The uncanny thing of human nature is how quickly we forget history! The above chart highlights clearly how markets have diverged since the collapse of Lehman Brothers in 2008. The above chart is telling. Since the post GFC trough some of the best performing markets have been Topix, MSCI World and US$ denominated corporate debt. Sure markets acted as they always do. However we are reaching a point where divergence has widened too far. I am a BIG BELIEVER IN MEAN REVERSION. After two of the nastiest downturns in history (2000 & 2008) where trillions of dollars of assets were destroyed we have yet to take the bold steps to eradicate that disease. It has been festering all the while we have been applying liberal use of antiseptic cream. We’ve injected the markets with morphine. The more it hurts the more morphine is injected. The problem with morphine is the efficacy is less pronounced. In the end it just kills the patient.
When anyone ever tells you that “this is a new a paradigm” or “this time it is different” I start running for the hills. I suspected that GOLD would be one of the worst performing commodities since the Global Financial Crisis (GFC). My hunch was right. I bought gold in 2002 and never sold it because I never trusted any government or central bank when I saw their policy responses of pretending there was nothing to see and many ‘bought’ that view because the alternative was too horrific.
The one thing I retain the utmost confidence in is the stupidity of human behaviour and an uncanny ability to forget the past.
Markets are overbought. The impact of years of overinflated asset prices (whether equities, bonds or housing) is fast approaching the mean reversion inflection point. Expect to see the most hated, detested and despised commodities find a new burst of enthusiasm as they become the only safe havens left to store wealth. Note how Gold & Silver Shares have started to rebound since the beginning of this year. I think this is well worth keeping an eye out for.
Remember in a bear market – the winner is the one who loses least.