In the heyday of massive tech expansion and growth; with plenty of room to adjust interest rates down; in the midst of a half century bond bull market; sane PE ratios; lack of pervasively spidered leverage and swaps into all sectors of the economy; and without direct asset purchases by the Fed (and other central banks) …
That environment was much more complex in terms of money flows between various asset classes, financial development, and interest rates. Things didn't just hinge on forward guidance and monetary policy. You could sometimes see rates rising, DXY rising, M2 slow down, and yet see stock market gains. They were general rules of thumb, but not perfect correlations, and could often countertrade.
Well … That's not the market regime we're living under anymore. And people intuitively know this, which is why everyone is hanging on central bank policies and forward guidance.
The post 2000 economy, and especially post 2008, with ZIRP and the start of “QE” (aka, central banks just buying bubble assets with printed money); it's pretty clear why the markets should hinge on central bank policies.
The leverage that was spidered into the economy was never cleared out. It was expanded. And when I say leverage, I mean that in a very broad sense. Not just the swaps and derivatives of the housing bubble. But more broadly – the printing of new money and loaning it out to institutions who will long the market … any market … all markets. So happens when interest rates rise and central banks sell assets for which massive leverage based on ZIRP still exists?
In a macroeconomic sense, higher rates reduces the ability to service interest on loans, and increases margin/collateral requirements for leverage. So what happens? People/institutions are forced to sell assets to account for these changes; and do it in an environment where central banks are also selling.
This, after more than a decade of ZIRP. So what do we have? The everything bubble. And the everything pop. Almost nothing appears safe right here. Bonds have fallen dramatically. Equities down. Gold isn't a safety play either. Real estate, down. Commodities managed to make a big move early on, but have since fallen significantly.
And what will happen if the Fed lowers rates and starts asset purchases again? Literally everything will go up again. We've seen time and again since 2000, that when the market crashes, it crashes together. And when central banks intervene, it recovers together. Definitely not evenly and not all at the same time, but broadly speaking, yes, it all goes up. Especially in the 1-3 years post intervention recovery.
You have to go back more than 2 decades, before near-zero interest rates and before central bank asset purchases, to find significant deviation from this pattern. Yes there are caveats and complexities; but in a broad bear market, it's rational for people to be hanging on the forward guidance of central banks.
TLDR:
The people saying that you're irrational (or just lucky) for having sold, and for not rebuying right now, are living and hanging on the words of old guys who had a very different market regime than the one that exists now. You can do considerably better than the market, merely by DCAing both in and out of the market, based on central bank policies and forward guidance. This has been the reality for 2 decades now.
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