The Secret Broker: What my gut feeling tells me this time around
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
In the crash of 1987, Wall Street fell 25 per cent in one day. Not 4 per cent here and 5 per cent there but 25 per cent in one go.
It took two years before everything went back to normal.
Looking back at this event, the falling by 25 per cent in one day was a Godsend, but hindsight is a wonderful thing and when you are right in the eye of the storm, only an experienced hand can guide you.
At the time, the crash triggered an unprecedented shift out of equities and into government guaranteed bonds because of their ‘boring stability’.
But, as the Americans considered their bonds the highest quality over any other government guaranteed bond, this massive shift in fundamentals was so vast that Australian AAA rated bonds actually fell in price for two straight days, which defied all logic.
This illogical reaction created a cocktail of alcohol-induced soul searching and sleepless nights for me, until the third day, when everything started to behave as it should have done. I crashed for 18 hours straight that night.
What it taught me is that what you may value as quality, someone else may not, even though it may seem totally illogical at the time.
So, even if you hold some really good quality shares in the portfolio, they may still go down before stabilising back to what one would consider as ‘back to behaving normally’.
This time around, we already have the bond markets trading on artificially created low yields and now governments have backed themselves into a corner.
Cutting interest rates has been their first reaction, which just added to the panic, and their stimulus packages are politically motivated and headline grabs. We all know where giving people on the dole a cash handout went last time.
It’s true leadership that we need at the moment and a tweeting US President doesn’t give any confidence.
Wall Street’s performance is what he likes to point at, having tweeted out 208 times about it is reaching all-time highs, since his being sworn in. How he goes in the next week will determine if he will get re-elected and so far, I don’t like his chances.
My gut feeling is that the damage has been done and that we are in for more volatile times over the next few weeks, while we all wait to see if locking down an entire nation is one solution. I hope not but hey, what do I know?
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at firstname.lastname@example.org.
Feel free to contact him with your best stock tips and ideas.
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