02 Dec

Fear, Greed and pink diamonds

As we head toward Xmas 2020, markets are on a tear, with the value of stock markets around the globe fast approaching USD $100 trillion. They rose in value by a further USD $2.1 trillion in the last week alone, with global equity markets up by 13% in November, their best month ever.

Warning signs about the raging bubble in financial markets also continue to grow, which we address below, sharing a chart which has two distinct takeaways for investors.

  • How nervous they should be about concentrating too much money in the stock market and other financial assets right now.
  • Why they should be using the bubble in financial markets to rotate money into hard assets.

This obviously includes pink diamonds, which of all the hard assets, are best placed to protect and grow wealth in the decade ahead.

Fear and greed!

Last week we talked about how there were record flows into equity market products, and a record switch in the number of people who thought we were about to enter a strong growth cycle, relative to those expecting a continued economic recession.

To us, those are clear warning signs that markets may be set to tumble, as everyone is always most optimistic just before things take a turn for the worse, and vice-versa.

This week we want to build on those warning signs by sharing another insight, which reinforces the point we’ve made.

CNN calculate a weekly Fear and Greed Index, which attempts to measure the mood of financial markets. There are many inputs into the model, including measures of market volatility, and demand for safe haven assets like US Treasuries.

The Fear and Greed Index also measures the momentum of the stock market relative to the previous 125 days of trading data, and the ratio of people buying calls on the stock market (meaning they think the market will rise) versus the ratio of people buying puts on the stock market (meaning they think the market will fall).

Just a little over one month ago, in the lead up to the US Presidential Election, the Fear and Greed Index was suggesting fear was the dominant narrative in the markets, with investors worried about risks to their wealth.

All that has completely changed in the space of four weeks, with the reading now suggesting Extreme Greed is dominating market psychology, as you can see in the image below, which was taken on November 27th.

Fear & Greed Index

Source: CNN


The image also shows the evolution of the Fear and Greed Index over the last few years. Note how by early 2020 the Fear and Greed Index had plunged to levels that indicate extreme fear was dominating the market. That was when stock markets were 30-40% lower than they are today.

There is a great saying amongst astute investors that if you really want to make money, you should be greedy when others are fearful, and fearful when they are greedy.

Nobody makes real money going along with the crowd day in day out. The fact the crowd is extremely greedy right now suggests that at the very least, caution is warranted.

It also suggests that now is the time to start looking at alternative assets, which will prosper if markets take the tumble they are clearly at risk of succumbing to.

Three weeks until Xmas

With less than a month to go until Xmas, now is the perfect time to select that perfect gift. The Australian Diamond Portfolio Legacy collection has proved incredibly popular since launching last month, with these unique stones certain to make an impression on that special someone.

You can view the collection, which has a range of stones from $1,000 to $10,000 here!

For those looking at making a more substantial investment, pink diamond prices continue to increase, with the global investor appetite for pink diamonds growing sharply in the aftermath of the closure of the Argyle Diamond Mine last month.

Should you wish to discuss your investment options, we’d welcome the opportunity to discuss how Australian Diamond Portfolio can assist.

As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and look forward to any questions or comments you may have.


Share this