I always enter a new year very optimistic that this year is my year, I flush away all the negatives from the previous year, I review my properties and stock portfolios, and create new goals. Not this year, we have been beaten down so much that I really can’t see an endpoint at this moment.
2021 with all its fears surrounding covid, inflation, tapering, and interest rates managed to carry them over into the new year. The family and I are all still testing positive for covid this week and Mrs Ramara lost her grandad due to omicron. Les was 92 and we all thought up to this point he’d dodged the virus and was on a home stretch. I still personally feel he fell at the last hurdle, and now we are sprinting towards the finishing line without him. This virus seems to be weaker and more people report its mild cold-like symptoms, myself included. I suspect they will be another variant every year going forward but becoming weaker as is the normal course for viruses such as the Spanish flu of 1919 that didn’t fully disappear until the 1960s.
So, is the war on covid coming to an end? As with the end of any war, everyone looks deflated, assessing the damage and costs, inflation now ravages the global economic system after a huge amount of quantitative easing from governments and central banks across the world and now the same governments and central banks are looking for the best way to get that inflation back down. The US FOMC (Federal Open Market Committee) minutes were released this week, with much emphasis on the fact that Inflation is not transitory; the FED now comes across as looking more worried than they did before. The more I learn, the more nervous about the current economic system, it seems still in its infancy, from Bretton woods to Nixon, I have no confidence in this new modern monetary theory that if history tells us anything is surely doomed. Let’s look at the basics, money does not grow on trees, money cannot be created out of thin air, no person, company, or country can run forever on fake money and a deficit. They are hundreds of protests every day relating to the end of humanity through environmental concerns, and no one seems to mention or care about the deficit’s countries run on, which I believe is the biggest threat to us all right now. This all came about to finance a new way of life after the World War Two, to help rebuild the world bigger and better and so america could start and finance new wars. A new economic system was needed and for a time, before greed set in, everything looked fabulous. Look at where we are now, it still looks fabulous, governents are building, we live in giant heated houses, with bursting wardrobes full of clothes replaced regularly to cover our ever-growing fat bodies, creating more debt to finance our subscriptions and the way of life we have come accustomed to. We regard these as our rights and challenge anyone who may disrupt this. The fridge is full, we can’t decide what to watch on our 100inch TV and the heating gets turned up to maximum. Most of our kids are spoilt to the point they moan about the most stupid of things, I’m pretty sure you can imagine the kind of things I’m talking about. Many shudder at the thought of hard work and believe everything should be handed to them on a silver platter then cry if it’s not equal to their more hardworking counterparts, all the time moaning that the system that allowed them this lavish lifestyle is broken and they’ll find a eutopia under some delusional Marxist regime.
Thousands were spent on crap over the Christmas period with 1 in 3 people borrowing money to purchase presents, my kids proved since the big day that they didn’t want half the presents they received but would have moaned if they weren’t an Everest of wrapped useless objects waiting for them on Christmas morning, i admit i am also very much part of the problem. We view the world different from my people such as my nan who received a doll and an orange on Christmas morning and appreciated it and life so much more. The times before all this self-indulgent consumerism with fake money, people worked hard for not a lot, but it meant more. Many suffered and it was survival of the fittest, but i suspect, after many converstaions, that times were better, they understood and respected people and the world more. Don’t get me wrong I don’t want these tough times back, and the lives we lead today in the west are wonderful but built on mounting debt and greed. All this makes me sound like a grumpy, sanctimonious old man but I am a millennial who sees the unsustainable greed around and it scares me. I appreciate all the good things we have today, but under older economic systems, labour was exchanged for real money backed by something, then exchanged for goods and services. Once the bubble bursts and money starts being money again things are going to get very hard, very quick, maybe, it’s what we need, ‘The Big Reset’.
Anyway, I’m ranting again. The stock market especially the S&P500 has been propped up by stimulus and now that QE is about to be stopped followed by higher interest rates. After dismissing bearish economists and stock market analysts for some time, believing that inflation was transitory, I’m now taking a step back and hovering over their camp, you could say I’ve pulled my head out of my bottom. I still believe inflation will level out eventually but it’s not as transitory as first thought. Whatever happens in the stock market there’s always a similar point in history you can refer to help build a picture, I’m looking at 2018 where interest rates in the US were raised four times, amongst other issues such as China tariff war and slowing global growth sent the S&P tumbling 20%.
For the last two years, I have become a cautious trader rather than an investor with my finger hovering the sell button expecting the inevitable to happen any day. I don’t think we’re all going to be huddling around a fire bin eating turnips anytime soon and ‘The Great Reset’ could not happen for many more decades, I do however feel most of 2022 is going to be a painful ride following the same path as 2018, with maybe a massive correction on the indices to bring us back more into line with a stock market that respects the fundamentals more. I have sold all my trades, mostly US Stocks and only keep my long conviction investments with a 3 – 5-year outlook, these include Boohoo, Asos, and Volex.
I am now sitting on 45% cash, waiting for the market to pull back before I even consider purchasing anything, how much will it pull back? I don’t know, so I’ll watch the RSI (relative strength index) on a weekly time frame for levels seen at the bottom of other bear markets, at this point, I will start to dollar cost average cautiously into well-researched stocks from the watch list.
When I started researching the markets around 2013, I liked the idea of keeping everything simple, I could see around me other experienced investors complicating everything, using too many pointless indicators, and measuring metrics. I would not allow myself to become influenced by this nonsense. It was easier said than done. I soon started adding a Bollinger Band to my charts, maybe a MACD here and an Elliot wave over there, soon my charts became a jumbled mess and I had to take a step back and give my head a shake. Now only use a 200 moving average and watch price action. As above I like to see the RSI on the indices weekly time frame.
Looking at the fundamentals, with the bull market hitting new highs, a new hot measuring metric appears daily, all to justify the extremely high costs prepared to pay for equity. The Price to Earnings is now 200, but the Price to Sales is 26, but if that’s too high the EV to EBITDA is only 18 if we look at Sales to Equity or maybe Price to Cashflow or Cashflow to how many toilet-rolls we hold in storage! The list is endless and complete nonsense, CFOs adjust the figures until they’re happy by not including depreciation here or adjusting for that there, adding for this and that, and including tax rebates into earnings! Keep it simple as Lord Sugar says, how much does the bloody thing make and whats the profit?
I was influenced and lost my way listening to “experts” rolling of these useless figures daily and I thought I must be doing something wrong if I’m not using the same. I am now going back to basics where I should have always stayed. Does the company make money? Are sales increasing? Are margins increasing? Is the company now or soon to be profitable? Is there a moat? Is there debt? Is it in a growing industry or disrupting it? What have investors historically been prepared to pay for that profit and will sentiment change in the future? These are some examples of basic questions I want to know going forward and until recently when the market hit bubble territory most investors thought along the same lines. I will no longer use or listen to analysts using pointless Albert Einstein-style equations to formulate some crazy numbers to make themselves look geniuses on YouTube.
