What’s up everyone, we are proceeding into the second half of 2022 with caution,
as that’s after the worst first six months to a year in decades.
So if that’s not bad enough and the capitulation hasn’t come yet then we can expect some tough
times ahead in the second half of 2022. So in this video I share with you a macro perspective of
what’s going on and what you should be considering in your portfolio right now, before that
capitulation hits us. You need to be ready people, so please stick around so you don’t miss that.
A lot of risky sentiments were seen in most areas of the market, driven by soaring inflation and the
Fed's aggressive monetary policy towards fears of slowing growth and increased borrowing costs.
This suggested that a new regime of monetary policy could make a soft landing. But at the
recent European Central Bank Forum in June, the much hoped-for "soft landing" hit some turbulence,
following remarks from the various bank governors. And here’s what they had to say:
The Fed Reserve Chairman Jerome Powell said: "We are raising interest rates,
and the aim of that is to slow growth down, so that supply will have a chance to catch up.
We hope that growth could still remain positive. But if you look at the strength of the economy,
households are in very strong financial shape, they've still got a lot of excess savings,
from forced saving of not being able to travel and things like that, and fiscal transfers. The same
thing is true with business, with very low rates of default and lots of cash on the balance sheet.
The labor market is also tremendously strong, still averaging very high job growth per month.
Overall, the U.S. economy is in the position to withstand tighter monetary policy, we think."
Which is interesting and may imply plenty of buffer
to be able to shock the impact of increased interest rates and inflation.
The ECB President Christine Lagarde added that: "I don't think we are going to go back to that
environment of low inflation. There are forces that have been unleashed... that we're facing now
that are going to change the picture and the landscape within which we operate. Certainly
in this part of the world, the energy shock that we have suffered, are suffering, and will continue
to suffer has had a major impact. I think this is not specific to Europe, but there is certainly a
dependency of European countries and the euro area to external supply from foes. That is certainly
a strong driving force of inflation on the price of energy and food... as well as supply shocks."
And the Bank of England Governor Andrew Bailey:
"I think the U.K. economy is probably weakening rather earlier and somewhat more than others.
Unfortunately, there is going to be a further step-up in U.K. inflation later this year
because that's a product of the way the energy price cap interacts with the energy prices we have
observed over the last few months. I would imagine that will put a bit more persistence [on the U.K.
inflation rate] and we will have to explain that." So some interesting perspectives there
on how the current inflation in impacting the various regions and what could happen.
But taking it back to the markets, we have seen The S&P 500 (SP500) plunge 21% since January,
losing more than $9T in market capitalization, and suffering its worst first half of a year since
1970, while the Nasdaq Composite (COMP.IND) and Dow Jones (DJI) fell 16% and 30%, respectively.
The 10-year Treasury yield climbed from 1.5% to around 3.00%, and Bitcoin has tumbled nearly 56%
YTD to under $20,000. But one of the only pockets of the market that gained in the
first-half was commodities, with crude oil going from $75 to well over $100
a barrel and U.S. gas prices nearly tripling before falling back in recent weeks.
So as we head into H2, many are worried that central bank actions could push the global
economy into a downward spiral. The latest reading from the Atlanta Fed's GDPNow tracker
is now in negative territory, predicting Q2 real GDP growth of -1.0% as of June 30,
down from +0.3% on June 27. If that print comes to fruition, it would mark two straight quarters
of negative real GDP growth (-1.6% in Q1) making it a technical recession for Atlanta.
It's possible that "we see two negative qtrs in a row," as "there are signs that,
the foundation of the [job creation] expansion is cracking," as small businesses, which make up a
large chunk of GDP, are getting hit the hardest by margin squeezes amid persistently high inflation.
A good checkpoint on this would be Earnings season, which kicks off later this month,
as this could present the next trading risk, though you never know when buy-the-dip
institutional managers and retail investors will step in and gain control of the markets.
"If we have any words of comfort, it is that, universal losses at this pace
rarely take place in successive quarters, but this is not the same as saying that,
further losses should not be anticipated. "This still very much looks to be the middle of the
story, , as we are yet to see any signs that the weather is about to turn for the better."
During bear markets, stocks have declined as little as 20% and as much as
57% during the financial crisis of 2008-2009.
Likewise, the peak to trough period has been as short as slightly over one month (at the beginning
of the COVID-19 crisis) and as long as 30.5 months in the wake of the dot com bubble crash of 2000.
Each one is unique and runs its course differently from all the others.
How do we keep calm and, in the midst of all this?? "buy when there's blood in
the streets" as it is commonly said? One consideration is by investing with the mindset of
a landlord rather than a short-term trader. This is because, bear markets are a fabulous time to
accumulate real estate investment trusts ("REITs") into a diversified stock portfolio. This may go
against some commonly held misbeliefs about real estate during periods of rising interest rates
and economic weakness. But here are three reasons why we believe now is a great time to buy REITs:
First, REITs historically outperform during periods of high inflation as real estate values
and rent rates rise along with general prices. Secondly, REITs historically outperform in the 3,
6, and 12 months after increases in the Federal Funds rate;
as rent growth during these periods more than offsets any headwind of rising borrowing costs.
Third and finally, REITs historically outperform during late cycle periods
and recessions as most tenants do not want to give up their real estate locations
by defaulting on their lease unless they absolutely have to.
REITs' rental revenue tends to be more stable during recessions than the average non-real
estate company. Moreover, during periods of elevated inflation, businesses agree to pay
higher rent rates so as to continue the use of their valued real estate infrastructure.
So some interesting considerations there for you but the most important thing to do in a bear
market is to prevent yourself from panicking and making rash decisions with your money.
Do not feel that you need to lock in unrealized losses in order to prevent further losses.
Instead, take on the mindset of a landlord. Ignore the digital red ink and focus on the operations of
the businesses and real estate that you own. Only consider selling if you are sure that
the business model is permanently impaired and likely to go to zero. So there you go.
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This video is not financial advice, a buy or a sell recommendation, but is meant to
bring some new and exciting stocks to your attention for you to do your own research..
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