Reading a note put out by the good guys at Ophir and they quoted Lynch, which I thought was very apropos to global markets currently:
“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”
FOMC Meeting Conference
- Accelerating tapering, which will finish in March, assuming it goes to plan.
- $6 Trillion of stimulus is planned to be removed next year in the US - That is a big drag if there ever was one.
- Flagged the Fed is planning a series of interest rate rises in 2022.
- When asked what the Fed will do if the equity market or economy begins to tank, Jerome Powell said: WE WILL CHANGE COURSE AS IS NECESSARY - the tapering / interest rate rise plan is not set in stone.
The markets loved the last point, with high beta stocks recovering after the press conference.
Summing up, the Fed has announced tightening, but will only continue with this tightening if the market doesn't tank. If it shows signs of weakness, they will reverse course.
I would say the Fed has allayed market fears for a few months..................
Boom and Bust: A Global History of Financial Bubbles
Stuey727, I think that sentiment is common to so many investors (me included). Sit on cash when there's high inflation and accept a guaranteed loss, really?!
But it's also part of the problem. On one hand low interest rates have induced increased borrowing, contributing to the 'everything bubble'. Then on the other hand we start looking for yield in stocks because interest rates are so low and cash is such a poor alternative. It's well documented that when interest rates stay low investors start looking to riskier assets for a return.
There's a great book worth a read if you're interested called Boom and Bust: A Global History of Financial Bubbles. Being 32 it seemed like an appropriate time to delve into it and learn from the past. The authors demonstrate how there is always the presence of a 'bubble triangle' in historical bubbles; borrowed from the 'fire triangle' from chemistry where you need heat, oxygen and fuel. It's easy to argue the presence of all three now. E.g. low interest rates (fuel for the bubble), marketability of assets that make them very easy to buy and sell such as deregulation, zero commission trading apps etc (oxygen for the bubble) and finally speculation through the rise of social media herd mentality particularly with novice investors (heat for the bubble). So easy credit, marketability and speculation = bubbly.
Seen a lot of graphs lately. But this (somewhat similar to Buffett's) US market cap as a % of GDP is pretty compelling. Take a look at the dot-com bubble of the late 90s relative to now. 120% of GDP and it was many years of sideways trading after that. We're now at >175%.
I'm also super curious to hear what others think.
Agreed @Rapstar.
I've been raising cash in the last two months in real life and am also sitting on the funds from a recent property sale.
There's a confluence of risks. Tightening monetary policy is a big one, particularly given the impacts small rate increases have had on stocks in recent years. But also the Chinese property bubble approaching a decisive moment in the next 12 months, and the wider impact that would have on commodities and the global economy. There's also the ongoing concern of new variants more consequential than Omicron and what that might trigger, particularly given the inflationary pressures and a more hesitant approach to QE. These factors against the backdrop of average P/E ratios approaching historic levels.
There are risks of course and I would hazard a guess the vast majority of people predicting impending share market corrections have lost money over the long run compared to those who continued to maximise exposure. Nevertheless, for my money I'm not racing into stocks (or property) at the minute.
How about you @ArrowTrades