Tuesday, February 06, 2018

Tangible Thoughts #2: Market Turning?

Here's a long quote from a 2006 movie called "The Prestige" directed by Christopher Nolan starring Christian Bale and Hugh Jackman.

Every great magic trick consists of three parts or acts. The first part is called "The Pledge". The magician shows you something ordinary: a deck of cards, a bird or a man. He shows you this object. Perhaps he asks you to inspect it to see if it is indeed real, unaltered, normal. But of course... it probably isn't. The second act is called "The Turn". The magician takes the ordinary something and makes it do something extraordinary. Now you're looking for the secret... but you won't find it, because of course you're not really looking. You don't really want to know. You want to be fooled. But you wouldn't clap yet. Because making something disappear isn't enough; you have to bring it back. That's why every magic trick has a third act, the hardest part, the part we call "The Prestige".

Why is this relevant today? The markets corrected 3-5% overnight and looks like the carnage is continuing. But this looks like Act Two. It's just "The Turn". In every bull market, we are likely to see three acts - similar to the magic trick. 

Act One: we get a story, the markets get excited, stocks go up. The story today is actually a sequel. The first story acted out in 1999-2000 and ended in a tragedy. In 2017, the renewed internet story is about Amazon, Google, Apple, Facebook taking over the world. Then things got a bit crazy in 2018 and that's why we have "The Turn". That was yesterday. The table below shows how markets corrected. Over a 1,000 points for Dow, Bovespa, Nikkei and Hang Seng. This is unprecedented.

Markets on 5 Feb 2018

However I don't think the show has ended. We still need Act Three right? But, unlike a magic show, after Act Three, everything will come crashing down. (Well everything did come crashing down in "The Prestige", so for those who haven't watch, be sure to catch it some day!) In the last crash, we almost crippled the whole world. We were a few days close to a repeat of the Great Depression. Let's hope this show will not crash and burn like the last one!