This Too Shall Pass

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jul 11 2019

In this week's Weekly Insights (published in two parts):

-This Too Shall Pass
-The Other Story About Small Caps
-Afraid About Growth: Nearmap
-Who Invests In Negative Yielding Bonds?
-Conviction Calls
-Rudi In The Australian
-Rudi On Tour
-Rudi Talks

This Too Shall Pass

By Rudi Filapek-Vandyck, Editor FNArena

"We expect markets to continue to provide attractive returns for investors but are prepared for an increase in volatility that typically comes with late-cycle investing."
[Tracey McNaughton, head of asset allocation, Wilsons Advisory and Stockbroking]

One of the key characteristics of the 2019 bull market rally is not only has the uptrend been exceptionally strong, with the ASX200 Accumulation index up nearly 20% over six months, the average volatility along the way up has been unusually low at the same time.

To illustrate my point, I have put together the monthly returns for the first half of 2019. And just in case anyone needed to be reminded, I also included the monthly performances from the prior four months in 2018:

It is good to remember ourselves that while the overall trend has changed dramatically for equities worldwide, the Big Question Mark that caused the trend to reverse towards the end of 2018 is still intact: is the US economy, and by extension the rest of the world, decelerating towards an economic recession or not?

Before you answer that question, do note I am not going to attempt to answer it myself. Nobody knows the answer. My guess, no matter how well-researched, is as much worth as yours.What we do know is that central bankers are now united in their attempt to prevent worst case scenarios, and governments might join in next with infrastructure spending and more alternative forms of support.

Last year, financial markets sniffed out the rising risk and found central bankers and governments asleep at the wheel. Hence the relentless down-trend. Then came the Fed's public acknowledgement -we received your message- and other central bankers in China, Australia and elsewhere joined in.

Hence the swift trend reversal and relentless, low volatile up-trend over the past six months.

It's easy to now get carried away and put all our trust in the world's leaders and monetary authorities, but the Big Question Mark hasn't been answered yet, and outside of lower bond yields and central banks cutting cash rates, nothing else has changed much. We still need to see concrete evidence of economies stabilising, then trending back upwards.

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