It's 21 years this week since my Mum died. She was only 69. It was a brain tumour but to be honest I never thought she'd scratch an old head...as they say in these parts...given the fact she was one of life's worriers. She worried about everything, all the time. If she found herself without a worry, she worried about that.
I remember being in Ibiza in October 1987 with my then wife, just the two of us for a wee break in the Sun, with the kids left with her and my Dad. We flew back into Heathrow on the Sunday night 18th October, the plane being thrown all over the place. Fallen trees lay all over central London. We'd been oblivious to the storms that had battered the South East, making Sevenoaks into Oneoak overnight. Next day was the 19th or Black Monday as it's now known. The UK Stockmarket fell heavily and my Mum was put off her breakfast, lunch AND dinner .... "Oh my God" she said "there's been something billions wiped off the market. It's on the news all the time....I knew I should have stayed in the Building Society".
Good job she didn't live long enough as an investor to get to the Summer crisis of 1998. What would she have made of that, the Russian Rouble disaster, Asian Contagion, and the collapse of massive US Hedge Fund Long Term Capital? I know what the News Know - Alls thought. A typical headline at the time screamed "A Dramatic Stockmarket Decline Is Ahead". What happened? In America the S&P 500 fell from 1180 in mid July by 22% by mid October, then rose 36% to 1250 by Christmas. If you've looked recently the Index is nudging 2000 and that ignores the value of reinvested Dividends.
Long term US investor Nick Murray with his 48 years' experience (that's roughly 6 longer than me) says the ability to distinguish between volatility and loss is the first casualty of a Bear Market. And goes on to tell of "one" investor who according to the headlines "lost" $6.2 billion during the crisis of 1998. That's how much of Warren Buffett's personal shareholding in Berkshire Hathaway Inc fell in value in 45 days that Summer. So during that period how much did Warren actually lose? Well ...nothing. Why? He didn't sell. He kept his eyes on fundamentals, not scary headlines. Headlines are there to attract Advertising not to make you Money.
At ASAM we spend a great deal of time and money nowadays on Independent Research. Research from folks without an axe to grind. They don't manage funds themselves. They sell their experience and their analysis of indicators and cycles looking back to the late 1800s in some instances. Cycles are natural after all. In our everyday life they affect us. Tides come and go with measurable regularity. Daylight is followed religiously by Darkness. We have 4 seasons ...Spring, Summer, Autumn and Winter. Unless you live in Scotland where we have only 2 ...Winter and next Winter. And if you spend enough time studying economic history, especially if you can stir in some personal experience over the years, cycles become clearer.
Ned Davis Research and other impartial analysts like Ed Yardeni or Jeff Miller study indicators as widespread as Sentiment, Demographics, Interest and Inflation Rates, Money Supply, Moving Averages, Cash levels, etc etc. They also look out for signs of major changes cycles from short to long. Long term cycles they call Secular. But with a World economy so complicated, with interconnecting factors, you can still get short term variances typically jumped upon by News Channels to "prove" the world's about to end any minute.
We do have a special indicator unique to us. And it's an accurate Contrarian Indicator when things according to pessimists look bad. Sadly the record of this indicator only goes back just under 9 years since this gentleman became a client. He could be related to my Mum. He's a worrier. And every time he phones to say maybe he should get out of any equities because things look bad, the market goes up strongly within a few days . Good sign ...he phoned on Tuesday last week.
Today the big worry is cheap Oil which must make you wonder why it was just as bad apparently a few years back when it was about dear Oil. I recall somebody somewhere publishing an article about 7 years ago when Oil was $140 a barrel saying it was going much higher and will throw the World into turmoil. Today it's going much lower and ....guess what ....will throw the world into turmoil.
I was a young IFA in October 1973 when an overnight increase of 67% in the Oil price (from $3 to $5 a barrel) triggered the October Stockmarket Crash, bringing the UK and US Indices down by 70% over 14 months. Turns out it was the beginning of a Secular Bull Market for Oil which lasted 10 years. Scary times for Borrowers and Deposit holders (think Inflation). The next Secular Bull for Oil started in 2000. Think chaos for Equity Investors and Debt. In between was the 18 year Secular Bear for Oil ... a great time for Stockmarket investors.
The Commodity team at Ned Davis believe Oil has entered a new Secular Bear Market, as have most Commodities. So who benefits? Well almost everybody everywhere unless you are an Oil Exploration or Production business with heavy costs, or an Oil exporting nation like Russia and those in the Middle East. Small companies will benefit from low borrowing costs and cheaper energy bills. So will consumers. In Florida in February petrol was $3.69 a gallon, now it's touching $2.50, a 32% drop in 10 months. That's like a big Tax Rebate. More money to spend.
Watch the rise in US spending at Christmas. Over here it's less marked. NDR don't see Oil back up anywhere near the old highs for many a year. Inflation and Interest Rates remain low. Here comes 2015. Looks like it could be a stonker for those ignoring the headlines. Merry Christmas.