Market Commentary for November 2020

"Winter is coming..."

By Alan Hull

This commentary is in part or entirely created using extracts and comments from my weekly Blue Chip Report. For more information about the Blue Chip Report, including subscription details and a recent sample report, go to Blue Chip Report

A month ago I said that the Stockmarkets are wobbly...and nothing has changed. Political uncertainty and increasing COVID-19 infection numbers around the world have kept investors in a holding pattern. So there's been some unsettling volatility in October and markets have pulled back from their highs. This is to be expected, but neither our market or the U.S. markets have made a decisive move to this point. Of course that could change in an instant...

And this is all happening in the shadow of a tall building that is starting to wobble. And no it's not Trump Towers...although that's probably next door. It's the 'Tech' heavy NASDAQ 100 index which is in a well developed exponential trend having risen from 7,000 to 12,000 points from March to August...and now it's starting to wobble.

So I say with a high degree of confidence that the long game is down, where both the fundamentals and the technicals are aligned. Hence March wasn't the correction...it was a precursor. But what about the short game? Where are the markets headed between now and the end of the year? And the answer is, ' I don't know'. There are simply too many moving parts to know.

The first 'Moving part' being that the short term weakness we are seeing right now is due to there being no buyers in the markets in the lead up to the U.S. elections. There are reasons to sell but no one is interested in buying right now. This could trigger a larger collapse but no one knows for sure until that actually happens.

Of course the main event is the U.S election so let's just run through a list of possible scenarios, during and after the election on November the 3rd....

  • Biden looks set to win the Presidential election according to the pre-polling
  • But the Democrats may not gain control of the Senate and so they may be prevented from passing legislation anyway
  • Trump and the Republicans are set to fight the outcome and take it to the Supreme Court...where there is a conservative majority of 6 to 3 on the bench.
  • Civil unrest is another big variable and so it's not just a question of the election result...but what will be the reaction.

Then there is the COVID-19 pandemic and that has been grossly under appreciated by both politicians and investors. From what I see & read from around the world and locally by talking to people in Australia, there has been a general feeling we are on the downhill run out of the pandemic. This is wrong! The pandemic is worse now than it was 8 months ago. While in some countries like Australia we may have it under control and certain parties may have hoodwinked others into thinking it's no big deal...the reality is the pandemic is getting worse.

Most of the world's population live in the northern hemisphere and they are coming into their Winter months now. Added to this, most people are psychologically worn out and many are now resisting restrictions to deal with renewed outbreaks. Hence the increased civil unrest around the world. This is a developing situation and the idea that a vaccine will solve this problem before the northern hemisphere's Winter is over, simply isn't realistic. So the pandemic hasn't even peaked yet and therefore the full extent of the economic damage from it isn't known. Putting it succinctly...Winter is coming.

So that's what I see and here's what I'm doing as an investor....

  • I've hedged my long term income portfolio
  • I own gold as a hedge against a monetary failure
  • I am trading some local 'Tech' stocks on a daily basis with tight stop losses
  • I own inverse ETFs against the day when the markets correct - though I know not when

These are Bear market trading tactics...to use my favourite phrase of 2020. This year is a pivotal moment in the markets and I've been here a few times before. Money and wealth is going to rotate from one group of investors to another. Those in a comfortable position who are inclined to do nothing will achieve the same result as those who were in a comfortable position in late 2007.

Young, inexperienced investors who think markets only go up will get washed out. Experienced investors who have survived previous corrections will know this bull run is different...but it's the same. Stimulus has changed the game and extended the bull run by years...but all trends end. Times like this favour those who can plan ahead and compartmentalise their investment strategies. Market go up and down...and right now Winter is coming.