The Year that Is and Was

What a contrast to the end of last year!  This time last year shares were crashing and gold was surging as the Fed’s attempt to tighten monetary policy failed dismally on the realisation the market is addicted to cheap and plentiful money.  Fast forward to today and we have central banks all around the world, including the capitulating US Fed, easing monetary policy and the sharemarket hitting new all time highs in the US overnight.  Indeed 2019 was the 4^th best year on record for global shares amid poor global growth and geopolitical turmoil.  How you ask?

The 3 biggest western central banks in the world turned on the money printers simultaneously for the first time since the GFC:

And central banks all around the world (including of course our own RBA) cutting rates:

Throw in a late year ‘phase 1 trade deal’ between the US and China and reckless momentum has returned with a vengeance.  That is despite a growing number of analysts and experts asking what exactly that ‘deal’ achieves.  From CNBC:

“The “phase one” trade deal between the U.S. and China, supposedly a game changer for the global economy going by the stock market’s rise to a record after the announcement, has left many analysts and investors puzzled about what was specifically agreed to by both sides.

“There remains more questions than answers,” Chris Krueger, Washington strategist at Cowen, said in a note. It’s “more trade truce than deal ... It is unclear if any China tariffs on U.S. goods have been reduced ... Vague promises on IP protections.””

But the market is having none of that ‘fact stuff’, including earnings, valuations, etc.  It is ‘all in’ to ‘overbought’ levels not seen since 1933 before a little ‘depression’ you may have read about.

As per our opening sentence, one year ago we were in extreme fear territory.  So with things now ‘awesome’ earnings must have really improved throughout the year? Nope…

This is not new territory of course.  We have seen this time and again since the GFC with markets rallying on each QE phase.  Of course this latest is ‘Not QE’ but is still the Fed regularly pumping $100’s of billions into the Repo market (i.e banks, just where QE went).  Lance Roberts maps this well:

Lance goes on to remind us of the perils of participating in such an overbought market (remember the most since just before the Great Depression) now:

“The markets have returned more than 300% since the 2009 lows in the longest bull market on record. Yes, it is still just one bull market. 

Assuming that you were astute enough to buy the “cherry picked” low, and didn’t spend the bulk of the bull market rally simply getting back to even, you would have accumulated years of excess returns towards meeting your retirement goals. 

If you went to cash now, the odds are EXTREMELY high that in the years ahead you will far outpace investors who remain invested. Sure, they may get an edge on you in the short-term, and chastise you for “missing out,”  but when the next “mean reverting event” occurs the decline will destroy most, if not all, of the returns accumulated over the last decade. (That isn’t a theoretical assumption. It’s historical fact.)”   As illustrated so clearly below:

Conversely gold and silver have seen a correction from the +20% rally we saw earlier in the year as the need for such defensive assets became seemingly unnecessary.  Bitcoin too has seen a huge correction from its big 2019 rally as well.  But both the metals and as of this morning, Bitcoin too, look to maybe be on the turn as the ‘corrections they had to have’ have played out.  

Whilst the price has come off a bit, 2019 is still notable for the huge amount of both gold and silver that was bought up by ETF’s and funds as Wall St types bought up their hedge as they played this financial markets casino.

So as we sign off for the year at these extremes, let’s look back at what 2019 delivered in each main market as we do each year:

Precious Metals

Gold        up 17%

Silver        up 12%

Platinum    up 24%

Crypto

Bitcoin        up 100%

Ether        up 3%

Litecoin        up 41%

Ripple        down 42%

Bitcoin Cash    up 25%

Shares

Aussie Shares    up 23% (ASX200)

US Shares    up 27% (S&P500)

This will be the last news for the year and we want to thank you for your readership and wonderful feedback throughout the year.  The daily news will return on 20 January.

On behalf of all the team at Ainslie we thank you for your business, the many friendships we enjoy with you our customers and your referrals (always appreciated!).  We wish you all the very best over the festive season, hope you each get a bit of a break and stay safe.  We look forward to seeing you in 2020.