IRRATIONALITY AND DELUSIONAL – THE DIRECTION OF EQUITY INVESTMENTS AND BONDS IN 2023!

 

If you are playing poker and you don’t know who the sucker is, then you’re the sucker.

Unfortunately most investors don’t know what game they are playing and if you don’t know the game you certainly can’t know the rules.

We are faced with a negative sum investing game.  In this game there are no winners but there are some survivors.

The negative sum investing game is characterized by entrenched inflation and rapidly rising interest rates.  In this economic environment future cash flows are discounted at a higher rate and are less valuable.  Real estate, stocks, gold and collectables decline in value.  As interest rates rise bond prices decline.  So, there really is no place to hide except cash and very short term money assets.

Cash is now king, protecting from capital loss and providing the gun powder to buy assets at distressed prices.

And what does 2023 hold?  The current trend continues and there are some very tricky areas to navigate.

If investors are not clear of the markets direction it is useful to look at two very important advance indicators.

Let’s start with oil and then look at copper.

The oil price is difficult to call in the short term and there are many complex factors pulling in different directions and certainly in the short term predictive accuracy will be hard to achieve.  Factor in the Ukraine War, the recently agreed price cap on Russian oil, the Saudi’s production cuts juxtaposed to the world recession.

But the one year moving average for oil is down and the price has fallen from $125 per barrel to $77.  Investors need to think about this very carefully.

And copper.  The one year moving average is also down and the price per ton has fallen from 10500 dollars per ton to 8400 and it looks like its on its way to 7600.  This should also give investors pause.

The two leading activity indicators are signaling a very bleak 2023.

The yield on the 10 year treasury note has fallen significantly since it’s 15 year high reached in late October and as mentioned above, the oil price and copper price continue to fall.

The markets chief concern about entrenched inflation and rising interest rates has suddenly focused on a reality check on the state of the world economy.  And it’s not looking good.

Buyer Beware.

If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free review of your portfolio.

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If you are not happy with your portfolio performance or would like a second opinion,
please do not hesitate to contact Fenestra on 021 689 7855 for a free review of your portfolio.