Market Commentary

As of Friday last week, World Equities had lost $15 trillion in value (-7%), with almost two thirds of Global stocks now in “Bear market” territory (i.e. down 20% or more). In Wall Street, talk is already turning to the possibility of the “Powell Put” being in play – the idea that, should markets fall below a certain point, the Fed will ride to the rescue with rate cuts/money printing/buying assets directly etc. or whatever else is deemed necessary to ensure that asset prices don’t fall. As we pointed out a couple of weeks ago, asset prices appear to be the only relevant metric in policy decision-making – and don’t the markets know it!

“You can check out any time you like, but you can never leave” – Hotel California (The Eagles).

The Venezuelan economy is in freefall. In the last 5 years, their economy has shrunk by 50%, amidst shortages in medicines, food, and other material basics, inflation is over 500,000%, (and the IMF projects it to be 1 million percent by year-end). According to U.N. estimates, nearly 2.3 million Venezuelans have left the country over the last 2-3 years (about 7% of the population). The currency has collapsed too, as confidence implodes, with some wags now suggesting that the State TV broadcaster drops their version of “Who wants to be a millionaire” as even the jackpot is now worthless – 1 million Bolivars is currently worth about £3.09. In mid-August, President Maduro announced a 95% devaluation

“Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests,” as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief. ― Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable. Having relatively little to do at the moment, analysts appear to be playing the spot the “black swan” game, with attention focussed on the likely cause of the next market hyperventilation. A recent Deutsche Bank study suggests that financial crises are occurring with increasing frequency of late, defined by them as a 15% stock market fall, a 10% foreign exchange rate decline a 10% drop in bonds, a 10% rise in inflation or a sovereign default.

“Invest in emerging market debt for value and diversification, not for “safety,” betting against the U.S. dollar, or an inflation hedge” – Tina Vandersteel, Grantham, May, Van Otterloo & Company (US Hedge fund).