Far East Capital Newsletter
A paradigm shift in the markets
16 May 2022

In This Issue

A paradigm shift in the markets

The rules for playing the stock market have changed and if you don't react appropriately to that change, you run the risk of losing much of your capital. That is a big call, I know, but let me explain. We have lost the safety net that has been instrumental in maintaining what has been the longest bull market that we have seen in living memory. The US markets have defied gravity for such a long time that we may have thought that the rules have changed, but no, that was just an extended departure from the reality to which we are about to revert.

Only last week I was discussing with investors the lack of relevance of fundamental research and logic today. The market had become much more dynamic and reactionary with individual stock prices moving in response to the top three bullet points rather than carefully thought out analysis. "Buy now and analyse later" seemed to be the mantra, and it worked, up until now. There had been no shortage of aggressive liquidity to push popular stock prices higher. But, times are changing.

When Alan Greenspan assumed the chair of the US Fed in 1987, he pursued a policy of protecting the equity markets from collapse by injecting liquidity. He did so on many occasions until his retirement in 2006. The same policy was used to bail out markets in the GFC, along with historically low interest rates. Then the objective was to avoid a recession. Markets were in intensive care being fed the drug of cheap, and even zero cost money. The world was never weaned off this money and the market kept bubbling along ... until now.

NB: Apologies for the late publication. I was busy all weekend doing a Rural Fire Truck Driving course for the bush fire brigade. 

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