Rudi’s View: Things To Watch, Expect, And Avoid

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 | Mar 26 2020

Dear time-poor reader: this Grand Bear Market isn't done growling just yet, but maybe a near-term bottom is in sight?

Things To Watch, Expect, And Avoid

By Rudi Filapek-Vandyck, Editor FNArena

There are still investors out there who think this year's Grand Bear Market is all about previous herd exuberance and share prices rising too far, but that is so outdated already.

Following an exceptionally strong performance in January, exuberant share price levels might have been the initial reason why the sell-off was so fierce so quickly, but it didn't take long before the financial system started to screech really loudly and central banks across the globe had to pull all levers to prevent a major global credit crisis.

By then, however, the world's focus had already shifted back to what triggered the share markets selling off in the first place, the covid-19 pandemic. It is clear by now global authorities are finding it hard to limit this virus spreading and as they put in place ever more Draconian policies, the damage to economies is accelerating really fast.

This is why, on the weekend and last week, I felt all those investors hoping for a relief rally were simply too optimistic. Such a relief rally, I think, cannot happen until global statistics are starting to indicate this global pandemic has progressed past its peak, and we can all start looking forward to less testing times ahead.

So we know what we are looking out for. Alas, to date the covid-19 numbers are still climbing steadily, including in Australia where from tomorrow onwards a lockdown light version will be implemented across the two most populous states, NSW and Victoria. Other states have started to close their borders. The economic damage, already ginormous, is simply becoming even larger.

The damage will continue to grow the longer these exceptional measures remain in place.

I don't think any of us can reasonably assess the ultimate set-back this pandemic will inflict on households, businesses and economies at large. What should be above any doubt, is that every business listed on the ASX is affected, and will be more affected from here onwards. We are no longer talking "safe" & "defensive" versus "weak" and "vulnerable" - that's outdated too.

The conversation now has to be to what degree can companies insulate themselves? Next topic will be to what degree can they bounce back once tomorrow's lockdowns can be removed?

While it is true the world will get through this, and we will all learn and adapt, and progress onto better times again, as history shows time and again, it is also true these observations are so much easier to make in hindsight.

We should all not underestimate the propensity of bad news to bring out more bad news. US corporate debt is currently estimated to total nearly US$10trn, of which US$2.5trn in financials. Corporate debt in the US is now equal to 47% of GDP, an all-time high.

That what makes investors nervous is the highly speculative corporate debt, estimated at US$2.5trn. Globally, US$1.9trn in corporate debt needs refinancing this year, including US$350bn in the US. There is a lot of leverage to the oil price hiding in those numbers.

As I have tried to explain over the weeks past, these Bear Markets are a developing story. The answer to questions such as how long and how deep is closely related to today's unknown: how much bad news is still out there?

The full story is for FNArena subscribers only. To read the full story plus enjoy a free two-week trial to our service SIGN UP HERE

If you already had your free trial, why not join as a paying subscriber? CLICK HERE