Let me start out I’m not a professional trader when it comes to stocks, nor do I claim to be great at the market. However, I do have a highly coveted Poli Sci degree that I no longer use so let’s see if I can put it to use. Just because someone isn’t a wizard with the math, doesn’t mean they can’t spot macro economic trends. Tail or fade me how you will but I think reasoning is solid.
Right now it seems like public sentiment is still fairly mixed on if things are going to get bad or smooth over. What I can tell you is if you’re on the fence side towards bearish. Reasoning: people are psychologically predispositioned to underestimate the likelihood of bad things happening. So what we’re seeing right now is that lower and some middle class families are getting hit fairly hard from inflation, as these are the groups most likely to have to take out loans for purchases/living paycheck to paycheck. They’ve been feeling the hurt and can tell you most everything is not ok; however, the majority of these folks do not own stock or at least not enough to make a difference. We don’t start seeing stock ownership go up until we get into higher areas of middle class families. If I’m right these folks have noticed some inconveniences but nothing life changing. Because of this I don’t think these upper tiers of average investors can quiet see how bad it is on the ground. Sure they read the news, but this group doesn’t seem to fully take notice until it effects them. A lot of these folks will also fall under a more right leaning political ideology, which usually means more distrust in government. So when JPow comes out and says we have to get inflation under control at all cost and this will be bad if we don’t, a lot of this group is blowing that off as propaganda. Because of this I think the markets are going to be delayed in how they react. So good luck to everyone trying to guess how delayed the are.
Also we are entering a major shift in global powers. China has yet to overtake the U.S., but they are getting closer. There is a reason you are starting to see the us more hostile to China from Taiwan to trade. If this continues global supply chains are going to be rendered useless as so many companies have not hedged production to factor in US Chinese relationships dissolving. This will also make inflation much stickier. As both nations look to be heading for sizeable recessions what could make US recovery harder is if China is able to rebound quicker. With China having central control of the economy this is very likely to happen.
So where does that leave the US? Well if China is able to recover quicker than the US, it does leave the possibility that American companies might not be the most attractive to investors. I believe this is part of what some of the perma bears are talking about when they discuss greatly inflated equities. A lot of these stocks have been valued so high on predictions of future growth. However, if the US markets start becoming not the best place to put your money going forward, those companies who are priced for future growth are screwed, because of global markets and debt being much more expensive which they will be forced to take on more and more.
This seems like a scenario where Bulls are going to have to get dragged facedown in the pavement along the way until we get through this. Let me know what you think, always open to amending my thought process.
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