Banking Legends Warning

Posted on Sunday, August 12th, 2018

Lord Jacob Rothschild , banking scion of the Rothschild family and head of the Rothschild Investment Trust, has been investing with a bearish tilt for the last three years so take this for what it is worth. He was out again this week warning on valuations and market risk. He is currently positioned with only 47% in equities which is historically low for his trust. He is concerned that the 10 year rally in markets could be coming to a close and that investment returns at these valuations could be lower than normal. We most agree with his sentiment that now is not the appropriate time to add risk. You must take risk in your investment portfolio as time is money and cash only loses to inflation, however, now is not the time to be overweight risk.

The cycle is in its tenth positive year, the longest on record. We are now seeing some areas of weaker growth emerge; indeed the IMF has recently predicted some slowdown.

…we continue to believe that this is not an appropriate time to add to risk.

Current stock market valuations remain high by historical standards, inflated by years of low interest rates and the policy of quantitative easing which is now coming to an end.“

Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed’s monetary policy which has drained global dollar liquidity. We have already seen the impact on the Turkish and Argentinian currencies. -Lord J Rothschild

Market valuations are higher than 84% of the time since 1952 as measured by trailing p/e ratios. Techs continue to rally while value stocks are left for dead. Feels very 1998-99ish. Support for now on the S&P 500 is 2800. Market is not overbought but the gap this week has us on edge. We also see some negative divergences possibly developing. The next level of support after 2800 is the all important moving averages down around 2730 and 2710.

While we have been a practitioner of technical analysis for over 25 years we subscribe to JC Parets, who we feel is one of the best on the street, to give us his input. He has been bullish on the market for quite some time now and in the face of every onslaught he has stayed bullish. This week put him on negative watch for the S&P. His feelings were that given the recent gap this week on the S&P 500 the pressure is on the bulls to confirm they are still in charge and 2800 is critical. He could turn bearish should the market push below 2800. The VIX gapped higher on Friday. Let’s see if it can hold for three days. If it does the bears could be turning up the heat. Late summer days can be very illiquid and can move very quickly. Keep an eye on Turkey.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.