Raise your hand if during the day don Monday August 5that least I didn’t think about it for a moment Black Monday since 1987.
Although I didn’t experience it first-hand, I heard many stories from long-time operators who described it to me exactly as it happened, and who reminded me the other day how there were many factors that all combined to create just that. perfect storm conditions that thankfully stayed decent in the end.
Although the market “tranquilizers” that have been introduced over time to prevent certain situations from turning into real avalanches have worked correctly, this does not eliminate the fact that when we overdo certain investment strategies, the results: are always the same, i.e. opposite and violent price movements that escalate margin call where everyone rushes to close positions.
A bit like wanting to escape a burnt-out movie theater with multiple exit doors.
But what are these? investment strategies are to blame for creating panic?
Of course fall into debt in yenwhere very low interest rates are paid, to invest in more profitable currencies it was one of the most used assets, and all this led to a continuous depreciation of the yen against all world currencies, but particularly against the dollar, against which it weakened from about 122 to almost 162 in a year and a half.
Thus, investors sold yen and bought dollars, profiting both from dollar assets and from the depreciation of the Japanese currency.
This activity, commonly called the “carry trade”, was very crowded because it seemed like a free lunch. However, when sudden dips occur, which can be caused by many factors, we often find ourselves holding the bag and risk losing more than we have gained over time.
A bit like what happened in February 2018 with those who systematically sold volatility by cashing out contango and then ended up with a handful of flies overnight due to margin calls that forced them to close their positions at the worst market moment.
This is to remind everyone that freebies that make you earn risk-free in all seasons just don’t exist.
Since I am not young anymore and people know that I have already experienced such situations before, many people have asked me what might happen in the near future.
In my opinion, but obviously I could be very wrong, as it is always difficult to predict the movements of financial markets in the short term, which are often amplified by algorithms and robo traders, is that this volatility will continue in the coming days.
If it were true that the US economy is indeed weakening and the FED is already overdue for a rate cut, then these market multiples would actually stretch a bit and so the correction could continue, especially in Big Tech, which indexes have delayed, will rise. October 2023 with stellar performances. Suffice to say, Nvidia, which has corrected almost 30%, is still above 100% year-to-date.
However, the US presidential election in November remains in the background and will provide greater guidance for longer-term investment strategy.
In the near future, as the news says to drink a lot of water when it’s very hot, I strongly advise you not to panic and avoid selling when the price lists collapse or buying when the price is coming back after the collapse, because you should; rather do the opposite.
However, since you don’t invent a salesperson overnight, it’s best to do nothing but one check your wallet consistent with the selected risk profile at rest.
