They say a week is a long time in politics but the same could be said for investment markets. Given where we are at, flash sell offs can and will occur with greater frequency. Markets moved down last week in a five-day period by some 9% to resettle at the end of last week, down by about 3.6%. The best analogy to this is like a tide change on a beach where the surge of water pressure collapses sandbanks and creates flash rips. These flash rips or falls in the market were what we witnessed last week and what we believe, we can expect to see more of.

The reason for this is a variety of factors – the weight of cash that is looking for a home and moves quickly in and out of markets (not unlike tidal water). The geo – political situation, which is gripping the world, from the Middle East to Ukraine to China’s ongoing encroachment – all together combine to create uncertainty. In additional we have a November Presidential election in the United States. No one has a convincing explanation of why these occurs. But often experience tells us that they can be the precursor to something bigger. Historically, September and October are the months where the greatest reversals have occurred. Through August and September, we will be able to see view company profit reporting, and this will provide an insight into whether corporate earnings are fading. Dividends in the Australia market is now expected to yield below 3.8% which is usually a payout figure we associate with recessed markets. In addition, inflation remains sticky and interest rates are expected to remain higher for longer.

For our part, we remain bearish on investing. We have been moving our client portfolios to more defensive postures and hoarding more cash. Markets have moved up quickly since last October and we understand that markets can quickly revert. We are of the view that there will be better times to invest going forward. We just need to be patient.