We’ve Reached Drastic Climax
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.
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!
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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…
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Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!
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