn this into another bull trap, but in all likelihood it will be something from left field.
Over the past 117 years there has always been times when shares have done poorly.
But according to AMP Capital Investors shares in the US have had positive returns close to seven years out of every ten, while it’s even better in Australia with around eight years out of ten delivering positive returns.