Question: Which is the most important client-only update sent during these last few years? Answer: This one!
Posted by jdavis on July 2, 2010
Dear Client of Jonathan Davis WM
Things move fast when you’re having fun! (As it were.)
A month ago, after the markets had fallen 15% I opined that we would have a rally up to 1150/75 on the S&P 500 (5500/5600 on the FTSE), setting up a big fall for the rest of the summer.
This would take us back to Summer 09 levels and I put it at 1 in 3 that we could retest the March 09 lows.
Well, the rally took us to the 1130s (5325) (to September 09 levels) and reversed a week or two before I expected. You can’t win ‘em all. (Most don’t try to win at all and are simply led by the markets, up and down, down, down.)
So, by yesterday, the market fell BELOW the May low of 1040 on the S&P (5050 on the FTSE). Technically this was a major bear signal.
The market seems to have stopped falling and we can expect a rise next week. This will set us up for, not just a move to Summer 09 levels, but I now put it at 3 in 4 that we will retest the March 09 levels. THAT MEANS A FALL OF OVER 40% FROM THE APRIL HIGHS! If this happens then it is my conclusion that we will go even lower. Some may remember, a couple of years ago I suggested an S&P level in the 400s by 2012.
This will set up a rise in the US$ and US Treasuries (Government bonds). UK Sterling and Gilts should rise in tandem.
Some questioned my sanity when I suggested stocks to fall back to the levels of March 09. Well, I have had my sanity questioned many times over the last few years. Actually, all you have to do is join the dots. It was obvious in 2005-2007 that we had the biggest debt bubble in history. From then on it is not difficult to see where that eventually leads.
Europe is toast. China is toast. UK and US are toast but the ‘toaster is switched to a lower setting’ and they will be, initially, less burnt than Euroland and China. Then they will be burnt just as bad. These things go in waves and they do not necessarily hit everyone at the same time.
I have, for years, said how dire the global economy is and how the bankers and politicians have entirely manipulated matters to their own benefit. Look at the huge rise in markets this past year, as example.
I have, for months, said the markets’ rise was bubble-like and would come back. These things take time and we have to watch them carefully for major moves to the upside or downside.
Those ‘investors’ who blithely bought into stock markets and property during the past year will rue the day. Their advisers and brokers will quietly and comfortably retire.
Our clients were greatly insulated from the huge falls of Oct 07 to March 09, as well as in the property markets.
We then rose the rally, using commodities and gold, in particular, and divested of much of those holdings late last year, after we had experienced most of the rally.
It is now time to divest of more Long holdings – which benefit from rising markets. Gold rose to a high of c $1270/oz and of course there was a mania to buy. Yesterday, gold fell over 3% to c $1200. I can see it going to $1100 and maybe $1000. That will drag gold stocks down, in which our gold fund invests.
As well as the Eclectica Absolute Macro fund, to which we will recommend to move some funds (As outlined last month), we will also recommend to move into Deutsche Bank (DB) Exchange Traded Funds (ETFs) which are computer-managed Shorting funds i.e. they benefit from falling markets. (They move in almost direct inverse to, for example, the S&P 500 or the FTSE 100.)
We may also recommend moves to The DB US$ denominated Money Market ETF, to take advantage of a rising US$, to hold cash.
I have said many times 2008, 2009, 2010 are the years of Return of Capital, not Return on Capital.
I add 2011 and maybe 2012 to that list.
Early next week, we will contact clients individually, who are affected by recommended changes to portfolios.
Some newer clients, whose pensions and other investment and cash funds have not yet come over to us will have to do the administration of the divestments themselves. There will be no alternative. We will help wherever we can.
The economy will be grim for years. Our clients will be able to watch from the sidelines.
The vast majority of investors are with stockbrokers and ‘advisers’ who preach, equally:
? ‘Stay in the markets’
? ‘Stay diversified (between stocks (c 60%), bonds (c 25%) and commercial property (c 15%)’
? ‘Be long on residential property and have lots of leverage’.
Your clients, friends, colleagues and relatives may see their savings and wealth greatly diminish (and many will go to nil capital (and/or negative) in this next – the largest – leg down.
In other words, they may be wiped out, financially.
Please remember, investments can fall as well as rise. And they will!
Who do you know who could benefit potentially from our advice – perhaps friends or colleagues, or, indirectly, as clients of yours referred to us? You are welcome, of course, to pass this email on or suggest to them to look at our website. Don’t keep all the good stuff to yourself! ? Or give us their email address and we’ll make sure they are sent publicly available updates as they are published.
We will always happily speak to anyone on the ‘phone. It is never a useless exercise or a potential waste of time. If however we feel we cannot add value to their circumstances we will always try to help informally.