3 Reasons Why The Market Is Really F***ed Up
We told you in May last year to buy a house.
Inflation, Ukraine war, QT, rate hikes, shortages, ... and this week, OPEC has cut off the oil tap. Quite simply, the price of a barrel has fallen from $120 a barrel in July to $80. This fact has not pleased the main oil producers associated with OPEC+. So it has decided to cut production by between 500k and 2,000k barrels.
This cut in barrels can only mean that there are more shortages and, consequently, a rise in the price per barrel. The curious thing is that the US recommended OPEC keep production constant to help the global economy. But in business, there are no friends, and they have not accepted that recommendation.
Tip: When you know how supply and demand work, you will be a better businessman than 95% of people globally.
QE is getting closer and closer. The day it happens, you can already have your high-risk assets close by because they are going to shoot for the moon 🚀. Not only that, but it also looks like the very substantial rate hikes we've had lately may stall. This would make the stimulus for high-growth stocks even greater.
However, it's not all that pretty. We have been warned about this for a long time. There are many red flags that could send the economy into an unprecedented recession. Today we are going to show you the three main reasons we see, but there are many more.
Many people ask us two questions: 1) Is it a good time to buy a house? 2) fixed or variable mortgage?
As always, it is a question that comes late. If you have been following us for more than a year, you will know that in May last year, we recommended buying a house either to invest in or to live in. We gave several reasons, but they mainly boiled down to 3:
The price of housing is going to increase due to the shortage of materials.
Interest rates are going to go up.
Rents are going to rise. The consequence of the two previous ones.
We have never said that one of our collaborators took advantage in January 2021 to buy his house. He took out a $300k mortgage at 1.5%. Fixed interest for 30 years. Do you know what that means?
Pull out the excel.
First, banks today do not give mortgages for such a long term because of the great uncertainty.
Assuming interest rates at 6.1%, I would have gone from paying $850/month for the mortgage to paying $900.
It doesn't sound like much, does it? The main problem is that housing prices have increased by 36.5%. This implies that to afford this same house. I would have to pay a monthly mortgage of $1,475.
Real estate is one of the most profitable sectors if you know how to leverage yourself. But it is very dangerous because you expose all your wealth (and more).
As an answer to the two questions at the beginning, we do not see it as a great investment to buy a house.
Volatility in the markets
So much uncertainty in the markets seems to generate a lot of volatility. The individual investor is almost 100% invested and, in many cases, more. This can only end in one way, with much more volatility.
We are exposed to volatility in our portfolio, and we can say that we sleep very quiet at night, waiting for a black swan to arrive.
This is not to tell you to sell your portfolio with a 40% loss. It makes no sense. The biggest up days in the markets come in bear markets, the more volatility there is.
In fact, if you miss the most volatile days of the markets, you are going to lose money. A Buy and Hold strategy is much better if you are a novice investor (and if you are an expert, probably too).
The curious thing about all this is that with such high volatility as we have lately, one of the assets that historically has had high volatility does not have it so high today. This is the case with Bitcoin:
If you want to have an asymmetric portfolio, you can only do it with asymmetric assets: REITs, BTC, Gold, Equities...