The spring of hope, the winter of despair

Happy New Year! I hope you all had a good Hogmanay. I had a great time back home in Scotland where today there’s an extra bank holiday to provide more hangover recovery time. But now I’m back at my desk here in London, and it’s clear financial markets will require much more than a day to recover from December.

US stocks had their worst Christmas Eve ever, and the worst December since the Great Depression. The FTSE and the rest of the world fared little better – by the end of the year, 93% of all financial assets had lost value in dollar terms. This is the highest percentage on record, worse than the dotcom crash and 2008.

To illustrate just how extraordinary these times are for financial markets, in 2017 only 1% of global assets had lost value by year end – another record made on the polar opposite side of the spectrum.

Acclaimed hedge fund manager Ray Dalio proclaimed last January that anyone holding cash would be left feeling stupid. Turns out holding cash was one of the best investment decisions you could make. Keep an eye out for similar high-profile predictions in the press this month.

While the year was brutal to buy and hold passive investors, it was a boon to short sellers. We launched Short the World last year, and so far the results have been spectacular. Unemotional and detached, the system is designed to capitalise on weakness when the markets run out of steam.

Interestingly, cocoa futures returned almost 30% last year thanks to poor weather in West Africa causing a supply squeeze. (I’ll need to ask Eoin Treacy about this – he knows how to use the weather to extract cash from the market.)

What to expect from 2019? To my eyes, politics will play an ever larger role in determining asset prices. Protestors setting the French central bank on fire, and showing up in the Netherlands to protest at the Hague does not inspire confidence in investors. Not to mention The Italian Problem and the potential German recession on the horizon. If that recession does materialise, the crazy monetary policy we’ve seen from the European Central Bank in the past will look tame by comparison, and only inspire yet more populism.

And of course, let’s not forget Cold War II. I maintain that the “trade war” being reported on in the press is really just one aspect of a new Cold War between the US and China, which cannot be resolved on a trade basis alone.

A 21st century arms race is upon us as China and the US angle for global supremacy – hypersonic nuke proliferation and a new space race await us. I would ignore announcements that the US/China trade conflict has peaked, or that it’s possible for “things to just go back to the way they were before Trump”. As FBI director Christopher Wray put it a couple weeks ago: “China’s goal, simply put, is to replace the US as the world’s leading superpower”.

We’ve got quite the year ahead. Let’s buckle up.

Boaz Shoshan
Editor, Capital & Conflict

Category: Market updates

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