In this legendary Stockhead series, investment manager James Whelan from VFS Group offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a damn fine professional money manager.

What happened to the Swannies James, is that really why you were away last week?

 

It’s good to be back full time on the desk again!

Refreshed and recharged from Darwin with the youngest going back to back as National Champ in jump rope (the reason for the trip).

Also, let’s start with a quick reminder that there is nothing wrong with Australia that cannot be fixed by what is right with Australia.

Like the time…

Whelan
Via James

So father of the year returns revived, laden down with gold medals and managed to witness the tail end of the worst September in Asian stocks in 14 years.

Continue the theme of “play it safe, no need to charge in too strongly” as we work towards creating the perfect 60/40 portfolio for the start of 2023.

Over the break I took in a good deal of reading and thinking and the best I could come up with is that there’s still not enough evidence to suggest equities are safe enough to have a full allocation given to them.
 

Stay on target

Even if the Fed did actually start to pivot we’d still have to have the lag effect of an earnings recession in stocks.

That being said if it did seem to be formalised that the Fed were about to start easing back the bullish whip in stocks would make the latest correction seem like nothing at all.

Shorts would have to unwind at a rapid pace and money that’s sitting on the sidelines would get put to work quickly.

Take a look at Monday night, there was a still growing but less than expected manufacturing survey which the market interpreted as a sign the economy is slowing and therefore signal for the Fed to ease up. The Nasdaq was up 2.3%. Nothing has really changed and portfolios were up 3%.

Keep in mind that as of the end of September retail traders spent $18 billion buying put option protection in a week which was a record. They were holding $46 billion worth of index futures net short, also a record.

Still it’s the signals you need to watch out for and I’m still all eyes about shipping.

Two great graphs showing what’s up…

From September 30: “cost to send 40-ft container from Shanghai to Los Angeles has fallen by 74% from peak and is back to August 2020 levels”.

Container freight
Via James and courtesy Charles Schwab’s Liz Ann Sonders

And from 3rd October showing actual capacity vs demand.

“We went from a severe shipping capacity shortage to sharply plummeting demand such that container ships have nothing to carry even as shipping capacity continues to expand.”

Whelan freight costs
Via James (Courtesy Bloomberg))

There’s no doubt that the huge input costs are coming out of the supply chain, we just need to see it formalised in company reports.

And what does the historic market tell you?

This from Ryan Detrick at Carson Group last week as the market was falling apart:

“The S&P 500 is down 6 days in a row and made a new 52-wk low. Don’t shoot the messenger here, but that’s happened 20 other times since 1950 and what happens next is pretty bullish.”

“A year later? Higher 90% of the time and up 20% on average.” (emphasis mine!)

Via James (courtesy Ryan Detrick at Carson Group)

There’s buying to be done (eventually) and the best ways to do it are only dependent upon your risk tolerance.

A simple levered long ETF listed here is GGUS and it should produce over 2x return for every 1% increase in the S&P 500.

It’s hedged. Always stay hedged in a rally based on the Fed easing because the USD will probably come off.

HNDQ is another Betashares ETF that will invest you straight into the Nasdaq on a currency hedged basis. No gearing.

Then for the boldest of the bold, it’s not currency hedged because it’s a direct investment in Nasdaq 100 but here’s TQQQ, listed in the USA, which will provide a 3x return for every 1% gained (and vice versa).

Note, however that these are not for the faint of heart and it’s not time yet for these to be put in.

The Fed has signalled “recession or something breaks” and they haven’t show anything to make us change our minds.

However… when they do… be ready.

Stay safe and all the best,

James

Ed: I just wanted to note that James does this for you (and us) every week. Like clockwork.

I’d encourage you to go through his extensive SH archives and hunt down his audio tirades also known as podcasts. The BIP Show which I reckon Apple has got it’s paws on, but you can get a listen to.

And Just quickly…

If I’m reading correctly, his youngest has claimed back to back titles in what looks like the hardest, toughest, most thankless sport in the long human history of “look what I can do with this long thing I made from various fronds.”

The video below gives you a good look at the National Rope Skipping Championship.

And click through here to the NT NEWS which does a good job of covering it (the paywall drops away after a few secs).

 

James: I hope the youngest is in there (below) somewhere, and we’re all rooting for the triple next year.

 


And thanks again to The Whelans from all of us at Stockhead for going hard, for so long. Now for the disclaimer.

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.