When Will We Recover From The Worst Semester In More Than 50 Years?
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We are witnessing the worst start to the year in more than half a century. Many investors have lost much of their purchasing power along the way. Without going any further, the number of people losing money with crypto is at ATH. Why?
Because the average investor starts investing because a friend/brother-in-law of theirs tells them they are making money with X stock or Y cryptocurrency. Many of these investors are priced out of the market in the first downturn. They have first-level thinking, "I buy Tesla stock, wait a week, or a month, sell the stock, and I'm rich." They don't understand how finance behaves and how money flow works.
In "Rich Dad, Poor Dad" they explain it in a VERY simple way.
It seems that you are either born in the group on the right, or you will never make it to that group. However, many people make it through a process similar to the following.
Why do we say all this? Because now is when there is more blood in the markets (even if it is yours) is when we can build Assets much cheaper.
I know it seems like the worst is yet to come, and we're not saying it can't happen, but that indicates that the time to buy is now. Howard Marks was buying millions of dollars a month (DCA) during the 2008 crisis, even losing money in the short term, making him one of the wealthiest men in the world.
The data we receive daily is not encouraging, far from it:
Inflation: after Covid-19, consumption was stimulated through many measures. Many of them have not seen since the first two world wars. This caused the population to live in a deep illusion of liquidity.
It's like the high point when you go out partying. It seems that all assets are going up, no matter what you buy, and you feel like the Wolf of Wall Street.
These measures have caused inflation to rise rapidly, and by mid-2021 (one year after the pandemic), inflation is hovering around 5%.
Lagarde, president of the ECB, has said publicly that we citizens are going to have to normalize this period of high inflation.
The solution for us is very clear, and that is a recession. Many liken it to the crash of '29, where more than 2,000 banks failed worldwide, but we believe there may be many differences. Nevertheless, our forecast is very clear.
Interest rates skyrocketing: The first solution to alleviate inflation is to stop printing money. The second clear solution is to raise interest rates, and the FED is doing so abruptly. In two hikes, rates have gone from 0.25% to 1.5-1.75%.
This increase in the cash ratio would force banks to reduce the amount of money in circulation.
Europe, on the other hand, will continue to raise rates but at a much slower pace. Basically, they will follow in the footsteps of the US, but with a delay.
Many businesses will close, and many families will have a lot of problems. It is a sad situation, but let's hope that in the best case, they learn that the new BMW is not an asset.