Know when to hold and when to fold

 TACO man may be starting to twitch, which is a good thing. The one thing Trump does not like to see, like the rest of us, is the stock market down, and threats to economic growth, and we have all seen the impact on the stock market. The evidence is starting to come through on the economic impact. His comments yesterday, suggesting negotiations with Iran were “good” and “productive” and offering little or no detail, were perhaps his most conciliatory remarks since the beginning of Operation Epic Fury. Oil has traded down from its peak of close to $110 a barrel, this morning trading closer to $95 a barrel. Today, there were headlines that he was proposing a 15-point plan with the aim of bringing the war to a close. Whether he has Israel on board is yet unclear.

The MSCI world index is down around 8% from its recent peak, and we are now beginning to get a sense of the potential impact on economic growth. According to S&P Global, which produces the monthly flash Purchasing Manager Surveys, they indicate a global economic slowdown and a sharp rise in inflationary pressures, which they obviously attribute to the outbreak of war in the Middle East. To be fair, indexes for most developed economies have declined, but the readings remain above 50, suggesting ongoing expansion, albeit at a slower rate.

When you get shocks like the ones we have had in the past few weeks, greed rapidly turns to fear, and then capitulation, as fear can often turn to panic. That’s when the likes of Mr Buffett like to step in. There are some signs of capitulation, but as yet, not a real feeling of portfolio managers truly throwing in the towel. The Vix index, probably the simplest tool for gauging fear and greed, barely touched 30 this week and is now trading in the mid-20s, not far above its long-term average. True capitulation comes when the Vix hits 40 plus, as it did last year when Trump was in full tariff mode.

Retail investors who were driving gold prices up at the start of the year have discovered, to their pain, that gold is not the safe haven it is made out to be. One would have thought a Middle East war would be the one event above all else that would have savers rushing for the safe haven of gold; instead, the price has fallen by circa 20%. Performing worse than the stock market. As I remind myself, it’s expensive to take out of the ground, provides little real function when it is, and then you pay to store it back underground again.