We’ve Reached Extremes
Last week, I read commentary from several of the world’s largest hedge fund managers, in which they predict calamity and chaos.
This isn’t anything new; throughout my investing career, stretching over 20 years, I’ve heard “drastic market crash imminent” at least once or twice every quarter.
After hearing it 20-24 times a year, or a total of 400-480 times in my life and only having lived through 4-5 of them (after which time the major indices are currently inches away from their all-time highs), I can tell you that if I asked a high school student to hand in a paper on why the market will crash 90% tomorrow morning, he could write a 1,000-word thesis overnight.
If anything, my biggest lesson of the past 20 years is that as long as I don’t have to cash out of equities because of retirement or other major expenses, a market crash is a welcomed sight once in a while. It allows me to utilize some of my hard-earned savings and own more of America at a better entry price.
Courtesy: Zerohedge.com
The chart above shows you that the FED has implemented a lift-off from zero rates the likes of which the United States of America has never seen…
We’ve never had three back-to-back calendar years with yields rising, and I believe that the reason for this is because we are entering a high interest rate environment that is not changing anytime soon.
In other words, I believe that you should be prepared for (unless you lived through the 1970s) the highest interest rates you’ve ever seen!
Courtesy: Zerohedge.com
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I know what you’re thinking… the FED is forecasted to cut rates in June 2024. My instinct isn’t allowing me to come to terms with that…
I want to show you two key charts that I consider to be the most important for the coming years:
- At their current yield, bonds are really cheap, when compared with the S&P 500.
We believe more funds will flow to bonds, which will continue to lower the returns on equity, globally.
Courtesy: Zerohedge.com, Bloomberg
This second one I’m showing you tells the whole story…
It essentially captures the decision-making preferences of the world’s largest money managers and shows you that in previous times, such as these, stocks underperformed!
That’s why I think that liquidity is the best choice right now… the world is getting drained of liquidity and something has to give:
We might have a crash – keep in mind that if just the top technology giants come down by 20%-30% (which is totally reasonable, since their P/E ratios are now greater than the overall market), then the S&P 500 will fall by over 10%.
This chart isn’t wrong and it has correctly predicted previous market crashes…
Today, the stock market isn’t expensive, as a whole. The Russell 2000 is actually cheap and even the S&P 500 is reasonably priced (not counting the tech giants), but we don’t measure it without the big boys; therefore, I am telling you to be mindful of a potential big correction.
This chart doesn’t lie…
Best Regards,
Lior Gantz
President, WealthResearchGroup.com
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