That’s the title of the first ever piece I wrote to you under the name UK Uncensored.
In it, I described “the weekend that changed the world”.
Over the weekend of 6-7 March 2020, oil prices crashed from as high as $45 on the Friday to as low as $27 on the Monday. On 8 January, they had been above $60 (sliding to $45 was already an interesting early indicator that trouble was coming…).
On the same weekend, two things happened – the EU launched its hydrogen strategy, and a natural gas billionaire announced a pivot to hydrogen to help achieve net zero by 2050.
The theme of the article was that the then panic in stocks was extreme, but it would blow over.
I said it wasn’t the time yet, but a time would soon come when great buying opportunities would emerge.
Instead of panic selling, I suggested that starting to build a “wish list” of stocks which may soon be offered at truly bargain prices.
I called it the “Kipling trade” – keeping our heads while others panicked.
I’m pretty happy with that.
On 9 March, the day of that very first UK Uncensored I wrote, the FTSE 100 index had opened at 6,460, and closed below 6,000.
It was the second worst single day fall of the entire crash. Markets bottomed on 21 March, 12 days later, just below 5,000.
After that, however, markets soared and clean energy stocks most of all. The world really had changed that weekend.
Fourteen and a half months later, the picture is very different indeed.
Multiple lockdowns, much larger Covid-19 waves, and extraordinary rallies in many stock markets. More global roadmaps to net zero and a greater focus on the fight against climate change.
My article on 9 March was, as always, based on Howard Marks’ concepts of cyclicality, and the extreme swings of market psychology. I’ve learned to always be short extremity, and the extreme fear and panic at the time gave me hope that the time to buy was nigh.
He often says, “when the time comes to sell, you won’t want to”. The same is true of buying. The best time to buy is just when everyone’s thinking markets may simply go down forever, as many did in March last year.
Interestingly, yesterday I learnt a new word for this psychological cyclicality:
According to Google, it’s: “The tendency of things to change into their opposites, especially as a supposed governing principle of natural cycles and of psychological development.”
E.g. “the remorseless enantiodromia between good luck and bad”.
It’s from another “Adam Smith” book.
You can read my review of his book Paper Money from the start of this week here. Hot take – it’s brilliant.
This concept of enantiodromia came up instead in The Money Game.
It was recently recommended to me as a follow-up to Paper Money and I may be only 20 pages in, but already I am loving it. Brilliant insights and one-liners are coming on every page.
Enantiodromia is, in the pseudonymous Adam Smith’s words, the tendency of men to swing to their opposite.
And never has it been clearer than in the last 18 months.
That’s why I’m so fearful now. We have swung fast and far from extreme fear to extreme greed.
In fact, taking the S&P 500 chart from the last few years shows a widening chasm of greed and fear, alternating in their brief dominance of the market:
This graph is the key evidence supporting my slightly voodoo-shaman belief that the bull market really ended in late 2018.
It was a classic case of interest rates rising, destabilising the economy and stocks suffering as a result.
But the central banks bottled it, literally. They turned tail, caved on rate rises and started dropping them again. They essentially admitted that markets couldn’t stand on their own two feet.
In my view, they have simply bottled up the trouble for further down the line, shaking it as they go so when it does go pop, the explosion will be all the more extreme.
So I view pretty much all the gains since 2018 as a kind of mirage, as Wile E Coyote floating over the cliff – feet still running, as a trick of levitation.
And I fear enantiodromia now, just as I hoped for and anticipated it in March 2020.
I fear it because the tendency of market participants is not to retreat from an extremity to normality, but from one extremity to another.
Cyclicality, psychology and enantiodromia tell me that in my absence, going forwards, you should prioritise the protection of your wealth above anything else – above any potential gain.
We should now be more worried about losing money than not making it, to use my favourite dual-risk concept of investing.
A quote from The Money Game describes almost perfectly, decades later, how I feel about where we are today.
We are at a wonderful party, and by the rules of the game we know that at some point in time the Black Horsemen will burst through the great terrace doors to cut down the revelers; those who leave early may be saved, but the music and wines are so seductive that we do not want to leave, but we do ask, “What time is it? What time is it?
Only none of the clocks have any hands.
A more perfect note to end on I cannot imagine, for a newsletter that has tried to tell the time in the absence of clocks.
I’d also like to thank you for reading, for writing in, for new ideas, kind compliments, and for motivating me to do the best job I could on your behalf.
Going forwards you’ll continue to receive your email from UK Uncensored as normal. It will feature articles from Sam Volkering and I which will also be appearing in Exponential Investor. We’ll be covering exactly the same topics you’re used to receiving from me in this service – we hope you enjoy them.
Very best wishes from me,
Editor, UK Uncensored