The $1.9 trillion stimulus bill is inching closer to becoming law, but we’re left wondering about the future; are we approaching a fiscal cliff when the government finally starts easing off the stimulus gas pedal? And the pandemic introduced an interesting phenomenon in the housing markets where housing prices soared, but rents tumbled—and it’s having an effect on CPI and inflation measures. Economic recovery and inflation concerns have certainly triggered significant market movement in recent weeks, and as China’s stock market hits correction territory, we’re wondering if the U.S. could be store for some similar Covid-recovery growing pains in the coming months. The Nasdaq did dip into correction territory for the first time since September, but then again, it also experienced triple digit intra-day gains shortly thereafter… Are retail investors and young investors—who are increasingly using advanced techniques like margin and leverage and receiving financial advice from sources like YouTube and TikTok—prepared for the risks they’re facing?
1. The massive stimulus package is looking like it will be piling on to an increasingly rosy scenario: Vaccines allowing a full re-opening of the economy, massive consumer pent-up demand for travel, leisure and “normalcy”, an already robust manufacturing sector, and a consumer who—in the aggregate—has meaningfully reduced debt and increased savings. But what happens when the elixir of government stimulus and central bank QE ends? Are stock valuations and interest rate expectations dependent on all this government spending? How will the economy, and the markets, react?
Source: The Daily Shot, from 3/10/21
2. This needs to be said: The CPI is at least partially “rigged”. Instead of using the cost of housing prices, which have been skyrocketing, the CPI uses equivalent rents, which has been tumbling. So CPI looks tame when in reality it is much higher…
Source: The Daily Shot, from 3/9/21
3. China hit the accelerator early and often to counter Covid. Now, their debt and equity markets are adjusting. If they were about 6 months ahead of the U.S., are we also looking at an adjustment/digestive period?
Source: The Daily Shot, from 3/9/21
4. Forget the lag, perhaps we are already digesting the spectacular recovery gains…
Source: The Daily Shot, from 3/9/21
5. Assuming retail investors are less disciplined and subject to their emotions, will this trend exacerbate market movement in both directions?
Source: The Daily Shot, from 3/10/21
6. Many new retail investors are also using margin/leverage. We wonder how many understand that their losses will mount even faster…
Source: The Daily Shot, from 3/10/21
7. With bond yields so low, it doesn’t take much to have rising yields/falling prices overtake bond coupons to create total return bond losses. 60/40 type portfolios were built on the assumption that yields will continue to fall as they have since the early 1980s. If they don’t, then many investors are going to be disappointed to say the least!
Source: The Daily Shot, from 3/10/21
8. Higher yields and/or fiscal discipline will be needed to bring Int’l buyers back…
Source: The Daily Shot, from 3/9/21
9. China and Japan combined own less than 10% of the U.S. Government’s $27 trillion of debt…
Source: The Daily Shot, from 3/10/21
10. In Japan, QE includes the BOJ owning bond and stock ETFs. The BOJ itself is a publicly-traded stock. Can you imagine if the FED was a listed stock and/or owned stock ETFs?
Source: The Daily Shot, from 3/9/21
11. ~$28,000/oz?!
Source: The Daily Shot, from 3/10/21
12. While the U.S. has finally ramped up its vaccination efforts to potentially achieve herd immunity by the end of this summer, many countries have yet to get going. Int’l travel will likely be limited for much longer…
Source: The Daily Shot, from 3/10/21
13. This is scary. Only 1 in 5 seek professional advice? Everyone is an investing genius until a bear market. When your cab/Uber driver gives you stock tips, it is time to get out! It happened in 1999, 2007, and will again. Until then, enjoy the ride!
Source: The Daily Shot, from 3/9/21