The Zigmont Report (Daily Market Recap for 8/15/18)

Mike Zigmont

Mike Zigmont, author of the Zigmont Report, is a partner at New York-based Harvest Volatility Management, a hedge fund with over $12B AUM, offering volatility management solutions to its investor base worldwide.  Mike has been publishing his daily newsletter (Monday-Friday) privately for the firm’s investors and his personal contacts in the investment business since 2008, sending it daily shortly after the market close.

The opinions expressed below are my own and do not necessarily represent those of Harvest Volatility Management, LLC.

Today we worry.  I don’t know what we’re worrying about though.  I mean we *do* know that we’re worrying about Turkey and contagion and China and blah blah blah… but I’m talking about something specific and new.  There was no material *and specific* reason that markets went into risk-off mode today when yesterday was a risk-on Festivus.  Investors are in a fickle emotional state and *in the absence of news* they are prone to back-and-forth knee-jerk reactions.  That’s what I think best explains today.

Turkey remains the epicenter for all concerns but even though the Turkish Lira strengthened almost 7% today, global investors are worrying about what’s to come.  The Lira has collapsed.  It may be scratching out some gains of late but the damage to Turkey is dee-you-en, done.  Investors are wondering what emerging markets will collapse next…. and how those will affect the big developed markets and economies.

Nobody has the answers and I think we all realize this but what you have right now is a spreading attitude.  That attitude is caution.  Maybe last week’s multiples on equities were just too high after all?  Maybe gains should be taken while they still exist?  Maybe greed should take a back seat to fear for a quarter?  All these thoughts are swirling around the markets more forcefully and they are affecting prices.

Investors aren’t panicking but optimism has certainly left the building.  Will that mental trend continue?

At least investors are re-engaged.  Capital flow was 125% today.  For better or worse, the summer doldrums have left the building.

They could come back.  Late August is usually a very quiet period and I’m sure most investors would love to latch on to an all-clear signal and enjoy the rest of the summer.

I think that is unlikely however.  Investors may *want* to go back to ignoring the markets but they won’t be able to.  Cavalier attitudes towards markets only really work when everything is going swimmingly.  This was certainly the case for the last couple years.  Maybe we’re in for a stretch where things won’t go so swimmingly?

Turkey is more likely to have hair on it than not.  It wouldn’t surprise me to learn about that hair over the next few weeks.  If a bank or a fund or a company announces a massive loss and/or a need for capital, lookout.

I could always be wrong.

See you tomorrow,