by Bohdanowicz
Going full ADHD on this so bare with me.
The market is going to separate the wheat from the chaff when it comes to tech/growth plays. The tech bubble didn’t kill tech, it purged the weak and rewarded the strong.
Any debt laden companies will be on the chopping block as the only option for them will be higher interest borrowing or share dilution. Plays like Amazon/Google/Apple/MS will also experience volatility but at the end of the day they can easily scale their pricing with inflation. In fact one could argue these companies will do better in a high but steady inflationary landscape. Pricing can be changed instantly and capital expenditures such as infrastructure (renewable power generation, servers, etc) will seem relatively cheap.
Think of it this way… if we experience 15% inflation for the next 3 years that compounds to a 52% increase in the price of goods. A stock would have to increase in price by 52% to break-even in terms of relative value/buying power.
That said a crash can go two ways….
1) Traditional low inflation 80% great depression type crash.
2) 3+ year high inflationary period where stocks run flat due to interest rates trying to supress the snowballing inflation. Don’t count on 15%+ interest this time around. The US would immediately default. The Fed will likely begin increasing rates too tepidly which will further push the pain down the road.
I’d argue the 2nd crash is much worse and is almost certain at this point. It reflects a lack of faith in monetary policy/control and a permanent loss of wealth for the nation. Since decoupling the USD from gold the USD has steadily seen it’s buying power eroded.
When the market crashes it’s not going to sell off entirely. Crap meme stocks will be purged from existence and boomer companies like oil, infrastructure, renewable energy, REITS with equity financing, commercial reits and commodity plays will all rally to what will seem like astronomical heights. It’s already happening.
1) Housing prices are going crazy everywhere. Partially due to supply constraints and immigration but also due to input costs and people starting to panic. They are starting to realize if they don’t get into the market now they never will. Buying an overpriced home now will seem cheap in 3-5 years when we start to hit big inflation numbers.
2) Energy stocks up 20%+ in the last 3 months. Wait until Russia screws with Ukraine and China pushes on Taiwan as the US is busy watching Russia.
3) Companies with cash are using their war chests to acquire companies. Sony/Bungie. Microsoft/Activision/Blizzard. AMD/Xilinx. Nvidia/ARM. This is just the beginning. It’s costing these companies 10%+ of the buying power annually to keep cash. Shareholders will demand they use it or give it back in the form of share buybacks.
TLDR: Stick with best of breed tech, buy the biggest house you can afford and lock in for as long as you can (or refinance and take out some of that new found equity and invest it into dividend plays to pay off your mortgage for you) and buy boomer stocks.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.