Don't Forget The Most Important Thing
What Howard Mark's calls second level thinking is key to navigating the latest stretch of uncertainty and chaos
Yesterday evening while on the neighborhood tennis courts a man walking two large dogs walked directly behind the fence. He was on a cell phone and mentioned the following statement… “It’s not about ti-ming the market, but time IN the market”.
I cringed.
The general public has almost not business in equity markets. This is entirely the world of Alan Greenspan. But, that is an article for another day…
The problem with headlines and tropes are primarily that they lack context. They are meant to invoke what Howard Marks calls “a first level idea” that was already in your head (usually as the result of propaganda). What is a first level idea? It’s the idea that stops with the content proposed. Generally, this is something that originates from the operating system of public discourse. It’s never meant for the audience to ask the second question… “why am I seeing this headline, overhearing this phonecall or getting my feed clogged with this… now?” “How does the slogan expect me to respond… emotionally?”
This question is what Howard Marks calls Second Level Thinking (one of his “most important things”). Let’s examine a few examples you may have seen lately…
The crash is just beginning
The reign of the US dollar is over
This time is different
This feels a lot like Feb 2020
Israel are God’s chosen people
There are two things I would never say when referring to the market, “get out” or “its time” - Howard Marks
Howard Marks is no fan of technical analysis and he doesn’t promote timing tops and bottoms. His would agree with the neighbors trope… time in the market is more important, but specifically time in quality undervalued assets. The latest global conflict shouldn’t be a signal to get ALL OUT or ALL IN, but to re-calibrate your portfolio.
DON’T HOLD CRAPPY OVERPRICED ASSETS, ESPECIALLY WHEN THEM MUSIC STOPS PLAYING. (looks at mag7, AI stocks and emerging technology)
What to Expect Near Term
The media is reporting the latest events as a 4th generation war. The reality is it that what you see on the screen is propaganda. The war is happening on the screen in the room with you and especially in your own mind and emotions. This is a war of the 5th generation. You must apply second level thinking of the information you have will cause you to do the wrong action. This is a feature of the system, not a flaw.
Precious Metals
Gold likely to form a bearish wedge or IH&S over the next several weeks. But we are very close to the end of the correction… Jordan Roy Byrne has some great work on this.
Gold pullback levels to $4300 (hit at publishing) initially will ultimate floor at $3500. Likely to resume a move 8-10k as part of second leg of the broader bull market.
Silver levels $62 (hit at publishing) to ultimate floor of $50. Resumption of a similar move as gold with $200 as a target.
I expect the next leg of the precious metals bull market to be 24 months.
(link to the whip article)
Best plays in the second leg of the gold bull market will be the miners. Initially, here we are looking at option spread entries on Gold Majors. Names like KGC 0.00%↑ , AEM 0.00%↑ , NEM 0.00%↑ are to be watched. Look for these names along with GDX 0.00%↑ to bottom first. Possibly in the next few weeks.
Energy
Chasing the current oil price on the fear trade could prove unfruitful. The increase in energy prices are demand driven, not supply driven. While the impact on gulf state infrastructure and supply from that part of the world in not yet known, energy was initially responding to demand coming online from what is roughly a +15% increase from technology and data centers (domestically). This had been a relatively quiet breakout prior to the Iran attack. Doomberg has more to say about this in this interview:
We are expecting a retracement in both Brent and WTI once the latest kinetic conflict reaches and exhaustion point… ask those second level questions and that point looks to be less than 2 weeks away.
Look for NORW 0.00%↑ EQNR 0.00%↑ $AKERBP to show the most retracement of recent gains. Big US oil will be next. We don’t expect major corrective impacts from AECO or US natural gas. These pullbacks should offer some attractive re-entry opportunity on the commodity accelerator spread trades.
The shocks we’ve seen in energy will likely be back-filled by thermal coal in the very near term $WHC.AX $YAL.AX $NHC.AX COAL 0.00%↑ CNR 0.00%↑ BTU 0.00%↑ (to name a few). Large bulk shippers should benefit as well. GNK 0.00%↑ SBLK 0.00%↑ and CMBT 0.00%↑ .
200DMAs being hit everywhere in the gold and uranium miners space. Lots more to talk about, but extremely time sensitive… remember the most important thing, second level thinking.