Over the last two plus years I have tried to impart some of my experience and knowledge on people who actually don’t need it. I throw a little common sense in there and try and come up with something useful and entertaining. Sometimes it works, sometimes it doesn’t. Like everyone on the planet, I do have an ego and I like to think that reading my column overall, has helped make readers lives a little better, either with some wisdom or with some wit. Either one works. I have also taken it on the chin a few times with some of my thoughts and I accept that as part of the process. I actually look forward to people disagreeing with me and giving me sound reasons why. I also like the fact that anyone who has contacted me and put their thoughts in an email, has put their name to it. I have opinions and my name is attached to everyone of those opinions and people that agree or disagree have names as well and I am thankful that they feel inclined to share those opinions with me.
Just wanted to get that out there and this column will be no different. It is my opinion and I welcome people smarter than me giving me theirs.
Back to the business at hand. Last week we all struggled through one of those weeks. The Fed made its expected announcement and the market reacted with jubilation and then the reality set in. After marinating some ice cubes (Thank you Art Cashin) investors realized that a 50 basis point rise was actually not a good thing for stocks and they sold. To be expected and honestly, not the worst thing that could happen.
Let’s look at the last weeks and the market this year and try and understand a few things.
First things first. You are not broke. You will not be broke because of a correction. Grow up and stop complaining about this market. On paper you are down whatever percentage you are down from the end of 2021 or the first quarter. Whatever your looking at may seem like a bad dream but remember, you didn’t put your whole life savings into the stock market on December 31st so stop with the crying for God’s sake. If you are like 96% of all investors you have put money in over periods of time. At those points in time, I am pretty sure that you invested at levels lower than we have now. So, you still have increased the value of your portfolio. Period. If you Dollar Cost Average (Investing the same amount of dollars over a specific timeframe), you have bought stocks at the highs but you will also be buying stocks at this level and most likely lower. Over time, you will be making more money in the equity markets than you will in pretty much any other asset class. So stop looking everyday at what your portfolio looks like. The other point is this: You most likely, will not be taking that money out in one lump sum so the value today is not really relevant because most people will be taking their investments out at a graduated period of time. Obviously, if you want to buy a new home or a second home, valuation is important, buy you didn’t drop a bundle in there at all-time highs. Your savings were gradually added and you still have a profit (Which the US Treasury will gladly explain to you). Maybe you are not up 95% over the last ten years (more like 85% now but still better than Treasuries or savings accounts).
Secondly. The pain you want to tell everyone you are feeling will continue. I still think there is some room to go on the downside and it might be there this week or this month but we will see certain levels on the S&P that will confirm a potential bear market.
Possible stagflation. Possible recession. Higher interest rates. Lastly, an employment picture that may eventually rival recessions in the past.
As we all know, earnings are the driving force, long term, of any market moves. While the top 10% of US corporations have significant cash reserves and have protections against recessionary periods, the other 90% of US corporations are sadly lacking. Thats the macro picture that economists privately fret about. These mid level and small companies may not be properly prepared for an extended recessionary period and certainly not ready for stagflation. That may prevent a short “soft landing”. Those 11.5 million unfilled jobs will quickly disappear and then what happens? No pandemic to blame. The potential for some serious economic upheaval is real and I just don’t think the Fed is looking at it. I think the White House is sadly lacking in any sort of economic policy other than spend, spend, spend.
This turmoil may or may not play out as I think but I do think it’s important to be aware that while the Fed is raising rates (which is the correct thing to do albeit a little late to the party) the consequences of that slowing down of the US economy may not play out as expected.
While every rising interest rate period has been a little different and the results generally have all been the same. Until now.
Extraordinary times generally create extraordinary events and thats what I think we are in, an Extraordinary Time. From Covid to the invasion of Ukraine, we are living through events that have never happened in a modern world. We have the re-creation of what it means to work, or not. We have an aging society that will relie more and more on government and mix that in with your more typical inflationary period.
Throw all of this together and pray for what will come out the other side.
Good Morning and thank you for the tongue lashing. As Americans, we believe we have the privilege to complain;) and we do. I also agree, We are living in Interesting times, but that phrase has also been worn out, a little of my complaint. Very much enjoy your wisdom and sarcasm! We'll keep the faith, another worn out phrase. I'm done complaining....for today.