After a very successful World Cup and by all accounts a pretty successful US earnings season, it looks like it’s back to reality.
The financial news has been dominated recently by the debate of whether the United States is heading for a double-dip recession or not. The economic data has been less than encouraging and that was cemented by the number of Americans filing initial claims for jobless benefits, unexpectedly climbing by 12 000 to 500 000 in the week ending August 14, the highest level since November.
What’s more worrying is that analysts had expected a slight fall and now with other rounds of weak economic data the fear of a deeper slowdown must have intensified.
What has also been playing out recently is the “flight to quality”, as investors have been seeking the relative safety of government bonds which have been helped by the Fed’s latest statement that quantative easing may be back on the cards.
Yields on benchmark US, UK, German and Japanese sovereign debt all sank to record lows or multi-month lows, while the Swiss franc, the yen and gold have also attracted nervous investors fleeing from equities and industrial commodities.
The shorts that we put on have all run nicely in the money as the all-share has retraced close to 3% again last week and now makes it four down weeks in a row. This has tied in well with the strategy of placing shorts at the start of the month and exiting at the end of August. I think that we can start to unwind them now and look at flipping them into longs for the start of September.
In conclusion, just to make all you day traders feel better, look no further than one of the greatest hedge fund managers of all time calling it quits.
Stanley Druckenmiller, a protégé of George Soros, said he had become frustrated over the last few years with his inability to outperform the market. This, from a man who has returned 30% per annum after fees since 1986! With yields this low, opportunities are starting to present themselves, although investors need to be aggressive in exiting if the picture changes, as this market still feels like its walking on egg shells. To quote Fed chairman Ben Bernanke to the congressional committee a few weeks ago; “the economy is fragile and unusually uncertain”.