Pricey!
Have you ever looked at the price of a stock and thought “sheesh…that’s a little out of my budget right now!” I have thought that A LOT recently. This is one of the main reasons that if I’m investing at all it is because I have plenty of long term conviction on the stock or its price dropped substantially and I can buy more for cheap.
While I don’t have a crystal ball to tell me what is going to happen in the market today, tomorrow, or two years from now, I do think that most stocks are overpriced right now. I think housing in general is inflated. Due to the pandemic restrictions easing, the economy is dying to be jumpstarted. However, there are a lot of people who don’t want to get back to work; this is a HUGE problem.
The deadly combination of plenty of demand and lack of supply is a major component of the imminent financial storm.
When I say imminent, I do not want to imply that I am predicting a crash in the next few weeks. I really do not know when there will be a major correction, however, I know that fundamentally we are due. The issue comes down to timing and predicting how hard the market will be rocked.
I have had plenty of discussions with friends about their opinions on the state of the stock market. Many think The Fed is putting the economy in a REALLY bad spot. I agree.
After The Fed’s recent decision to keep rates low (seems temporarily good but worse for the long term) stocks are being shaken this week (including today).
The Fed alluded to the fact that they are likely to increase rates in 2023. I don’t understand why they are waiting that long. I am not necessarily a proponent of raising rates as I am typing this but I know it should happen before 2023. It almost feels like they are trying to put us in a recession.
Mental Toughness and Strategy
It is extraordinarily tempting to buy in this kind of market. Even though conventional wisdom says to buy low and sell high, many are buying high and hoping for higher. We all want the stock market to go up right? Sort of.
I want the market to give me those boring 10-15% returns that Warren Buffett says you can get buy holding onto a S&P index fund. Many of the stocks in my portfolio are quite correlated with the moves of the overall economy (think big corporations) and while the returns might not be sexy like those won in the GameStop short squeezes, I preserve my capital.
Long term growth > Short term gains.
Invest Like its Already gone
This is the ultimate “only invest what you can afford to lose” market. After every purchase of mine, I try my absolute hardest to get in the mindset that I just lost what I invested. As I have stated before, one of my “checklist items” is objectively saying whether or not I need this money now. Stay liquid.
NOTE: What does it mean in this context to “stay liquid”? It means having cash and other easily accessible assets on hand. An asset is said to be more liquid if it can be traded or sold in a short period of time. Stocks tend to be pretty liquid; Real estate not so much.
Inflationary Pressure
Every time I am searching the internet for articles inflation always comes up. Whether it be the 5% increase in the price of food at Walmart, commodity prices setting new records, or the housing market and stock market approaching all time highs, the pressure lies in the carelessness of a Federal Reserve that will not raise rates and get the economy out of the fantasy world it’s currently in.
Quick Lesson on (Interest) Rates
In simplest terms, an interest rate is the cost of borrowing. When rates are low (as they are right now), it is easier to spend (and borrow) and less enticing to save. When rates are high, it is harder to borrow (ie. to buy a home, buy a car etc…) and savers are rewarded by putting their money in the bank and letting it accumulate higher rates of interest.
Whenever pundits or experts talk about rates and you think they are smarter than you because of the jargon they use, rest assured they are not. They are just using big words so you think you can’t understand it for yourself.
Of course there is a lot more that can be discussed regarding interest rates but I wanted to present the most relevant information for this article.
Macro Opinion
I know the market will have a correction (everyone does); nobody knows when it is going to happen or how bad it will be. I personally believe it will hurt very badly. I look back on what happened during the GFC (Global Financial Crisis) in 2008 and instantly think about emotions. The stark contrast between how happy and optimistic people were during ’07 and how devastated they were in ’09 needs to be remembered. People lost their homes. People could not afford to feed their children.
Similar to 2007, many are going on spending sprees because the market can’t crash!
When will we ever learn?
The blunt of this current economic decent could be less violent if the Federal Reserve cooled the economy down a bit (raised interest rates) or took some other corrective action and incentivized people to work.
Unpopular opinion; The market needs to be humbled.
Russia Betting Against USA
I feel that it is important to mention that when Russia dumped its USD holdings completely, sirens went off in my head. Why would one of the worlds largest economic powerhouses cut all of its assets tied to the dollar? Because they have conviction.
I should mention that another reason is due to the increased volatility between the US and Russia (sanctions imposed on Russia) following recent cyberattacks.
Regardless of reason, it is a BOLD move for a country like Russia (or any for that matter) to not trust the world’s reserve currency.
Not Doomsday Prepping per se!
I feel the need to conclude this article by emphasizing that I am not trying to make a big deal out of nothing or chase headlines. I am expressing my opinion based on facts.
The invisible hand is seeking direction.
If I have learned anything over these last couple months its that there are A LOT of market forces at play. An extension of this is the fact that markets are incredibly sensitive. The direction of the market in the short run is based mainly off of announcements from The Fed or Elon Musk (at least recently). A cruddy jobs report can put an otherwise solid market day in the toilet and vice versa.
Whatever the headlines say, the market takes to heart.
The Fed and American Government should act more responsively and responsibly. While the economy needed a nudge in the right direction during its initial recovery from COVID, we have swung too far. People don’t want to go back to work when they can get stimulus checks from the government; incentives have to be aligned.
The economy is begging for balance.
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Stay informed and take the hint