Exactly 6 days ago, we publicly said that we were short term bullish risk assets and were sitting on the fence for the medium term. We'd previously been bearish the week before but flipped sides on a turn of a dime. We also stated that we were in the precipice of going bullish for the medium term, and our biases were going to be shaped by the week's price action.
Fast forwarding to this past Friday's close, it seems that we were right on our call. Unfortunately for us, we were shaken out of our long risk positions before the actual rally in prices occurred, so we missed a good part of the ramp. But that's for another story.
Readers will know that this isn't the first time we've been right on our market calls. On 25 October 2015, we called the bottom in the U.S. stock market (not to the point but you get what we mean). You're encouraged to read that snippet on how and why we made that particular call if you haven't already done so.
We'll get straight to the point: The markets are difficult to trade now.
But...Wait a minute! Aren't the markets ALWAYS hard to trade?
The answer is: Nope, not always.
Current market conditions have become choppy and difficult to trade, a result of a complex mix of different factors. Taking a huge directional bet is almost certainly going to backfire in no time.
So, in conditions like this, how do you trade?
In today's Snippet:
The fundamentalreasons for current market conditions
Technology and mass robotization are probably the single biggest threats to our jobs. Jobs of both the blue and white collars are gradually being replaced by robots that are much more cost efficient and productive. Plus, robots have no want for minimum wages, or hold strikes in protest for what is now a huge skill deficiency in the labor force across the world.
Even younger generations like us are much under equipped to compete with the robots that we build. When jobs are at risk of vanishing entirely, and is happening at a pace that far exceeds what any society can keep up with, a slow burning depression is likely to set in. Most current education systems are not equipped to train students for a robotized and highly digitized world. We all know what the issue is, but no one has the ability to change the direction the broader society is heading in.
So will politicians and central planners dabble with the risk of upsetting the status quo for a potential change in direction? Unlikely. Setting up such a change takes years if not decades, far exceeding even the longest of terms in office. As political leaders come and go, so do their policies and advocates. It is therefore almost impossible to effect preemptive change before real harm has been inflicted.
Rather, Janus Capital's Bill Gross believes central planners will stick to what they have always been best at: Printing money (QE), lowering interest rates or bringing them sub zero as we've seen recently, and fiscally stimulating economies with debt funded programs thereby creating a false impression of prosperity when there isn't.
Then comes the prospect of Helicopter Money, a term first coined by the American economist Milton Friedman, and then further popularized by former Fed Chairman Ben Bernanke. Printing loads of money, and dropping them out of helicopters over the city — free money as it is called. Consumers, having picked up free money on the streets will be compelled to spend them as they believe such is a one-off event and will never happen again. But it does...
As such Bill Gross believes that the Fed will revert back to QE and lower interest rates sometime in 2017, and the reintroduction of fiscal stimuli (something that could very well happen if Trump is elected into the White House). The music won't be allowed to stop.
