“The Worst Day In Global Share Markets since…”

Just another wobble, or is the Great Crash of 2024 finally upon us?

Please do make any financial decisions based on the contents of this blog. My blogs are designed to be thought-provoking and introspective, not financial advice. Please do not act on any document unless it is titled “Statement of Advice.”

Last night, I slept like a baby, knowing what was about to be unleashed on global share markets. There are not many investors or advisers out there who could honestly say the same.

For quite some time now I’ve been anticipating a major share market correction, and I’ve been quite candid about it. Most of the people I speak to from outside of The Virtuous Collective, mostly investors and advisers who are long the S&P500 and the NASDAQ, have been telling me that I’m bat shit crazy because of the so-called “AI revolution.”

“Because of AI,” they say, “markets will never crash again!”

I’ve always been open-minded, yet highly doubtful of the so-called “AI revolution.”

While it is undoubtedly impressive what computers are doing these days, we are still far from everyday deployment of this new technology. Yet, financial markets have already priced in full scale deployment. The main problem is that they are perhaps 5-10 years too early. Governments, banks, hedge funds, index funds and institutional investors alike continue to ignore market fundamentals and assume numbers only ever go up. I infamously refer to this strategy as “chasing the shiny baboon’s arse” and this is what has happened in EVERY SINGLE market cycle in history, bar none.

We seem to be getting close the upper threshold of how much dire reality the markets can blissfully ignore.

Historically speaking, to trigger a correction it was sufficient for the economy to be in turmoil, for corporate earnings to be vastly inadequate to support valuations, hyperinflation and a cost-of-living crisis. But no, not this time around. We need bigger calamities to draw people’s attention away from the baboon’s arse in front of them.

In the past week, consumer spending has fallen off a cliff, as has employment and manufacturing, a shameful Japanese money print has come to bite them in the arse causing the biggest singular day crash in the NIKKEI since 1987 “Black Monday,” and commodity prices have taken a dive in anticipation of lower demand due to global recession. Even the crypto warriors are jumping ship, with Bitcoin and Ether recording their biggest drops since 2021.

We are now seeing massive drawdowns in the Dow Jones, S&P500, NASDAQ and ASX200. The ASX200 futures are anticipating even more carnage back home today.

But will the bloodbath continue?

Like a spinning top that has its first wobble, global share markets (excluding China) experienced massive drawdowns in April 2024. Then, just like the spinning top, under the force of its momentum, the markets started turning over again, albeit much slower in May, June and July.

And now as we experience this carnage of the first week of August, I am unsure whether there is enough momentum to keep turning, or is this thing about to fall over, as it is well overdue to.

I for one, am NOT deluded enough to believe this carnage is over. We could, very realistically, see global share markets drop as much as 70%. I have been of this conviction for at least a year now.

I believe this bloodbath is just the beginning. Any short-term upward movement will just be a relief rally in an otherwise dire market.

At the start of this blog I spoke of how I slept so well last night. Here’s why:

In the past 5 days, the NIKKEI dropped -17.74% (woah!). The NASDAQ dropped -7.02% (ouch!). The S&P500 dropped -5.34% (yikes!). The Dow Jones dropped -4.72% (damn!). The ASX200 dropped -4.26% (crikey!).

How did our “Tuna Salad Wrap” perform during the past week? Drum roll… +0.70%

Yes, that’s right! We made money while almost everyone else lost money. But how?

One of the main reasons is because of our exposure to longer duration bonds. As yields on new bonds drop in anticipation of interest rate reductions, investors are prepared to pay more for pre-existing bonds with higher yields. Couple this with massive divestment from equities and a higher appetite for safer fixed interest securities, and we see a kind of inversely proportionate positive return.

Our star players over the past 5 days are AGVT +2.58% and GGOV +6.05%… not a bad week for boring old bond ETFs eh?!

I expect these trends to continue for the rest of the year, and probably beyond, albeit not in a straight line, and not in a way that anyone will predict with any degree of certainty…

Our investment philosophy is simple:

“Make more money during markets propelled upward by strong fundamentals, lose less money during markets pulled down by weak fundamentals.”