Market jewels, or ramblings, from today and yesterday.
This has been a fun week in the world equity markets. Fun if you consider being a Canucks fan fun. Kind of like falling off your bike as a kid, on pavement, wearing shorts.
As I write this (Thursday May 12th), the TSX is down 11.4% from its high in mid April and the S&P 500 is off 15.2% since the end of March.
With all this carnage, I have been reading through some of the articles from my days writing for the Kamloops Daily News and found this to put today’s events in perspective:
“Where to Put Your Money”
It’s 2009 and we have most likely just experienced the fastest market freefall in our lives. The TSX Composite Index fell from a high of 15,073 on June 18, 2008, to a low of 7,724 on November 20, 2008. That is a drop of 48.75% in just five months. The bulk of that drop coming in the even shorter period between the middle of September and mid-November.
KDN February 2009
As always, the best plans are formed ahead of time. Don’t build a straw house when there are plenty of bricks around!
I don’t think we are headed into another 2008, or 2001 for that matter, but our office has been here before and fully understands how to coordinate your wealth management for any stormy day. I know we spout this ad nauseam but diversification across asset classes and knowing what you own will always provide a strong foundation.
Portfolios should be considered over a 5-10 year timeline. You are striving for a good AVERAGE rate of return.
What do we think is going on?
It seems we are witnessing a move out of some of the risk assets (the MEME stocks and all their friends) and that momentum is dragging the broader market with it. Crypto assets have fallen by over half in the past six months. That’s a quick $1.25 trillion gone. The total includes all 19,500 coins, the largest being Bitcoin, which is down close to 60%.
This is a reaction to one thing (if I had to quickly summarize). The US FED is tightening up the money supply as they are terrified of inflation getting out of control. Risk assets don’t like it when mom and dad hide the candy.
Here’s a comment from the well-known economist and strategist, Brian Wesbury:
“Inflation = printing money. Period. Prices are measured in dollars. If we create too many dollars, that causes the value of the dollar to fall in terms of goods and services. This “inflation” started 18 months ago.” Twitter May 11, 2022
Even with the money supply being tightened and interest rates rising, most of our analysts do not see fundamental threats to the economy. Orders for goods and services are still there. The job market is still strong and there is lots of cash and credit available. Most see the market going higher as the year goes on.
Here’s the real question I would pose: is there a particular part of the market that is going to be up more than the others? I think everyone knows what my thoughts are. Value, rational and logical positions that generate positive cash flow.
