just in in-tray
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SUMMARY
Just an overall reminder amongst all the noise and confusion. The global scenario at the moment is one of decreasing leverage and reductions in total exposure to assets. In the simplest of terms, when credit is expanding, companies investing, and people looking to invest, asset prices rise. When the opposite holds true, asset prices decline. So while we are seeing high volatility in all asset prices, and the occasional large jumps in prices, we need to remind ourselves that the larger, broader trends at the moment are for lower prices in almost all asset classes. That means having a large proportion of assets in cash and cash equivalent along with some strategic shorts set on any rallies.
That said, I think we could well be due a short term bounce, as the market is heavily oversold and bearishness pervasive. But anything close to a 5% to 10% bounce would be a very good opportunity to exit some long positions and set new short positions.
I am of the view that many of the “safe trades” and “momentum trades” have finally worn out their welcome, as we have seen sharp drops in Commodities this week. This is where the momentum investors and hedge funds have been hiding. While I see corrections in the agricultural sector that may last for a shorter period of time, I think that we are at the beginning of larger downturns in industrial commodities such as copper, steel, etc. as the global downturn begins to affect those countries and regions so far unaffected to date, such as Latin America and Asia. I would also think that this makes heavily overextended currencies such as the Euro, Latin American currencies and the Australian and New Zealand currencies very vulnerable, especially if those countries begin to lower interest rates in the coming months. In fact, the downturn may begin before rates are actually dropped as markets begin to anticipate them in advance.
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