Hello everyone. I know most of you are idiots who managed to lose money during the greatest bull run in the history, but I have the need to share my thoughts, help the community and at least get you to start thinking about what if scenarios. Let me get straight to the point.
I think we will experience some headwinds over the next 12 months.
There. I said it. Now for those of you with higher IQ, let me explain why I think that.
1. Inflation is at the highest level it has been in the past 13 years (since 2008)
Despite what some of you may think, we cannot print money forever. Printer cannot go brrrr always. We had fun with the printer since March 2020, but the effects are starting to show. Food, gas, real estate, stocks, digital currencies, wage subsidies, unemployment benefits – the society is flooded with cash. We are literally swimming in it. Sure it’s fun when SPY goes up 31.6% over the past 12 months, but this leads to inflation and inflation is bad. Why? Because high inflation puts pressure on a government to increase the value of the state pension and unemployment benefits and other welfare payments as the cost of living climbs higher. Inflation expectations -> wage demands -> rise labour costs -> lower profits for businesses. This is why at some point, our saviour J Pow will need to address this. In fact, he already announced it, which leads to my second point.
2. FED announced tapering will start in November
Tapering means the gradual slowing down of purchases of securities and bonds. Simply put – printer will slow down. Most of you have never seen the stock market without the printer. You think 31.6% a year for SPY is normal. You are not aware that SPY was flat for 13 years (0% between Mar 2000 and Jan 2013). Most of you are not reading the news. You did not read the news in Jan 2020. You thought corona was a Chinese problem. You did not read the news in Mar 2020. You were buying puts, when J Pow publicly said he’s going to turn on the printer. Even if you read that, you had no clue what that meant. You held your puts and watched them melt as printer did its thing. Now, we are in a similar situation. J Pow announced he will slow down the printer, you don’t know what that means, you are still holding calls and looking to buy more because “stocks always go up”.
In conclusion:
printer brrrrrrrrrrrrrrr -> stocks brrrrrrrrrrrrrrr
printer brrr -> stocks brrr
3. Interest rates will need to go up
One way to curb inflation is to raise interest rates. Higher interest rates means it’ll be harder to borrow money. Less borrowing, leads to less liquidity to buy houses and stocks. Less buying, prices cool down. I’m not calling for a crash, but a 10-20% cool-down will be enough to wipe out most of you with your clueless strategies, if we can even call them strategies.
4. China is slowing down
I know Evergrande paid its bills this month, but they did it by waiting until the last day before announcing bankruptcy. This is not normal. If they had so much trouble this month, who can guarantee they’ll be able to pay them next month? On top of that, an average Chinese citizen realized that real estate does not always go up. This change in mindset will cause slight fear, which leads to lower demand for real estate which will eventually show who is over-leveraged. (hint: It’s Evergrande) You might wonder, how would a slowdown in Chinese real estate affect us in North America? American corporations generate significant profits by selling stuff to Chinese people. If Chinese people are not happy about their houses and apartments going up in value, the last thing on their minds would be to buy new iPhones, purchase Teslas, and buy commodities to build more real estate. We are more connected than you think. When something happens in China, it affects everyone. Don’t believe me? Go back to January 2020.
What should you do?
Slow down a bit. Relax. Think. Take it easy with calls. Take the foot of the gas pedal. I’m not calling for a crash. I’m not telling you to short the market. Just don’t be caught off guard, when big boys cash their chips and go home. You don’t want to be the last one to leave the casino. That’s all.
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.