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Buyer: Mind the Gap - Don't Buy the Dip

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Bevan:
With markets in sell-off mode, you can expect a slew of news articles coming out about how one should always buy and hold in stock markets long-term. Well, that may have been true for the past 50 years but we are facing a very different future now.

The baby-boomer generation (born after WW2) threw away the austerity of their parents and were responsible for fuelling the mass consumerism we have today. The money men of Wall Street convinced them not to save for retirement but rather to give their money to the bankers and brokers and they would grow it in the markets. Of course this worked quite well while the baby boomers and their children have all been earning salaries. The massive bull run in stock markets we've seen since 1950, apart from a few minor corrections along the way, has been fuelled by boomers and everyone else seeking ever higher risk returns. The music has hardly stopped playing, until now....

Because those baby boomers are now all retiring en-masse. They are not earning like they used to and they are not buying the dips like they used to. Their children and grandchildren are mostly mortgaged and indebted (house, student loans etc.) up to their eyeballs with expensive property and toys. With markets in sell-off mode, we can expect greater and greater runs to the safety of cash and boring instruments such as government bonds. We should not expect markets to recover quickly again as there simply isn't the volume of readily investable cash lying around any more. The retirees need it now.

The 2008 GFC saw a massive deleveraging of wealth from consumers to businesses and HNW's who were able to turn the easy money into easy profits, in housing and stocks. This has created an even greater wealth disparity and inequality across the world. The average man in the street in New York, London, Sydney and Maputo feels poorer than ever before, and that's without hardly any inflation at all.

Pension and tracker funds have propped up markets for the longest time now. Of course we can expect these to continue but in an uncertain world with rising interest rates and inflation, and with low growth (even in the US) the best we can expect is stagflation. I've said this before here but Japan was once the world's no. 2 economy before stagflation hit them in the 90's. They're only kinda recovering now.

Yes, of course markets will recover. But I suspect we're in the early stages of a slow grind downwards. As I said here before, this feels like October 2007 again, where there was a slow but steady decline, before the final crash came in 2008. Depending on how macro events play out here, I expect a similar situation this time, only at twice the speed now. So we should know if we're into proper crash mode by Christmas / early Jan, or if this is just a prelude.

Either way, I reckon the fundamentals of the stock market are changing for good now. Too many people chasing returns. The mathematics of Capitalism doesn't work like that i.e. it asymmetrically rewards the top 20% with great wealth, whilst the bottom 80% must get less than average returns.

Bevan:
Also, I think we're heading for $50 oil once more. Demand destruction, oil gluts etc. 2019 will likely see the collapse of several Middle East economies as well. This could destabilise the whole Arabian Gulf and lead to potential sabre rattling, which will only unsettle markets as well. Then again, 1st world economies love a good war. Nothing helps stoke profits more than artificially inflated prices in war time. Trump would also love nothing more than to be a war-time President, as that's the only thing better than being a plain old US President. Of course all that extra spending will only serve to hasten the day of reckoning of the US having to deal with its debt. Expect several shutdowns of the US government in 2019 as the debt ceiling is breached time and time again... Thankfully the US public seems to do better when government shuts down and gets out of the way.

Bevan:
... and Optionsellers.com goes bust with the CEO's apology video already being parodied across the net. Selling deep out the money options is a great trade, about 90% of the time. Problem is, the remaining 10% of the time will bite you every single time, especially if you have not covered your delta. In NatGas you need to be seriously covered as vol can range intra-day between 10% to 80%.

It's definitely not a bust like Lehman Bros but some of their clients will be seriously pissed off. They had probably invested their profits already, only to learn that they won't be getting any. Ah well, c'est la vie! 

Bevan:
This is a great video to watch on the coming retirement crisis.... Some great insights on the future of the financial system, entrepreneurship as well.

Orca:
It will get back to normal. It always does and the Baby Boomer's kids will see to that.

Let me tell you my story that I have already told here before your time and the older members may recall it even from the old Sharechat forum.

I was invested in a single stock after the 2008/9 market crash. I did this as I lost 45% of my managed retirement portfolio and was determined to get my money back. The stock being Coronation Fund Managers...CML.

We had a few market corrections since the crash so I was so nervous and afraid to loose money that I sold on every correction and dip and bought back the same stock after.

I do not have the exact figures available but I do know that CML had a gain of 1 650%....Yes. One thousand six hundred and fifty percent over 3 years.

Had I stuck it out I would have made R12M but as I sold and tried to time the markets I made a mere 25% of that.

So you do what you wish to do.

 

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