The ASX200 fell roughly 10% in the financial year just finished, which included a terrifying 35% plunge and euphoric 30% rally in a 16-week period. This loss-making white-knuckle ride is not what investors seek, and has left many on the sidelines feeling cautious and confused.
Investors have a clear choice to make. You can choose to trust this market, however, a market that depends solely on government largesse to go up is not a reliable market. Alternatively, you can choose not to trust this market, and use strategies designed to create their own good fortune – rather than rely on the benevolence of central banks and unsustainable fiscal support to drive a return.
So, ask yourself: Do you have complete trust that this market is behaving fairly and rationally? Or do you think it now more closely resembles a casino? If it’s the latter, you may want to reconsider the options available to you and rethink your strategy for the financial year ahead. We share our perspective here.
The greatest bubble the world has ever seen
Company earnings projections have fallen off a cliff, with many companies completely unable to predict their future earnings and prospects. Yet share prices have completely ignored these fundamentals and marched ever higher. Considering the severity of the unfolding economic backdrop, what we are witnessing today could quite possibly be the greatest bubble the world has ever seen.
This bifurcation of price and earnings has occurred due to the rather extraordinary and persistent fiscal and monetary stimulus applied by central banks, and the US Federal Reserve in particular.
Source: Refinitiv Datastream, via State Street Global Advisors
No matter what you hear elsewhere or what your superannuation fund wants to tell you, the strongest bull case for equities generally rests on the assumption that through massive money printing and unaffordable fiscal stimulus, governments can hold asset prices at high levels or further inflate them, and that investors will continue to gamble by extrapolating this.
This is highly unlikely to be the case in the long-term as economic reality has always served as an anchor on prices over time historically. Furthermore, unsustainable policies are by definition unsustainable, and will ultimately create great instability in economies and currencies and further wealth dispersion and populist backlash. This could occur unpredictably and much sooner than anyone thinks.
It is important to note…