Imagine that you travel back in time and find yourself in New York. The date is October 24, 1929, also known as “Black Thursday.” Panic! The headlines the next day are terrifying. The investors. They saw their portfolio – and their assets – plummet. The phones in the bustling offices on Wall Street in New York kept ringing off the hook; Lump in the throat, stare and teary eyes. You could almost hear the avalanche of stocks crashing down like the roar of a crumbling building.
Could that noise of bodies falling into the void be far away? Indeed, an enduring image of the crash – or stock market crashes – now a part of the folklore of the financial world, is that of bankrupt investors throwing themselves out of windows, buildings and bridges.
“When Wall Street gave that last blow of the dying beast’s tail, you had to stand in line for a window to jump out of, and opportunists were selling space for dead bodies on the East River,” wrote a correspondent in one of the tabloid tabloids of that time. epoch.
The crash lasted until 1932, resulting in the Great Depression, a time when stocks lost almost 90% of their value. The markets did not fully recover until November 1954. The crisis lasted approximately 25 years. The reality is that since then, market cycles have become faster, the world -and the markets- move faster and surely this crisis will be shorter.
When the stock market experiences a sharp decline, investors tend to act impulsively, get scared, and sell.
However, and this part is critical, the rising markets, “bull markets” that follow these falls -and crises- tend to be strong and last much longer. Additionally, there is always a select group of people who buy assets that tend to rise exponentially during these periods of high volatility.
There is no date that is not met, and the consensus among analysts is that today we are about to enter a recession (the “crash” has already happened and we have not hit bottom). The stock market has had five major contemporary crises in its history, and each time it has fully recovered: The one of 1929, which lasted 25 years, in 1973 the “oil crisis” that lasted two years, in 2000 the famous “Dotcom” stock crash that lasted gulp! fifteen years ago, in 2008 the subprime mortgage bubble burst and that episode lasted a year and a half, finally the most recent crash caused by the Covid-19 pandemic in 2020, which only lasted 33 days.
So there is no doubt that the market falls. The biggest variables are how long it took for the indices to recover. And on the other hand, what to buy to protect yourself or earn money?
Why did the last crash last so little? There are many voices that have criticized the actions of the United States Federal Reserve (Fed) for injecting liquidity into the markets in 2020 by raising prices quickly and “artificially”, later causing the worrying increase in inflation that the entire planet is suffering today. .
To try to contain inflation, central banks have started raising their interest rates. The Fed’s bet is that if the cost of credit goes up there will be less demand for products and prices will start to fall. The problem is that growth will also fall, causing a recession.
How deep will this recession be? Where to invest? Inflation has subsided very little, ten years of a cheap money policy will not end -only- with a fall of the S&P 500 of 20%. In previous recessions, the first falls are caused by the Fed’s rate hike, and the second, much deeper, are caused by the low profitability of companies (this second part is yet to come).
Allow me, dear reader, to ask you the following thoughts:
First: The biggest banks on Wall Street agree that the Federal Reserve’s interest rate hike cycle will continue next year. There seems to be a consensus among analysts that if the Federal Reserve raises its reference rate above the 5% level, there will be a long and hard recession. On the other hand, if the Fed’s benchmark rate stops at 4.5% – 4.75%, a mild to moderate recession would be expected:
- Nomura projects increases to 5.75% before a retracement to 5%, while Barclays sees cuts of 75 basis points in the last four months of 2023.
- Morgan Stanley, which sees the peak at 4.75%, and Bank of America forecast a quarter-point cut starting in December 2023.
- Goldman Sachs and Wells Fargo anticipate rates to peak at 5.25% and stay there for the rest of 2023, while JPMorgan Chase estimates rates to peak at 5.25% and stay there through 2024.
- Citigroup Inc. sees the peak in a 5.25% to 5.5% range hit in mid-2023, and will stay there for the rest of the year.
Second: Investors should not rush to buy risky assets too soon (such as stocks, stock indices, weak currencies, commodities and, of course, cryptocurrencies), because from our perspective the bearish wave is still a long way from over (it does already have those assets, don’t sell, and hold). When everything goes down, “not losing” is synonymous with winning, and the safe bet is to look for safe haven assets (false like the dollar, and real like gold).
Third: The simplest options to be exposed to gold are the following: a) Miners: Miners are an excellent option since they modify their price in parallel with that of gold and also provide dividends. b) ETF’s allow you to make diversified -and in some cases- leveraged investments that are riskier but can represent a much juicier profit. c) “Alternative” investments (it is in this last category that big profits are made, trillions of dollars take refuge here during bear markets, inflating valuations considerably) such as art (check out the “masterworks” platform, for give an example), Venture Capital and Private Equity.
Historically these “alternative” investments are not directly correlated to traditional equity markets, and are reserved for a select group of individuals (qualified investors or UHN “Ultra High Net Worth” individuals).
But thanks to the Fintech revolution, the “on foot” investor can now invest in them easily, safely, legally and with minimal capital: How? That will be the subject of another installment!
fourth and last: Warren Buffett, Bill Gates and Michael Burry (investor on whose life the Hollywood movie “The Big Short” was based) have invested in “farmland” or “Farmland”, yet most individual investors have not done. Farmland increased 12.4% over the past year, and that’s just the average, which includes bad, average, and good farmland. The highest quality farmland actually increased closer to 15-20% over the past year. That’s pretty impressive when you consider all the uncertainty we’re dealing with: inflation is high, interest rates are rising, we’re approaching a recession, and the pandemic isn’t over yet.
Farmlands are incredibly resilient for one simple reason: people need to eat.
REITs (Real Estate Investment Trusts) can be attractive because they allow you to buy a stake in a well-diversified portfolio that is liquid and professionally managed. The downsides are that REITs can be quite volatile and there are only 2 publicly traded farmland REITs in the United States today: Farmland Partners (FPI) and Gladstone Land (LAND).
Twitter: @EduardoTurrentM
[ad_2]
hartford car insurance shop car insurance best car insurance quotes best online car insurance get auto insurance quotes auto insurance quotes most affordable car insurance car insurance providers car insurance best deals best insurance quotes get car insurance online best comprehensive car insurance best cheap auto insurance auto policy switching car insurance car insurance quotes auto insurance best affordable car insurance online auto insurance quotes az auto insurance commercial auto insurance instant car insurance buy car insurance online best auto insurance companies best car insurance policy best auto insurance vehicle insurance quotes aaa insurance quote auto and home insurance quotes car insurance search best and cheapest car insurance best price car insurance best vehicle insurance aaa car insurance quote find cheap car insurance new car insurance quote auto insurance companies get car insurance quotes best cheap car insurance car insurance policy online new car insurance policy get car insurance car insurance company best cheap insurance car insurance online quote car insurance finder comprehensive insurance quote car insurance quotes near me get insurance