The bull market continues – is it time to go short?

The Vega Fund performs best when it goes short - is it time?

Memo to: Vega Capital clients
From: Scott Shuttleworth

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With that said, back to the markets…

Last Friday saw the announcement of two big pieces of news – monthly unemployment and the end of the comment period for US tariffs on Chinese exports.

I was particularly interested in the unemployment number since it would likely show the impact from the first few rounds of tariffs. In short, unemployment was steady at 3.9%. The negative effects of tariffs were likely being offset by tax cuts and general increases in consumption.

Whilst we’ve previously identified the risks of tariffs in copious levels of detail, our worst fears have so far been wrong (and that’s a good thing!). Our portfolio management algorithm however was correct in holding long market exposure through the noise.

Putting short term moves aside, we note overall longer term risks are still present and growing. This article popped up quietly in the Business Insider and couple of weeks ago concerning what we’ve been discussing on the blog for quite some time – bloated non-financial corporate balance sheets comprising $1.4t of debt. This is up from $800b several years ago.

Even after factoring GDP growth, this is high. So is it time to short? Afterall, there's lots of debt in the financial & commercial systems, PE's which appear disconnected from fundamentals, elevated geopolitical risks, rising interest rates and all sorts of market signals saying it's time?

In our view, probably not.

Frankly speaking, it’s difficult to see why any investor would be itching to go short given how strongly equities are performing. Momentum is a painful thing to take head-on (unless your investment time-frame is 5 years or so) and our algorithms certainly aren't yet inclined to take such a risk.

Economic and financial market performance can continue for quite some time whilst debt pours into the system and this is exacerbated by low interest rates. This isn’t sustainable on a longer term basis (in which economic growth is driven by productivity gains) yet for the moment, it’s a strong trend that’s hardly worth betting against.


Vega Capital is a wealth manager for high net worth individual and financial institutions. Call us now on 1800 960 707 to find out more about how we can grow your wealth.

Vega Capital is a Corporate Authorised Representative (No. 001264482) of Alpha Securities Pty Ltd (ACN 124 327 064) AFS Licence No. 330757.

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