In today’s Exponential Investor

  • Who are Nicola Sturgeon’s new friends?
  • When will the bears prevail in the markets?
  • Having “bought the dip”, what can the crypto bulls look forward to?

Greens get to government…

An independent Scotland used to be synonymous with Scottish cries about keeping the country’s oil money.

No longer.

Now, the energetic movement promoting the Green Energy Transition has taken hold even in Scotland. So much so, in fact, that First Minister Nicola Sturgeon, formerly a cheerleader for Big Oil, has started to change her tune.

Now, she issues palliative statements to the youth protestors who confront her at oilfields…

… and lodges requests with UK Prime Minister Boris Johnson to reconsider authorising new North Sea oilfields…

However, here at Exponential Investor, we are not sure that the first minister has had a road to Damascus-style conversion away from fossil fuels. 

It turns out that she has been courting the Greens, who hold eight seats in the Scottish parliament, to form a coalition of sorts – albeit one that she specifically says is not a coalition.

The Scottish Greens are pro-independence you see, and Nicola Sturgeon’s Scottish National Party fell one short of a majority in the previous election.

So, the Greens are in. They have two people in serving the current administration in an odd kind of non-coalition way.

But all of this really does matter. The Greens have sort of made it into a government in the UK (if not the national one) for the first time ever.

In Germany, as Chancellor Merkel steps down, the Greens are polling second in the race to form a coalition to replace her (a real one this time).

For Scotland, a shift away from its oily history to a new green one awaits, whether as part of the UK or not. It’s good to see – and it’s a shift that will hopefully happen south of the border as well.

Moving on though, to more mainstream market commentary, we ask: will this bull market ever end?

Conventional wisdom never holds forever

The idea that investors should buy the dip is as old as time. It’s the investors’ version of “keep calm and carry on”. But this idea is now so powerful, one starts to wonder: what it will take to challenge it?

In my mind, the only way to disprove “buy the dip”, is a dip too big to buy.

Only a huge shock and loss can deter the prevailing narrative “buy the dip”. What’s more, following that idea will lead you all the way down at just the wrong time.

It is not an eternal strategy.

It’s more like the gambling strategy of doubling down every time you win on red.

It works for a while. But if you keep doubling down, and don’t take winnings off the table, you will ultimately lose everything.

People like to think they will sell before the stock market crashes, but if you’ve bought into the “buy the dip” mentality fully, then maybe they won’t. And that’s how to lose everything – keeping faith in the bull market until well after it’s ended.

As the metaphorical fifth, sixth, seventh red number have come up in the post-pandemic roulette, it seems to have really reinforced the belief that buying the dip is the correct course of action.

But that’s not how markets work, this cannot go on forever. With each new red number, you get one step closer to the black, and to total devastation.

This view is shared by esteemed economist Mohamed El-Erian. His illustrious career includes stints as CEO of investment firms and deputy director of the International Monetary Fund.

He puts it well when he says:

Given the deep conditioning of markets, and its positive reinforcement by financial rewards, a huge shock to market psychology — such as a serious policy mistake, a big market accident or a combination of both – would be needed to shake investors out of a mindset that has served them incredibly well so far.

It is a mindset that is immune to lots of bad news. Indeed, it allows for the immediate reframing of such bad news into good news — for example, the greater the headwinds to the economy, the higher the likelihood of another round of stimulus measures from the Fed. No wonder sceptics, particularly in the hedge fund space, have lost the appetite to challenge ever rising markets.

That reluctance of bears to really change the narrative is significant, because they say bull markets die of exhaustion. But it’s the bears who are exhausted now.

Those who are exhausted include those of us who look at valuation metrics like market cap/GDP, enterprise value/sales or price/earnings ratios. In most cases, it is just too tiring to put up a fight … against exchange-traded funds (ETFs), share buy-backs, the “buy the dip” mentality and what the US Federal Reserve is doing.

When will it end? With a dip that’s too big to buy.

Crypto dip buyers have reason to celebrate… again

In the crypto markets though, “buying the dip” has, once more, paid dividends.

After suffering heavy falls earlier this year the crypto world has begun a steady recovery. Earlier this year, we called for a million-dollar bitcoin.

Is that still on the cards?

I’ve expressed my concerns – about Tether, about the correlation with other speculative assets, and about all the intermediaries cropping up to negate the libertarian essence of the crypto world…

But, the basic question remains: will bitcoin reach a million dollars?

Click here to find an answer….

All the best,

Kit Winder
Co-editor, Exponential Investor