Agreed, only to add that cash is a party of diversifying. We've gotten so used to the concept that stocks are the only place where your money can make money, because fed policy for the past 15 years has basically made that the truth, barring real estate.
How does the phrase go? Bulls get rich, bears get rich, but hogs get slaughtered.
There's just too much that doesn't add up, and it looks like inflation is going to be what brings the whole silly plan down. Consider:
- higher than expected unemployment, yet 10 million unfilled jobs
- crippling supply chain issues *still* hitting nearly every industry. Does anyone think it's good for the economy that you can't buy new cars thanks to the chip shortage?
- all of the growth estimates have been off in the wrong direction, and this is after a pandemic set the bar very low. And now China's growth is also slowing.
- the government is literally injecting $120 *billion* per*month* into bonds and mortgage backed securities.
- inflation... The great destroyer. Right now the cost of margin trading is between 4 and 6% depending on how much money you have in the account. That's with interest rates effectively set at zero by the fed. If inflation continues, and you know it's going to because the Fed is now admitting that it's happening and they wouldn't do that if there was any hope that it wasn't, the cost of all of that leverage is going to go up. Fine and well as long as the stock market keeps delivering these eye-watering games that we seem to have completely acclimated to, but if the FED has to admit that inflation is now a concern, how long do you think they'll be able to keep injecting 120 billion per month into the market?
What happens when the biggest support for market prices gets removed, at the exact same time that the cost of leveraging goes up?
I was talking to someone who expects a 50% reduction in the s&p 500. It sounds crazy, until you look at the chart and realize that a 50% drop would only bring us down to 2016 levels.
Is it really hard to imagine the market, after enduring a global pandemic that continues to cripple the economies of entire countries, would go back to a level it was at only 5 years ago?
I'm not advocating for selling everything and sitting on a pile of cash, but if you're not going to take profits after the most incredible run up in prices under the most unlikely conditions, then you're never going to take profits at all. So many people who are euphoric over the stock markets last five or six years don't seem to have stopped to consider exactly what the implications are if this really is the New Normal.
Now is a really good time for people to look at their bank accounts and make sure they are complying with the common sense financial security measures that no one talks about anymore. Do you have 6 months of expenses in a savings account, ready for an emergency? If you lose your primary income source at the same time that the market takes a giant hit, are you going to be in a pinch? Do you have a mortgage that you can only afford if there's no change to your employment status?
The biggest losers in any crash are always the retail investors. Always. Meme stocks and cryptocurrency have the institutional investors on edge. Sure they'll get on CNBC and tell you how they're buying Bitcoin, but they're surprisingly quiet when they sell after all the retail investors follow their lead and buy something they don't understand.
And of course I could be wrong, I probably am. But my family and friends who have everything in the market right now I'll admit that none of this makes any sense. And when I ask them when, if not now, is their trigger to take profits, they have no answer.