There is no doubt that investors are feeling quite exhilarated from the recent wave up. The 1966 cartoon titled “Out and Out Rout” featuring none other than Wile E. Coyote and the Roadrunner comes to mind when comparing the recent drag racing to the top. Investors (gamblers) are chasing the absolute dream of higher returns in the same way that the coyote is addicted to catching the bird.
Fast market action stimulates quick decisions. Are they well planned or is risk thrown at the wind?
Take a step back and study the recent evolution of markets. It becomes clear that a combined bond +currency +commodity +stock index has peaked since early June. The fundamental weakness is appearing under the surface for those who only watch the major stock indices. Stocks will always be the last segment to follow. Bonds and currency markets are a lot more sensitive to change. We see contraction in broad monetary aggregates after a few months of bouncing around.
Banks have cut back on their loan book in the second quarter. Bank credit is contracting even more for the third quarter as shown in weekly data. Transportation indices such as the American Trucking Association, Baltic dry etc are also pointing south again. Consumer surveys show the general anxiety of employment losses and tight credit.
In his pursuit of the Roadrunner, the obsessed coyote is at the wheel of a dragster. After a few passes on the desert roads, they venture up a mountain. Drag racing to the top, the smart bird stops and let the roaring Wile E continue on a rocket launch off the top of the mountain and into free space.
Laws of gravity still applies, don’t be a Wile E. Coyote...
Yves Lamoureux, Investment Advisor, Blackmont Capital
The opinions contained in this report are those of the author and are not necessarily those of Blackmont Capital Inc. Every effort has been made to ensure that the contents of this document have been compiled or derived from sources believed to be reliable and contains information and opinions which are accurate and complete. However, neither the author nor BCI makes any representation or warranty, expressed or implied, in respect thereof, or takes any responsibility for any errors or omissions which may be contained herein or accepts any liability whatsoever for any loss arising from any use of or reliance on this report or its contents. BCI is an independently owned subsidiary of CI Financial. CI Financial is a Canadian owned diversified wealth management firm, publicly traded on the TSX under the symbol CIX. Blackmont Capital Inc. is a member of CIPF and IIROC.
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