“The new QE”

“Just remember that Mr Market will coax everybody back into the pool before he tosses the toaster oven in.”

– Dave Collum, financial commentator/chemistry professor

Collum’s metaphor is somewhat crude, but he makes a good point – the death of a bull market is not easily timed.

While the mainstream press has begun to turn bearish, my colleague Eoin Treacy takes the contrarian view. He sees one “last hurrah” for stocks on the horizon – a final, cathartic, brutal move upwards… before the “top is in” and the bottom falls out of the market.

He’s told subscribers to Frontier Tech Investor exactly how to position themselves to take advantage of this scenario – the stock poised to zoom even further into nosebleed territory in this scenario…

I’m not all that keen to stay in any pool where there’s the threat of a toaster being thrown in. But if Eoin is right, there’s profits aplenty just waiting for a speculator brave enough to seize this moment of uncertainty in markets. This is a brave call by Eoin – he’s putting his reputation on the line, and I’ll be interested to see how this all plays out.

Low interest rates and the monetary experiment known as quantitative easing, or QE, have been a large driver of the boom in stocks. With these measures being removed – at least in the US – it follows that stocks will need a new engine to support them.

A certain sector of stocks already seem to have a new engine – riding out the market madness in October in some cases without even a scratch…

A wallet for war

We’ve been making the strongest military in the history of the world stronger still. Earlier this year, the President signed into law the largest increase in our national defense since the days of Ronald Reagan – $716 billion to extend our military dominance in every domain.

– Mike Pence, US vice president

If you’re a subscriber to Zero Hour Alert, or have been reading Capital & Conflict recently, you’ll know my thesis that we are on the verge of a Second Cold War between the US and China.

The term is now being used ever more frequently, as the relationship between the two powers gets more dysfunctional. From The Washington Post:

If China wants to avoid an all-out cold war with the United States and its partners, it must fundamentally change its behavior, according to Vice President Pence. The United States, he assured me, won’t back down.

While it’s nice to find almost daily evidence in the news to back up my case, relations between the two countries are getting worse faster than I expected. This means the window to make investment decisions to profit from this state of affairs is closing. I’ve already made a couple in my original issue, but I’m confident there are more opportunities out there.

Interestingly, it seems the market has figured out the Cold War II story in several sectors already. US “war stocks” – aerospace and defence companies – in some cases emerged from Bloody October with no sustained decline in price, and have just continued going up.

Earlier this year, President Donald Trump signed into law the biggest increase in national defence since Reagan – $716 billion “to extend [US] military dominance in every domain”, as VP Mike Pence puts it. According to Pippa Malmgren, the consummate political and financial insider, now an adviser to the British government, defence spending is “the new QE”.

While “old QE” is retracted, will the new QE keep certain stocks elevated as Cold War II ramps up? Let’s watch.

More to come tomorrow.

Until then,

Boaz Shoshan
Editor, Southbank Investment Research

Category: Geopolitics

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