WHAT IS IN STORE FOR THE MARKETS AS WE CLOSE IN ON Q4?
For those of us old enough to remember the Financial crash of 2008, this month brings us a very important 9-year anniversary On September 15th 2008 Lehman Brothers filed for section 11 bankruptcy protection with $639Bn in assets, and $619 in debt. The stock immediately plunged 93% from its previous close on September 12th. One interesting point is that on the morning of September 15th Standard and Poor’s rated Lehman Brothers at ‘ A ‘, the only recent change having being a downgrading of the outlook for the Bank, from stable to negative on March 18th of the same year. Standard and Poor’s came in for heavy questioning over the following weeks and months and their response was as follows:
“In conclusion, we believe the downfall of Lehman reflected escalating fears that led to a loss of confidence — ultimately becoming a real threat to Lehman’s viability in a way that fundamental credit analysis could not have anticipated”
The point here is not that anyone is expecting another 2008 crash, especially given the now, far stronger capitalisation of banks globally. The point is rather, that we can never know where the next shock for markets is coming from, and when the current bullish bias may be turned negative by a loss of confidence, and the suddenness with which this can occur.
We are advising caution when talking to clients about Lump Sum Investing into equities in the current environment, with many potential ‘shock’ moments bubbling near the surface. The war of words between America and North Korea is making some feel uncomfortable, particularly the South Koreans of course, but should this escalate, the tremors will reach far and wide. Brexit negotiations again have the potential to change confidence in equities, and again would have a global reach. You will remember how the Greek debt issues affected markets over many months, relatively recently, and whilst this topic has become somewhat unfashionable, the underlying issues have barely improved and in fact worsened by some measures.
Then there are the more fundamental reasons as to why we advise caution. Valuations in many developed and developing markets are at historically high levels, and whilst no one can say where that illusive peak may be, trying to find the top has been the downfall of many an investor in the past.
Our view is that a portfolio that is at least someway non correlated to equities, with some built in protection to the downside is a sensible precaution in this current environment. Even for the longer term view recent history tells us that securing gains until value presents itself can enhance long term growth dramatically.
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