Put your nose in the air and sniff the wind.
Animals do that to catch a scent of prey.
What’s that I’m sensing? More signs of trouble for 2020…
News just in. Airbnb might be coming to the stock market next year, according to the New York Times.
Airbnb should need no introduction. Perhaps you’ve even used it yourself…as an owner or customer.
We don’t need to concern ourselves with the outlook for the business. The only thing we care about is the size of the company.
Airbnb is already valued at US$31 billion in the private market.
That’s big. It would make for the biggest public float due next year from a US company.
Why even mention such a thing?
Such floats can often signal a ‘top’ in the market.
Think about it for a moment…
Credit conditions and the general economy need to be very benign for investment banks to raise that kind of enormous cash.
Things can look so good at such moments that — counterintuitively — it becomes a warning sign.
I happened to be chatting to a private equity type on Wednesday. He made a passing comment how 2008 blindsided all of them.
They were doing deals, the market was hot…what was to worry about?
One Company Critical to the 5G Roll-Out in Australia
If there’s one market event to learn about for 2019, this is it! Free report reveals what the FT calls a ‘game-changer’ for humanity. Plus, get a free subscription to Australia’s newest, most forward-looking daily investment email, Profit Watch. Enter your email address below and click ‘Send Me My FREE Report’.
Plenty, in hindsight.
It’s a good example of how our emotions can often lead us astray. It can feel ‘easy’ to buy and be in the market at such times.
Is this where we are heading?
Consider the situation in Australia…
The property market has clearly stabilised and is shifting back into forward gear.
The central bank is likely to cut rates again, possibly twice, by next February.
And what else do we see?
The Australian Financial Review reports that the federal government is exceedingly close to running a balanced budget.
That’s thanks to higher tax receipts and lower interest rates.
This kind of news is likely to make people feel things are getting better.
Bond yields are nothing now.
I played a round of golf on the weekend with a bunch of retirees.
One of them mused how a million dollars used to provide a decent income.
All of these factors combined could send a lot of money into the ASX — as long as the international volatility doesn’t get too heavy.
This kind of rush could carry the market into a higher peak than we’ve seen this year.
It’s not a guarantee, of course, but something to watch for.
At some point, there’ll be no one left to buy…
However, there’s a lot of water to go under the bridge until we get to 2020.
The more immediate concern is the aftermath of the attack on Saudi Arabia last Saturday.
They say they have plenty of oil on hand and things should be on the mend soon enough.
Donald Trump and the IEA say they can cover any shortfall.
They would say that wouldn’t they?
The reality is, nobody yet knows how bad this disruption is going to be.
The Saudis already had the oil on the water for their immediate contracts due.
They can prop up their order book with oil from storage while they scramble to repair the damage.
But if this drags on longer than a month or two…the world might find out pretty quickly that the market is a lot tighter than expected.
That could put us around November or December with a rising oil price.
Now…that might complicate the outlook for the central banks because it could begin to pressure their inflation readings.
I attended a presentation on Wednesday. The economist presenting made the case for bond yields to be ‘lower for longer’.
This has now become accepted wisdom. He commented on the usual rationale — technological innovation, ageing demographics and globalisation.
That’s an accurate picture currently. But there’s little advantage in such a view for you and I…it’s priced into the markets. Every economist sings from the same hymn book.
What interests me is why that view could be wrong.
That’s where any profit potential will lie…in the short term, anyway.
Nobody makes a big buck following the crowd.
The danger of going the other way, of course, is the status quo does not change.
That’s why we need not act today. It’s OK to sit back and watch to see what happens.
But this is why oil is so vital to follow.
It’s the only thing, outside the currency markets, big enough to send yields up rather than down.
Are you still willing to take Donald Trump’s assurance there’s enough oil at face value?
PS: Don’t forget I’ve got the best energy team on the ASX in my recent report. Go here to see why I say that.