I am now viewing the market as a old fashioned scale or maybe (more appropriately) the red corner and the blue corner in a championship boxing ring. On the one side we now have the Fed with a printing press and (possibly) a mandate to do whatever it takes to keep the stock market up by expanding their balance sheet to the tune of many more trillions. It did not shock me much that they went into the corporate bond market by buying up investment grade bonds, buying the LQD fund, etc. But now that they are buying up junk bonds it pretty much guarantees that they are gonna create the zombie company scenario, causing slow to no growth for years to come, not to mention the moral hazard and non punishment for the many years prior of mal-investment (Isn't crony capitalism is great?). On the other side of the scale we have reality: 30% reduction in GDP because of a shuttered economy resulting in trillions of dollars in real losses. Mom and pop raiding their 401Ks to pay the bills (and not adding anymore for awhile as the company they work for says no more matches for the time being). True this will not last forever and more and more of the economy will re-open. But it will take a long while no doubt and human behavior will certainly be altered from where it was 2 months ago.
So our stock and economy bubble was pricked at the end of February 2020. After this we have a new normal (a newer and crazier normal than Mohamed El-Arian's 2008) and may take a year or two to transition back to a place that more closely resembles that of pre-February. So during this new normal period do we have the typical 22 month bear market? Or do we throw all previous history out the window because we have the Fed pressing their enormous thumb on the above mentioned scale? Of course the gold bugs will say to buy metals because the Fed is gonna create hyperinflation due to the money printing. But I'm thinking that only the Helicopter Money (cash money to the masses in excess of what they earn at a job) actually causes inflation and the debt bailouts that create zombie companies actually creates deflation (why stop drilling for oil or building the widgets - which causes pressure on prices - when you have a free pass to keep operating in a non-rational manner?) So we will have another inflation/deflation battle going on. Of course if the psychology of the masses creates a gold/silver buying frenzy like from 2009 to 2011 then of course that would be a good trade again. But what about other hard assets that one would expect to do well with inflation like land/housing, etc? Well currently most landlords are shaking in their boots because they are not getting paid and laws are being enacted so that they can't do anything about it (120 day eviction moratoriums). Also this will be a perfect time for counties and municipalities to increase taxation beyond anything we can comprehend (they will tell us they have to pay the bills you know!). So increased property and sales taxes at the worst possible time? I'm assuming it will be more sales tax increases than property tax but both will increase. But real property will probably still be a good investment compared to other sectors, especially if some foreclosures start hitting the market (when they are legally allowed to) and that is your base price entry. More housing units will certainly be needed after the Covid passes and the number of babies being born from couples being holed up together will create the need for bigger places in a couple years; and the flip-side, all the divorces caused by the same thing will force those separated into their own housing units (so either way more houses needed). Also back in the stock market there will be the shares of the companies that do well in the new normal and those that do worse. So stock picking will be of benefit again and I will need to really go through my micro-cap watch list and highlight the ones that may be OK and wait for those that the cycle hits hard and discard the others that are no bueno (not that I had any cruise ships on my list but I'm sure there are a couple just as bad).
So I guess the key here is that whatever the scale above does we can find ways to make our investments pay or wait for opportunities to appear: Hard asset plays (trade and invest in what appears in front of us) and stock picking for the new normal of post Feb 2020. I guess I will have to get to work cleaning up my stock watch list.
So our stock and economy bubble was pricked at the end of February 2020. After this we have a new normal (a newer and crazier normal than Mohamed El-Arian's 2008) and may take a year or two to transition back to a place that more closely resembles that of pre-February. So during this new normal period do we have the typical 22 month bear market? Or do we throw all previous history out the window because we have the Fed pressing their enormous thumb on the above mentioned scale? Of course the gold bugs will say to buy metals because the Fed is gonna create hyperinflation due to the money printing. But I'm thinking that only the Helicopter Money (cash money to the masses in excess of what they earn at a job) actually causes inflation and the debt bailouts that create zombie companies actually creates deflation (why stop drilling for oil or building the widgets - which causes pressure on prices - when you have a free pass to keep operating in a non-rational manner?) So we will have another inflation/deflation battle going on. Of course if the psychology of the masses creates a gold/silver buying frenzy like from 2009 to 2011 then of course that would be a good trade again. But what about other hard assets that one would expect to do well with inflation like land/housing, etc? Well currently most landlords are shaking in their boots because they are not getting paid and laws are being enacted so that they can't do anything about it (120 day eviction moratoriums). Also this will be a perfect time for counties and municipalities to increase taxation beyond anything we can comprehend (they will tell us they have to pay the bills you know!). So increased property and sales taxes at the worst possible time? I'm assuming it will be more sales tax increases than property tax but both will increase. But real property will probably still be a good investment compared to other sectors, especially if some foreclosures start hitting the market (when they are legally allowed to) and that is your base price entry. More housing units will certainly be needed after the Covid passes and the number of babies being born from couples being holed up together will create the need for bigger places in a couple years; and the flip-side, all the divorces caused by the same thing will force those separated into their own housing units (so either way more houses needed). Also back in the stock market there will be the shares of the companies that do well in the new normal and those that do worse. So stock picking will be of benefit again and I will need to really go through my micro-cap watch list and highlight the ones that may be OK and wait for those that the cycle hits hard and discard the others that are no bueno (not that I had any cruise ships on my list but I'm sure there are a couple just as bad).
So I guess the key here is that whatever the scale above does we can find ways to make our investments pay or wait for opportunities to appear: Hard asset plays (trade and invest in what appears in front of us) and stock picking for the new normal of post Feb 2020. I guess I will have to get to work cleaning up my stock watch list.
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