It’s finally good to be back after a long break travelling through the South Americas for the past two months. It is these breaks which remind you of why you trade and invest for a living.
For me, it has never been about making the most money possible and buying all the toys one can buy. Frankly, luxury sports cars, fancy big mansions, jewellery etc don’t excite me. But new life experiences do.
I prefer a simple life of family and travel, exploring the world and experiencing the vast differences in culture and history this world offers and to get acquainted to the ‘real’ world and South America is one of those places.
Places like Machu Pichu in Peru, and the journey just to get there where you travel from the modern city of Lima to the poor dusty streets of Cusco, before re-entering a clean tourist streets on the doorsteps of the ancient Machu Pichu site, opens your eyes to the inequality in wealth as well as opportunities we humans suffer from.
It is the sight of these places as well as meeting the locals who live there, which really gives us a sense of how grateful we should be if we are already living in a developed country and get to ‘choose’ the financial markets to make a living from. For those who live in certain places where a phone line isn’t even available, the options are limited.
And coming back to a corrective market where January is supposed to be a great month based on the historical January Effect which hasn’t played out this year so far, allows you to appreciate there are bigger problems on this planet than the financial markets and to not feel too upset simply because my trading accounts have gone down in value.
Freedom of travel brings about perspective and allows you to emotionally cope with trading volatility better, without getting caught up in the panic and allowing your emotions to go up and down based on your account balance.
It also reminds you to always put things in perspective no matter how trying the current circumstances maybe, which I know a lot of people feel a sense of loss at the moment, me included, in regards to the sudden decline in your trading accounts.
While I was on my travels, many people have asked me if there is another Global Financial Crisis coming and where I think the market will be in a year’s time.
I want to say that I don’t like predictions so you will never see me predict where the market will be at in a few months’ time, let alone in a years’ time because I know I will be wrong. I have no idea.
What I do know is that by simply looking at the facts and using these facts to estimate how things should pan out, gives me a good picture of whether the current market correction is a great time to ‘load up’ on bargains or is there a bigger issue that signals a complete retreat from investing or trading the market.
In regards to whether there is a coming financial crisis upon us, in my opinion the answer is no, and here is why;
1. Gold continues to retreat and in times of crisis, precious metals like gold is normally sought after pushing up prices quickly.
2. High yield credit spreads, excluding energy related debt (which only represent a small portion of overall debt issues anyway), are still within normal range and haven’t spiked, which normally occurs during the onset of recessions.
3. The 2 year Interest Rate swap spreads still remain low which tell us that financial markets are highly liquid and there is no risk of systemic risk.
4. The S&P 500 VIX volatility ratio although elevated recently, is still hovering at relatively low levels.
5. The S&P 500 Price to Earnings Ratio is close to its long term average of 16.5, so the market valuation overall isn’t stretched.
6. China, although the second largest economy in the world, imports a very small percentage of Unites State’s exports and therefore slowing Chinese growth is unlikely to derail the ongoing recovery of the US economy.
It is these facts which not only help me sleep better at night
knowing my long term portfolio of great global businesses like Apple (O:AAPL), Bank of America (N:BAC), Johnson & Johnson (N:JNJ), IBM (N:IBM), Oracle (N:ORCL) and Walmart (N:WMT) will continue generating increasing profits, it also provides the opportunity to invest even further at lower prices and a higher margin of safety.
I hope the above helps shed light on your own trading and gives you comfort knowing the US financial markets isn’t going to blow up any time soon.