Market Factors: What a market about to blow up looks like

NEWSLETTER Market Factors: What a market about to blow up looks like SCOTT BARLOW MARKET STRATEGIST PUBLISHED 1 HOUR AGO COMMENTS SHARE SAVE FOR LATER Listen to this article Learn more about audio Log in or create a free account to listen to this article. This edition of Market Factors starts with a warning that markets are starting to reflect pre-blowup mania conditions. Section two outlines a global stock screen that uncovers the most and least promising global stocks. The diversion is terrifying and we have quick hits as always. BUBBLE WATCHING Anatomy of a blowup U.S. financial planner Jon Petersen published a timely reminder of what markets look like before they blow up and how investors can protect themselves in that event. In The Art of Blowing Up, Mr. Petersen recounts John Kenneth Galbraith’s succinct summary of a market mania. They move from promising innovation, to greed in the form of leverage - borrowed funds, derivatives or other dangerous return enhancement - and then a crash when liquidity disappears and margin calls result in forced selling of previously market leading stocks. RB Advisors recently warned that U.S. margin debt is climbing faster than mortgage or credit card debt, a potential sign of mania and a trend that deserves investor attention. The rise of leveraged, single stock ETFs is another cause for concern under Mr. Galbraith’s framework. Mr. Petersen does not mention one of my major concerns - accounting shenanigans. Like the late 1990s, major tech companies are hiding risk - specifically funding for data centres - in the footnotes of financial statements, not on the income statement. There’s nothing surprising about Mr. Petersen’s advice for investors but the timing of his warning makes the review worthwhile. It is definitely time to ensure portfolio diversification, get rid of leverage, and hold a bit more cash. Diversification is not easy in the current market. As Scotiabank strategist Hugo Ste-Marie noted in a recent research report, bonds have been “hard to love” lately with fixed income ETFs performing poorly. Money market funds and GICs might be an alternative. Recent market volatility has left the hyperscaler stocks inexpensive in terms of forward earnings relative to history so I believe that broader global equity markets have at least one more leg higher. At the same time it’s clear that risk is climbing, and investors have to make sure every day that portfolio risk is in check. PICKS Contender and…