Bull or Bear? BTFD or STFR? TA look at Market direction

[Stoploss]

Michael Burry of "The Big Short' fame is forecasting a market crash.

https://edition.cnn.com/2023/08/15/investing/michael-burry-stock-market-crash/index.html

Michael Burry, the "Big Short" investor who became famous for correctly predicting the epic collapse of the housing market in 2008, has bet more than $1.6 billion on a Wall Street crash.

Burry is making his bearish bets against the S&P 500 and Nasdaq 100, according to Security Exchange Commission filings released Monday. Burry's fund, Scion Asset Management, bought $866 million in put options (that's the right to sell an asset at a particular price) against a fund that tracks the S&P 500 and $739 million in put options against a fund that tracks the Nasdaq 100.

Burry is using more than 90% of his portfolio to bet on a market downturn, according to the filings.

https://reddit.com/r/wallstreetbets/s/UrItelknZh

[Onemootpoint]

Re. Michael Burry. Is it really 90% of his portfolio in real terms. Big call...don't really care to check. He tends to be right on the fact that markets are (often) overvalued or irrational at times, but the market tends to ignore that and march on, hence many of his 'predictions' don't really turn come to fruition.

[KW]

In case anyone is wondering why the market feels so crap right now.  The market is pricing in Higher For Longer interest rates, if not Higher Forever as the neutral rate shifts upwards.  As a result, asset prices decrease. 

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[BlackPeter]

In case anyone is wondering why the market feels so crap right now.  The market is pricing in Higher For Longer interest rates, if not Higher Forever as the neutral rate shifts upwards.  As a result, asset prices decrease. 

You cannot view this attachment.

Higher "forever" interest rates? Is this the same "ever" it took the negative interest rates a decade ago to run their course?

I hear there are still plenty of people sitting on their negative interest bonds due to be repaid in now 20 years or so (some still later).

The only thing which will stay forever is human stupidity - and even that will end as soon as we terminate ourselves ...!

[KW]

Higher "forever" interest rates? Is this the same "ever" it took the negative interest rates a decade ago to run their course?

Its to do with the theory of neutral interest rates.   "The neutral rate of interest, previously called the natural rate of interest, is the real interest rate that supports the economy at full employment/maximum output while keeping inflation constant."

This is the long term target for Fed interest rates.  Because economies are currently at 5%+ interest rates and they are still in full employment but inflation still raging, it looks like the neutral rate is a lot higher than before.  It was previously thought to be around 0.5% but it has been raised to 2%.   In which case, rates will not be coming down as far as people previously estimated.  Hence the "Higher Forever".

[KW]

Its looking pretty bleak out there.   US overnight saw the VIX break above its 200 day MA, the Dow and Dow Transports break below their 200 day MAs, the Nasdaq break a H&S pattern (S&P had already done it).  Something is afoot in the markets, and its not good. 

[Basil]

September was a very tough month for the markets and the September quarter also challenging.
So, what's spooking the markets?  I think there's two key elements at work here.  The first is 10 year treasuries around the world hitting 15 year high's, U.S. (treasuries up about 100 basis points in the last 4 months) and oil prices up 30% in the last quarter which feeds through as a key driver of inflation.

Interesting opinion piece from Kelly Evans (CNBC)  https://www.cnbc.com/2023/09/28/kelly-evans-if-bond-yields-dont-start-dropping.html

Portfolio strategy.  I think there's a very good case with bond and cash yields where they currently sit for a 50/50 allocation between cash/bonds and equities.  Equities generally look quite elevated to me with risk free rates where they currently are.  I'm conservatively positioned going into Q4 and 2024 as I expect a tough fourth quarter to the year and a tough start to 2024.  Approx portfolio weightings, 37% cash, 20% bonds, 43% equities.  No matter how the last quarter of this year plays out I'm disinclined to materially change those portfolio allocations.

[BlackPeter]

September was a very tough month for the markets and the September quarter also challenging.
So, what's spooking the markets?  I think there's two key elements at work here.  The first is 10 year treasuries around the world hitting 15 year high's, U.S. (treasuries up about 100 basis points in the last 4 months) and oil prices up 30% in the last quarter which feeds through as a key driver of inflation.

Interesting opinion piece from Kelly Evans (CNBC)  https://www.cnbc.com/2023/09/28/kelly-evans-if-bond-yields-dont-start-dropping.html

Portfolio strategy.  I think there's a very good case with bond and cash yields where they currently sit for a 50/50 allocation between cash/bonds and equities.  Equities generally look quite elevated to me with risk free rates where they currently are.  I'm conservatively positioned going into Q4 and 2024 as I expect a tough fourth quarter to the year and a tough start to 2024.  Approx portfolio weightings, 37% cash, 20% bonds, 43% equities.  No matter how the last quarter of this year plays out I'm disinclined to materially change those portfolio allocations.

You haven't been a good boy this year, have you? ; I on the other hand still expect a Christmas (post election, spring, ....) rally, and given that I noticed yesterday in the post office that the posties are already posting up their Christmas delivery schedules, it must be slowly time to position for that.

Anyway - no doubt, time will tell.

[Basil]

Hope you are right BP.  Unfortunately, with quantitative tightening now the order of the day global treasury issuance is set for a huge boost in 2024 and where are the funds going to come from to mop up all these new issues if the Chinese are reluctant to buy?  I think the chances of the US 10 year rate going over 5% (our rate ~ 6%), are pretty good and if so, these sort rates are pretty undermining of equity valuations.  I hope I'm wrong.

[Hectorplains]

I on the other hand still expect a Christmas (post election, spring, ....) rally

In Australia and the US history supports that markets underperform leading up to elections while doing significantly better in the six months after.  I can't find any similar research for NZ.   

Malaysia's elections resulted in a hung parliament last year.  The collective wisdom is such instability is a market's worst nightmare and the benchmark Kuala Lumpur Composite Index duly dived 1.5% on opening...but it then recovered to close down just 0.09% on the day.  That may be something to think about in the morning of Monday 16th October...

[Onemootpoint]

I foresee possible further downturn in October (with reference to the US markets and mentioned in another post).

 But it is as if the markets are really trying hard to be positive in these economic/ political times (China/ war/ inflation demand/ local and international politics/ etc) so possibly a 'Christmas run'.

Who knows? Because I dont. 

[Shareguy]

History says NZ markets do much better under National

Performance of the NZ market under different governments from Craigs

1/ Muldoon National 1975 to 1984 331 percent

2/ Key/ English National 2008 to 2017 200 percent

3/ Bolger/Shipley National 1990 to 1999 182 percent

4/ Clark Labour 1999 to 2008 66 percent

5/ Arden/Hipkins Labour 2017 to present 30 percent

Are we on the verge of a massive bull run.....

[Basil]

In inflation adjusted terms we are down nearly 30% since Labour came to power for its disastrous second term.
It would be nice if we could get that back but good things take time...

[KW]

In Australia and the US history supports that markets underperform leading up to elections while doing significantly better in the six months after.  I can't find any similar research for NZ. 

Malaysia's elections resulted in a hung parliament last year.  The collective wisdom is such instability is a market's worst nightmare and the benchmark Kuala Lumpur Composite Index duly dived 1.5% on opening...but it then recovered to close down just 0.09% on the day.  That may be something to think about in the morning of Monday 16th October...

Next month marks one year to the US 2024 elections.  Since most international markets take their lead from the US, the next year could be a big underperformer.

[Basil]

The grind continues.  Now down more than 10% since 1 August, less than 3 months ago !
https://www.goodreturns.co.nz/article/976522402/nz-sharemarket-continues-to-slide.html?utm_source=GR&utm_medium=email&utm_campaign=GoodReturns+Market+Report+for+26+Oct+2023