are operating in and equally, knowing your own psychology as an investor or trader. This will determine whether you can trade or invest effectively in the prevailing market climate, whatever that may be.
But when market climate changes, we also need to reconsider the way we operate as what works well in jittery illiquid markets won’t necessarily serve you when trading volumes are on the rise.
For those who have only been active in the markets over the last couple of years, this is probably what normal looks like to you. But those with longer memories will certainly recall what can happen, and how dramatically prices of small caps can move, when seriously heavy volumes start to flow into tightly held stocks.
Given the various events which have unfolded over the last week or so (Greek debt resolution (!?), Fed potential "QE to infinity" , China easing) it is not inconceivable that what is now referred to as "the risk trade" may well be about to return - and this time, potentially, with a vengeance.
Western governments are doing all in their power to wean parked money back onto the table. True, they have been trying at this for some time, but until recently their efforts have been completely undermined by the very real spectre of a European banking collapse. In such a climate not even negative interest rates were going to be enough to lure any significant capital from safety to risk.
But over 2011, Europe has taken every shot fired at it and despite the total arrogance and incompetence displayed by its leadership, it is nonetheless still standing. The mood is now probably more like, “well if those useless idiots didn’t manage to screw it up and bring about the total collapse we all expected, perhaps now that the Technocrats are coming in to replace them, it may not go up in a big bang after all??”
But that doesn’t mean that the problems are all over, far from it in fact. What it does mean however is that - regardless of any rhetoric coming out to the contrary - the printing presses across the West are now going to seriously starting to roll, because that is quite simply the only tool available to deal with Europe’s huge debt levels.
So what does this mean for investors in small cap mining explorers and oil and gas stocks?
In our view this means “climate change” – and by that we are referring to the market climate. It may not happen next week, or next month, but the die is now cast.
Parked capital will get more and more restless sitting it out in a negative real interest rate environment. As fear in the markets subsides, the spotlight will return on inflation and once again the market climate will start to appear more benign for those wishing to put their capital to work.
As volumes start to return to the market we expect the beneficiaries to be the sectors with exposure to the upside in precious metals and commodities - for obvious reasons. And if this happens then it will bring about an overall change in market climate. The jittery low volume staccato share price moves will be replaced by more powerful, longer lasting surges as larger volumes dictate more powerful moves.
And all this will require a variation to the trading methodology employed on the part of market participants - particularly in the small cap arena. This is something we will be looking forward to as such an environment would be more conducive to the ethos of “running your profits” which would be the expected new normal, leading into a full blown bull market in commodities and precious metals.
Again it may not happen tomorrow or next week, but when it does, for us it won’t be a moment too soon!
Best Regards
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"An investor is simply a trader who forgot take his profit"
The other Climate Change Story
Whether you subscribe to this rather simplistic viewpoint or not is incidental. What is important however is having the ability to recognise what type of market you are operating in and equally, knowing your own psychology as an investor or trader. This will determine whether you can trade or invest effectively in the prevailing market climate, whatever that may be.
The last couple of years have undoubtedly favoured the nimble and more fleet of foot - those who are able to identify undervalued stocks very early on and are also able to recognise at which point to cut out, before market sentiment reverses. In jittery markets, unless you are prepared to take a very long term view, that’s the only effective way to operate.
But when market climate changes, we also need to reconsider the way we operate as what works well in jittery illiquid markets won’t necessarily serve you when trading volumes are on the rise.
For those who have only been active in the markets over the last couple of years, this is probably what normal looks like to you. But those with longer memories will certainly recall what can happen, and how dramatically prices of small caps can move, when seriously heavy volumes start to flow into tightly held stocks.
Given the various events which have unfolded over the last week or so (Greek debt resolution (!?), Fed potential "QE to infinity" , China easing) it is not inconceivable that what is now referred to as "the risk trade" may well be about to return - and this time, potentially, with a vengeance.
Western governments are doing all in their power to wean parked money back onto the table. True, they have been trying at this for some time, but until recently their efforts have been completely undermined by the very real spectre of a of European banking collapse. In such a climate not even negative bank interest rates were going to be enough to lure any significant capital from safety to risk.
But over 2011, Europe has taken every shot fired at it and despite the total arrogance and incompetence displayed by its leadership, it is nonetheless still standing. The mood is now probably more like, “well if those useless idiots didn’t manage to screw it up and bring about the collapse we all expected, perhaps now that the Technocrats are coming in to replace them, it may not go up in a big bang after all??”
But that doesn’t mean that the problems are all over, far from it in fact. What it does mean however is that - regardless of any rhetoric coming out to the contrary - the printing presses across the West are now going to seriously starting to roll, because that is quite simply the only tool available to deal with Europe’s huge debt levels.
So what does this mean for investors in small cap mining explorers and oil and gas stocks?
In our view this means “climate change” – and by that we are referring to the market climate. It may not happen next week, or next month, but the die is now cast.
Parked capital will get more and more restless sitting it out in a negative real interest rate environment. As fear in the markets subsides, the spotlight will return on inflation and once again the market climate will start to appear more benign for those wishing to put their capital to work.
As volumes start to return to the market we expect the beneficiaries to be the sectors with exposure to the upside in precious metals and commodities - for obvious reasons. And if this happens then it will bring about an overall change in market climate. The jittery low volume staccato share price moves will be replaced by more powerful, longer lasting surges as larger volumes dictate more powerful moves.
And all this will require a variation to the trading methodology employed on the part of market participants - particularly in the small cap arena. This is something we will be looking forward to as such an environment would be more conducive to the ethos of “running your profits” which would be the expected new normal, leading into a full blown bull market in commodities and precious metals.
Again it may not happen tomorrow or next week, but when it does, for us it won’t be a moment too soon!
Best Regards
