Happy Thanksgiving Investor Friends! First: Thank you for watching and I’m grateful for health and family, the most important things in life to keep safe and not lose, and that puts everything else into perspective. We can worry about money and our investments after that. This Coronavirus Recession Investing Special goes deep like Turkey Stuffing into what I think we are in: an Everything Bubble. However, there are some hopeful signs (yay vaccine!) and I want to share a message of hope in spite of some of the gloom and doom we’re currently in.
Taking some macroeconomic signals and trends, I reflect on the year of the Coronavirus Recession and at a high level what I’ve learned and observed to date. I share my opinion on how I’m scared of this current overvalued stock market environment and its new all time highs and I’m trying to channel my inner Warren Buffett by practicing patience. One day, when there’s another market crash with massive selling, I would not like to be a sheep falling off a cliff by not knowing or understanding what I’m invested in. It’s quite a dilemma to be in and I’m experiencing some serious FOMO right now, and yet I must remain disciplined no matter how tempting it is to keep the Greater Fool Theory going.
Even the Wall Street Journal has recently published an article about how Millennials aren’t able to reap the benefits of the rising stock market because we’re too busy paying off student loans/debts and saving money. Yet, with significant unemployment and never-ending monetary and fiscal stimulus at the moment, we seem to be headed for increasing inflation, which means our dollars buy less today than they did yesterday. In the near term, it doesn’t seem like a big deal, but over time, current trends seem to forebode some dark clouds looming and we’re left looking for cover (or hedges).
Every now and then, to better understand current market valuations, I check on two charts: the Robert Shiller PE and the Warren Buffett Yardstick aka the Wilshire Total Market to GDP ratio. These give me a high level view of the stock market’s signals and where things are trending.
It is not likely that interest rates will stay down here, as investors and governments get tired of buying low yield bonds whose return rate is outpaced by inflation. There could be some early warning in bond markets in that governments and investors won’t always keep accepting low interest rates. Then a bond crisis could occur as people will demand a higher interest rate at some point. If we have raging inflation, it will not be OK to accept low rates in bond market. It’ll be interesting to see the market risks signaling in the bond markets as we keep tabs on inflation and interest rates (both the Federal Funds Rate and Treasury Bond rates).
I distill some of the salient points from some of the investors I respect and follow, like Ray Dalio, Phil Town, Michael Burry, and Jesse Felder. All of the things I’ve learned make me want to just hang tight until there’s a legit reckoning with our economic reality. I’m looking forward to truly contributing to an economic recovery as an investor because that’s when it will matter most.
The journey towards FIRE (Financial Independence, Retire Early) is one filled with much gratitude, and I look forward to making more investor friends. Visit my Instagram @ michellemarki 🙂 Stay Safe & Healthy y’all.