Last week I wrote this on my LinkedIn….

I wrote it from a genuine place of curiosity. I still cannot quite get my head around the recent market action, and was interested to see what others were seeing and thinking too.

Let’s face it, there are a pile of negatives out there right now, and so far the market has brushed everything off and is looking straight through it all.

Yes, I know markets are forward-looking… but really?

So, what are the issues?

• Iran and the oil price

Yes, this is an obvious one.

Who knew the Strait of Hormuz was up until a few weeks ago?

Who knew that 20% of the world’s oil and liquefied natural gas (LNG) usually passes through this narrow strait, which is about 33km wide at its narrowest point and is bounded to the north by Iran and to the south by Oman and the United Arab Emirates (UAE)?

 Well, we all do now!  

Oil is in many things and is mission-critical to global growth. At the end of the day, high oil prices can wreak havoc on inflation and, therefore, the lives of ordinary citizens. Who knows how this war will play out and what will happen to the oil price? Literally no one knows. Not even those in charge.

My sense is that markets have not fully priced the risk that this could drag on longer than expected.

• AI

As most of you know, quite a few companies like Atlassian and Commonwealth Bank, etc., have been announcing job cuts due to new efficiencies from implementing AI.

I have some questions about whether it is really AI use or an excuse for over-hiring or seeing a change in business conditions, which means a more sanguine outlook going forward.

Selective software stocks have been savaged on the back of their software being replaced by AI.

The truth? Who knows.

Regardless, AI is coming, whether now or over the next few years. Some jobs will go, some companies will go, but new ones will be created. The way we work and the tools we use will change.

What that looks like over the next five years… no one really knows.

• Private credit

My views on private credit are well known (if you don’t know, here is my latest post). I have been negative on this sector in general for some time. Overseas, we are seeing some disturbing trends. There are big-name funds such as Blue Owl freezing redemptions, so investors cannot get out. We are yet to see that here. But who knows how this will play out on a global and local scale?

If the markets were off more – 10 or 15%, I would feel that the markets had at least considered the idea that some of these factors could turn out worse than market expectations.

If markets were down 10 or 15 per cent, you could argue they had at least considered the possibility that some of these risks might turn out worse than expected.

But they are not.

Which brings me back to my original post.

I did not get as many responses as I expected, which in itself was interesting. My sense is that plenty of people are scratching their heads as well.

That said, I did get some thoughtful responses from very smart people I respect. A few common themes came through:

• There is still a lot of money in the system looking for a home
• The buy the dip mentality is deeply ingrained after the COVID experience
• Ongoing institutional buying through ETFs
• And, as one person bluntly put it, people believing all sorts of things coming out of Trump’s mouth

There is probably some truth in all of these.

What should you do about it?

There is nothing any of us can do about what is going on in the world right now. However, as investors, we should stick to our knitting and go back to basics.

• Review your portfolio construction
• Make sure you are comfortable with your positions
• Check position sizing
• Be clear on the risks you are taking

And see how it all plays out.

Hey, at least we are not bored!

If you would like a portfolio review or a second opinion, even if you are working with another adviser, feel free to contact me here.

Kind regards,

Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently

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