I guess we’ll wait and see

To say there’s a lot going on at the moment is a bit of an understatement.  There’s so much to talk about.  Yet, like I sense most of us in finance-land are feeling right now, I’m feeling a bit lost for words.  A bit exhausted.

Of course, it’s one of these “fast-moving” environments where things could change very quickly.  I saw one commentator remark that we’re all playing “Twitter bingo” at the moment – what’s Mr President going to say next? 

Many have a strong sense that he doesn’t even know.  David Einhorn and team at Greenlight Capital found the following meme apt and amusing, as do I:

There are far more questions than answers at the moment:

• How much damage has this Iran war done to global supply chains? 

• Will the oil price retreat meaningfully any time soon?

• Has the price of energy been permanently elevated?

• Has the damage already been done been enough to assure a new round of inflation?

• Will there really be significant fertilizer shortages and a major impact on crop production?

• Are the helium shortages going to cause disruptions to semiconductor and electronics manufacturing?

I don’t know the answer to any of these.  I really don’t think anyone does. 

If you told me that a major conflict would break out in the middle east, a major global shipping lane get closed for an indeterminable period of time, the oil price would suddenly spike above US$100 per barrel and the path forward is unclear, most experienced investors would expect quite a sell-off in risk assets and a “wait and see” stance where those assets tread water at lower levels. 

But of course, this is the endless bull market and there’s no room for caution. The S&P500 just hit a new record high:

Look I get it.  20+ years of conditioning.  “Buy the dip” – that’s been the mantra and it has always worked.

I think the market’s rip higher can be heavily attributed to last year’s “Liberation Day” debacle.  The entirety of the sell-side (the major banks and brokerage firms) missed that rip higher.  They don’t want to do that again. 

Indeed, it seems the entirety of the sell-side is proclaiming that the lows are in, the economic impact of this war is exaggerated and you have to own shares – particularly big-cap tech.  I can’t find any sell-siders advocating caution or selling the rally.

To say that sentiment has flipped max-bullish is an understatement.

In terms of the economic impact, we simply don’t know what’s about to unfold.  It seems inevitable that there will be a spike in inflation in the coming months.  Will that be “transitory” this time around?  How will central banks react?

What will be the impact on economic growth and corporate earnings?  Again, we simply don’t know.  What is striking at the moment is the void that’s opened up between the US share market and the real economy.  Observations like this are becoming commonplace:

Once again, I get it.  The US economy is big and robust and has proven to be incredibly resilient over recent years.

But it’s not indestructible. 

I’m smart enough to know that I don’t know what the near to medium-term economic future holds.  But when we hear many analysts suggest the financial impact of all that’s going on in the world is totally overblown, this meme seems relevant:

This is certainly the most challenging investment environment I’ve ever faced in my 25+ years of investing.  Valuations are at historic extremes.  The impact of “AI” is unclear.  The economic impact of current world events is unclear.

It’s a time for capital preservation.  It’s a time for humility.  It’s a time to be grateful.

What’s the rest of the year have in store? 

I guess we’ll wait and see…

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