A Week For History In The Markets
A mortgage costs twice as much as it did a year ago. We warned you.
We live in a much more global world and, therefore, much more fragile. It was already demonstrated with Covid and how in just a few weeks, the whole world was infected with this flu that, unfortunately, has left so many deaths along the way.
We never tire of warning that the whole world is interconnected and that if an important pillar in the economy fails, this can cause a great collapse worldwide.
This week has been one of the most agitated in recent years in the markets, and it looks like the next few weeks will be very similar.
Many investors, including several crypto maximalists, are moving all their capital into cash. If you have been reading this newsletter for some time, you will know that this is one of the stupidest decisions that can be made today. These decisions have no rationale, and here are the reasons:
They have no system: if there is something important when it comes to investing is to be clear about two things, when you are going to buy and when you are going to sell. 90% of investors know that they have to buy but nevertheless, they sell when they stop liking what they have bought.
The biggest rises occur in bear markets: we have already told you this fact several times in the newsletter. If you miss the 30 most bullish days of the last 30 years, the performance of your portfolio would be negative. Moreover, the most positive days always occur during bear markets. What would happen if the FED decides in a week's time that it is not going to raise interest rates or that it is "only" going to raise them by 0.5%? I tell you, growth stocks would soar more than 5%.
Selling at a loss: the fundamentals of some companies may have changed, but the fundamentals of cryptocurrencies have not (Ethereum has, but we'll talk about that later). Therefore, it makes no sense that you liked buying (Bitcoin) at $40k, and you don't like it at $20k. Not only that, but on top of that, you sell it with a 50% (at least) loss.
Everyone is free to do what they want with their money. But remember that winning in this game is only by doing what most people don't do. It is a game of stomach rather than of impulses.
Now let's take a look at what happened this week and how we can make the most of our money.
Inflation at 8.3%.
The Fed announced this week that inflation in the US is at 8.3%. This means that inflation is 0.2% lower than the previous month. So why have the markets had their worst day this year? The S&P 500 is down more than 4%.
Easy. Because the general consensus is that this data was going to be lower. Specifically, it was going to be 0.2% lower (8.1%). This implies: 1) that the Fed may raise rates further next week. 2) that it will take longer than expected to return to the 2% inflation target. 3) that we will most likely be in a bear market for longer.
The market, which is generally very short-term, wants to get back to ATH in a very short time. However, we want it to come back quietly. If you are under 50, perhaps you should also be happy about this result.
We, at least, are still in a period of accumulation. Every month we continue to increase the value of our portfolio. It may often seem like swimming against the tide because the money we invest is less than what the markets are dropping, but rest assured that it is worth it.
Everything good in life comes in the long run. I repeat, everything: relationships, a good position in the job market, learning something specific..., and, of course, our returns in the markets.
Stop watching movies about people getting rich the day after they start investing. Obviously, there are cases this reaffirms that the world is totally asymmetric. However, in 99.99% of cases, it takes (a lot of) time.
Look at the news in a positive way. Inflation has stopped rising in a crazy way. Not only that, but it is down 0.2%.
1% rate hike
You're welcome to those who took a fixed-rate mortgage almost a year ago.
Many assimilate this situation to 2008; we are sorry to say, it is not similar. Today, the number of new housing starts in the US is not as high as at the peak before the great recession, and this is mainly due to the high price of materials to build new homes.
Hence, housing prices are at record highs relative to the S&P 500. Imagine buying a house in 2020 by borrowing $1M at 1% interest. If the rate hike announced by Nomura occurs, if you ask for the same mortgage in a month's time, the interest rate will most likely be 5%.
Without taking into account the revaluation of the house, you would be earning about $4k per month for money lent by the bank. This is without taking into account that you could have stopped paying rent.
Let everyone do their own math, but without a doubt, we gave a very valuable piece of advice