This is the fog of war….
Gisele Bündchen, wife of Patriot Superbowl quarterback, Tom Brady, extended the back of her hand to the unwashed masses. Her Marie Antoinette moment, “You have to let them win sometimes..” And while the lumpen fret over this stock market decline, she knows she will always be rich… The girl has class.
There are no charts, no tables, no hedonically adjusted numbers, like stars in the financial night sky, you can find with your sextant to help navigate these waters. A sustained loss in the value of assets invested in the stock market will cause economic hardship, even while you remain entirely in cash.
I don’t consider this market speculative, in the psychological sense. The Central Banks of the world have printed trillions of dollars since the 2008 crisis, excess money trying to find suitable investments. Money which knows no borders as it moves about the international markets. The Swiss National Bank prints their own money and buys NYSE stocks. Someone said today “What’s the downside? The money cost them nothing in the first place…” And you, upon seeing the profits adding up in your account, (and not realizing the money was of dubious tender) and feeling pretty good about yourself, ordered the double latte.
McLuhan said “Money is the poor man’s credit card..” A dollar being of specious value, a pun on the word ‘specie’, or hard money. If you counted that Federal Reserve Note as the liability it really represents, you would burn it. No wonder people will pay an exorbitant premium for cryptocurrency. Credit will contract, and no one is certain quite how it will play out. I can make the case that owning credit is a good idea when interest rates are rising, however rates may not be rising for long.
As credit contracts the number of lenders shrinks, and loans are sold from one company to another (often under duress) and the new company has the legal right to redefine the terms to the borrower, (rate of interest) or simply call the loan.
Most pension funds, some mutual funds, annuities, have penalties for withdrawal, and it hardly seems worth it. Gold tends to follow the economy, up and down, which makes sense. The growth of global credit took a long time to build up to these levels and has the power of an approaching tsunami, which is never measured by its height but by the sheer volume of water behind it. A one foot wave can do a lot of damage.
If you have exposure you might want to use the rallies as an opportunity to hedge your gains (while you still have some). Suppose you bought in at five dollars, and you are now at ten dollars, you can hedge that ten dollar gain. The downside is you miss out if your investment goes to twenty.
To recap, the market is not behaving in an irrational manner, not when it was adding all those not nearly parabolic gains, and not now when it pares back on them. It was a wave of liquidity, which came flooding in, and now the water goes back out. Now the mad scramble to keep your few belongings, before they wash back out to sea, and little or no idea of trying to invest in the future, which is unseeable for all this darn fog. A tsunami of money is being washed away, into a dense fog! That of course is when the real investing in our collective future begins.
Someday soon people will buy things using points from their credit score. How many credit points for this car? Ways to enhance creditworthiness will be the primary financial advice. Equifax seems to be where Mastercard was once, MC merely handles the transactions, Equifax evaluates the transaction.