Before the current conflagration I was asked of David Linn’s financial podcast what I expected from the new Presidential administration. I said the only certainty was increased volatility and that that would mean a high possibility of either great outcomes or the opposite.
While the markets are calling bad news it is hard to sit in a vacuum and call the outcome because we all sit far from the machinations that will drive the outcome. I’m now a major bear but the market doesn’t listen to me so I need to listen to the market. Only a fool thinks they are never wrong and success in the market comes from the flexibility to move with affairs and pivot from changes of fortune. Being able to adapt beyond malleability is having tools that highlight changes.
Let me give you an example. Gold. Gold moves before we know why, and it is a strong indicator that something wicked this way comes. Bitcoin is the same but in a different way. Gold tells you or bad strategic developments underway, away from the news, while Bitcoin tell you about bad acute developments bubbling up. Whether its chronic or acute these assets respond before the news to developments the news may tell us about after the event. These are examples of leading indicators.
So right now we need leading economic indicators.
Here is an example from a recent piece.
US defence stocks fall and suddenly European defence stocks rise. Who knew??? It takes an idealist to believe the new US stance on global defence was a surprise to those in the US around the time of the election result. Is could be a coincidence, but….
So that aside are their more such signals.
So for me, I take a stoic view, while Marcus Aurelius wasn’t long the Nasdaq he would have told you to ‘change what you can, what you cant change accept,’ so instead I’ll listen to the market and see if it can help me avoid the worst of what ever is on its way.
So the key call is, will the market cash or will it hold on to a correction level and bounce.
So lets look for a leading indicator. A crash and recession/depression ahead will hurt some businesses more than others. Economic recession and conflict will hurt one sector in particular, one juiced by the stability and economic promiscuity of the post covid period. It is luxury. $40,000 handbags, multimillion dollar watches, seven figure hyper cars, the list of off the chart the range of gewgaw objects for the nouveau rich have exploded. I must admit to owning a few which I love, but you get the point. This froth is the first to go if the feet of clay of the world economy crumble. As such luxury brand companies will deflate like a souffle. If they do not then its strong evidence that the 3D chess players have got it right and things are going to be great, absolutely tremendous, believe me, no one will have seen anything like it.
So here is a chart that you need to watch, its of LVMH to colossus of luxury.
Its already 20% down, just a few percentage points from what is considered a crash for an index.
However this is what I will be looking at:
Simply put, if LVMH breaches these levels the market is strongly indicating we are going into a global recession and therefore a crash is underway. As savvy investors in luxury will bolt for the exit first this will be one of the first buffalo to stampede off the cliff. If it doesn’t then the slump is probably not happening.
This is my ‘canary in the coal mine.’ I hold a couple of bullish points to bear in mind when expecting the worse. The centra banks will do their best to stave off a collapse. The Fed has already halted tightening and is quite capable of restarting QE. While not a panacea, it will be a potential break on a market rout. Finally it seems clear to me the investor community is in a similar frame of mind that the Crypto-bros get into when Bitcoin crashes, that is to say a burst of denial and bargaining. This isa bearish signal because it highlights a large naïve cohort of investors with herd instincts, which is a volatile group often associated with major slumps.
The US Tariff denouement approaches and whatever unfolds one thing is for sure, volatility is going to be ‘elevated.’ If you are holding you need to make up your mind now how you plan to ride the next few months as its better to be wrong than unprepared.
For me its cash, precious metals, agriculture and steel. Yes I am that bearish.