Good afternoon to you all; in fact great afternoon to you all. It’s cold out there and it’s only going to get colder. So my suggestion to you is to sit back, and enjoy this week’s News, Views and Truths.
And by “enjoy”, I mean “be informed”…
Because this week in the markets has not been one that deserves the title “enjoyment”. Although the usual media hyperbole has reared its ugly head, headlines such as “battered” and “stampede” are aplenty. So what has happened?
Well, there has been a continued fall in most global markets for various reasons, all of which I have covered in recent blogs. Kicking it all off was the concern brought about by the US Federal Reserve’s desire to raise interest rates as a direct result of the extremely positive economic data supplied to them. However, the market saw this as too much, too soon; concerned that business growth would stall as borrowing costs increase.
Then we saw some interesting market reactions to earnings figures this week to exacerbate this. Despite beating both earnings and revenue expectations, the construction giant Caterpillar fell due to the fact that the increased demand for their good, as a result of their success, has created “supply chain challenges”; basically there is so much construction growth, they can’t keep up with the demand.
Now, think about this. That’s good, right? Yet the market saw this as a negative and therefore reacted irrationally. Remember that word. Compounding this is the fact that Caterpillar, due to its direct links to domestic growth and investment within the States, is classed as an economic bellwether – if Caterpillar is doing well, so is the USA. And the reverse could also be true.
Although it isn’t. As Caterpillar stated in their earnings call, “sharp increase in demand has led to supply chain challenges across the industry,” and although Caterpillar has made efforts to improve material flows, “constraints remain for some parts and components that are impacting lead times and availability.”
So what is our view? This simply looks like profit taking at a high level, taking the gains made across a very positive market and rotating these into cash. We see this all the time. All the time. This is not unusual and frankly should be expected. Markets go up like an escalator and down like an elevator.
There is certainly a lot of geopolitical noise at this moment in time that can make investors rightly wary. The continuance of the “Italian Job” which could potentially be a cracking blog in the next couple of weeks. The issues in Saudi are certainly a cause for concern, inextricably linked to the global oil price. Oh and trade wars.
And all of this is a headline writer’s dream.
What we would remind you all to focus upon is not the short-term movements in the markets, “the noise”. But focus upon your personal financial plans and goals, ensuring these are structured in the most appropriate manner for your own personal needs. Peter West, our chairman, created the “Three Pot System” in the late 1980s, a process of simple asset allocation which serves our clients to this day, allowing investors to ultimately forget about their market exposure.
We are not dismissive of the market, simply realistic to it. You will certainly not find us on Seaham beach, screaming at the tide to not come in as this would be fruitless (and crackers). The same can be said about trying to stop the market. You can’t. But you can structure your finances appropriately.
More of this can be heard, first hand (some may say from the horse’s mouth) at our annual client day, Thursday 1st November at Beamish Hall. We still do have spaces available for people to hear our thoughts, as well as other speakers and a spot of lunch within wonderful settings. If you would like to attend, be quick to email firstname.lastname@example.org for further details and timings.
And to finish, a playlist, thrown together by our friends at NC Insurance, it is sure to get your weekend off with a bang. Take care and I shall see you all next week.