RE:RE:RE:RE:Where Have All the Economists Gone?When interest rates go up, tech will get squashed. If the Fed can lift rates little by little 0.25 each time and give the market ample time to digest the news, maybe the pull back won't be so drastic. If they missed the ball on inflation, especially the transitory BS, the impact could be significant.
At the end of the day....have lots of cash and be diversified with your holdings.
The other end of the spectrum also will come into play here as well. High gas prices for too long will have people making choices about driving habits.
Cheers
Co2Harvest wrote: I'll add that selling or holding SU (and when to sell) maybe depends on your time horizon and your stomach for volatility. We truly are living in interesting times. It seems that many people have forgotten the value of natural resources. Young people are buying "virtual assets" like crypto and NFTs. Tech companies don't want us to own anything. Everything is offered as a service, now. And our world is becoming increasingly virtualized (metaverse, anyone?). Natural resources are real assets, but they've either been laughed at and called "irrelevant" in the case of precious metals or they've been demonized in the case of uranium and oil. What a game it is. I have no idea where, when or how but I don't expect this will end well for the great many that have placed all their faith and hard-earned money in tech and virtual assets because they were advised to say away from dirty energy stocks. I think the trend for anything natural is indeed up. It will be rocky no doubt, especially for oil and uranium but the trend is up in my view. And the trend in tech is still clearly up, too; for now. The economic war we have been fighting with COVID will continue to keep share prices on the up trend across all major indices but eventually I believe we will see a shift away from tech, towards energy and other natural resources producers. That could indeed be a violent event and difficult for all but if I were to try to guess at who wins (tech or natural resources), it will be natural resources. But you either have to have the ability to time the market perfectly to avoid huge drawdowns or you need to be able to stomach them and hold on tight. Interesting times, indeed. GLTA
Experienced wrote: NPCexe wrote: Great post, thanks. I find it very difficult to sell SU because I'm greedy and I thought by now it would follow its peers past precovid levels. It's still very much a giant part of my portfolio. I'm thinking I cannot extend the sell date for much longer, but then again SU is not a penny stock, so I'm hoping the crash won't be too sudden and too drastic. What so you guys think? Are most of you keeping a good chunk of cash thinking this crash will happen before EOY, or in early 2022? Or are most people still heavily invested, especially now that the div is restored and the stock has room to catch up?
Experienced wrote: The world griped by runaway Government spending and inflation. Most economists we see on TV seem to have forgotten Economics 101 and are simply mouthpieces for whatever political persuasion they happen to be addicted to.
The current round of inflation we are seeing was totally predictable and the solution is firmly rooted in traditional economic theory. But somehow politicians and their economist lackeys are looking at other ways to combat the problem which entails spending obscene amounts of money which will not solve the problem but only make it worse. The Biden "Build Back America" plan worth trillions of dollars is a classic example. Trudeau continuing to spend money like a drunken sailor is an example closer to home.
So what is the solution that anyone getting at least B in Economics 101 would answer on an exam paper?
The natural brake historically to inflation is rising interest rates. The problem today is that with all the rapidly increasing National Debts around the world that Central Banks have decoupled the natural relationship between inflation and interest rates. They have not only refused to increase interest rates but in many cases have done the opposite - they have reduced interest rates.
Take for example the US 10 year Treasury rate which currently sits at around 1.6% and it is the benchmark for all other interest rates. This current rate is actually LOWER than it was at the depths of the financial crisis in 2008!!!
With inflation rates in the US at over 6% and the 10 year at 1.6% it is no wonder the stock market is at an all time high and valuation for many companies are unrealistic since it makes little sense to invest in fixed income. I sold all my fixed income investment a number of years ago and hold either cash to take advanatge of short term opportunities or equities.
The problem with all this is that the natural economic forces are being resisted by economists and politicians and just like the natural environment this can only be done for so long before the power of these natural forces overwhelm the system.
The longer these forces are ignored or resisted, the more catastrophic the impact will be.
When will this happen?
Beats me and frankly I thought it would have already have happened but the inflationary pressures we now seeing suggests that that day may not be far off. Another clue that this adjustment is not far off is the panic that we see at the political level. The total of recent spending bills passed in the US are equal to TOTAL ANNUAL TAX REVENUE and the latest Biden proposal would make the total twice the total Government tax revenue - not good.
One can only hope that some sort sanity gains traction but as long as economists tout party lines and throw out their economics textbooks it isn't going to happen.
The lesson here?
Be careful and be watchful. There is potential for the violence of the adjustment to make what happened in 2008 look like a walk in the park. The parallels between has been going over the past decade and the 1920s is striking.
For what it's worth - here are my thoughts
The trigger for a big change will be an increase in interest rates. Once the Fed in the US announces an increase in the rate there will be a small selloff in the markets. I would then sell no matter what as it is highly likely that the initial rate hike will be followed by at least two and probably more rate hikes.
These rate hikes will affect a lot of things but one of the primary sectors will be the housing market and in particular mortgages which could lead to pressure on the banks a la 2008. As well if housing prices go down due to higher rates, people will think of themselves as being poorer and will likely be less inclined to spend money which compounds the fact that will be spending more on mortgage payments. In this scenario oil stocks will be vulnerable.
Right now the Fed is towing the "party line" that the inflation we are seeing is a short term and so they are not likely to increase rates until into 2022. That said, in the interim, the market can go one of two ways. If Biden is successful in getting his multi trillion dollar Build Back Better plans through Congress, the market will rejoice about even more money flowing into the market. Conversely if it doesn't get through then the market will focus on declining demand numbers since the real incomes of Americans will decline since wages haven't kept up with inflation.
So I guess a simple way of looking it is - if the Biden plan gets approved then sit tight for a few months as energy prices may well go up futher. If it doesn't go through then I would lighten up on my stock holdings including energy/oil (not necessarily sell everything) and wait for an interest rate hike signal from the Fed and then "get outta Dodge".
The complicating factor in all this is that 2022 is an election year in the US and with that goes the "silly season" which can lead to unpredictable behaviour and decisions by politicians. In that vein, my gut is telling me that energy and in particular oil will in play and it will be hard to predict what Biden and his cronies will do.