The last week (2/27/14 to 3/6/14) has been particularly difficult to write about. On the one hand we had been inundated by scary headlines on geopolitical events and weakening economic statistics. On the other hand, given close scrutiny, it has been hard to call any of this life-threatening to the markets. The combination may be creating a credibility issue, as even in the face of these negatives, I find it very difficult to back off the positive stance on equities I’ve held since we posted kortsession number one a year ago.
Signs of Stupid
Yes, a sharp correction is warranted as signs of stupid are emerging. Howard Gold–No Nonsense Investing, covers this in“Have investors learned anything? Opinion: When greed eclipses fear, it’s time to watch out.” Stupid is a day-trader quoted in the article, thinking about quitting his day job to trade full time. You may recall that I have said in the past ‘trading is tough, definitely not for everyone’. Fortunately, these animal spirits seem to be fairly well contained. Were they widespread, I would be worried.
Going into last week, the punditry was worried about China (a lot). Check out Randall Forsyth’s Barron’s articl(if they let you in on the link provided), “Hopeless,but not serious.” Forsyth cuts to ribbons concerns about Russia and the Ukraine, as well as geopolitical risk in general; but, true to form, Forsyth leaves us with a negative conclusion, vis-a-vis China. He concludes “Go party like it’s 1999, and don’t worry (about) what’s in the rest of the world, except China…”
My “1999 Indicator” would be those inane, man-on-the-street interviews we were confronted with on the nightly news, where investors(?) boldly proclaimed that in the face of a runaway bull market ‘they were not afraid.’ They were in it for a the long term. ‘I mean where else can you get 10% (or more) on your money?’
Up until Thursday, February 27, I had no idea that China and the Yuan were in such trouble. I soon found out I was either misinformed or uninformed. I was speaking to a business group and drew a question from a member of the audience on the weakening Chinese currency. He asked, did I “think there was going to be a currency war?” This took me aback, as I did not believe the Yuan had been that weak.
Checking the media later in the day it turns out the Yuan had been dropping fractionally from its recent highs. Fractions to currency traders are a big deal. In the stock market fractions in currency may not be such a big deal. My inquisitor turned this into a “currency war.” Wonder what media outlet he was listening to?
Chart of the Day
Here is a 20 year history of the Dollar/Yuan relationship. Note the Yuan has spent most of that time strengthening against the Dollar. Scott Granniss (my source), former chief economist at Western Asset Management, gives perspective in “China does not have a problem.”
What do you think?
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