Having spent a week in the beautiful old city of Valencia I didn’t do much besides eating, drinking and enjoying the sun and family. The markets in the mean time continued to swing from north to south and backwards. Key metric ended last evening at +1.0% YTD ROIC on 33% invested, and feeling lucky still being in positive territory.
We are worried however about additional triggers popping up for even larger market downturns. While the reason for each decline may differ significantly, market pullbacks are part of the game. Based on history however, here’s how often you could expect drawdowns of increasing severity:
Down 10% every 11-12 months;
Down 20% roughly every four years; and
Down 30% approximately every 10 years.
Current numbers are:
DJIA is down YTD 12%.
S&P500 is down YTD 16%.
Nasdaq is down YTD 25%.
There are 2 additional potential triggers unveiled in just this one single past week.
(1) Softbank announced a $27B loss, probably the largest in private equity history, this surely must have implications on exposed banks and the financial system, just like LTCM had in 1998 and then it was only a mere $4.6B losses which freaked the markets. We will find out more in the next days but do expect “skeletons int he closet”.
(2) On top of previous, the crypto markets lost a gigantic estimated $200B in just one day, accumulating to largely over a trillion losses YTD. This value comes from somewhere and someone… we should not make any other assumption please.
Very best and hope you enjoy the read