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Forge Your Wealth is meant for education and entertainment and should not be considered financial advice.
I would like to try something new. There have been recent articles and posts that suggest rather radical ideas and thoughts. Surprisingly, some of these ideas and thoughts have some grounds to their ideas. I would like to look into some of these articles and state what good points they have made. In addition, I would like to bring up what I believe is exaggerated: the spiel. This is not meant to attack anyone, but to add interpretation to a claim that under normal circumstances I would disagree with, but under the circumstances including the recent pandemic, I may actually agree with at least some of it.
In this post I will discuss the post “Markets are doomed. Great!” written by Bill Blain of the Morning Porridge that I have found linked in a Market Watch article. In it he discusses that the recent Coronavirus pandemic will be the end of the stock market and bond market, but surprisingly, we will be better for it.
People Have Purchased Too Much High Risk Assets That The Market Is Overvalued
Mostly Real – Experts have been saying this for a while. The Fed has lowered interest rates to encourage, no incentivize investors to borrow money and invest in the stock market, primarily through stock buybacks. These buybacks make asset prices go up and instill the fear of missing out in other investors to buy in. With more money in the market, many assets are overvalued.
However, there are ways executives could use these higher values to invest in these companies. An executive could sell some shares to invest money into the company when people are less likely to buy bonds. This strategy is rather unstable at its best. When the debt needs to be paid and earnings are slow, the added value from stock buybacks will not allow companies to provide the cash needed to pay off their debts, much like what happened recently.
There Is No Point In Buying Financial Assets Because Of Quantitative Easing
Somewhat Spiel – Governments may be using quantitative easing to bailout many companies to attempt to prevent the broad markets from collapsing and funding others to fight the pandemic, but that does not mean that all financial assets are worthless. Many sectors and stocks tend to keep or even grow their revenue during recessions and crises and the government does not need to bail them out as much if at all.
These companies are pretty much business as usual even when the world is figuratively on fire. However, no one is really talking too much about these companies. Sure some articles bring up these companies as good investments, but the ones that are struggling and need bailouts get more attention. For instance, when was the last time you read an article about investing in toilet paper companies? The most articles I have read about investing in toilet paper companies came from March. I have read plenty of articles about the companies that need bailout this morning.
There are plenty of good and some great investments in today’s market. However, the broad market may not do too well. Many of the index funds and mutual funds may not look very appealing. I think that is what is making people claim there is not point in buying financial assets. For many people these funds are the go to. That does not mean it’s the end of the stock market.
Start Looking Into Alternative Markets
Somewhat Real – Alternative markets, private equity, venture capital, what ever you like to call those types of investments, have always been a good form of investing. When common financial markets start to become overvalued, it is good to look into different forms of investment. Furthermore, alternative investments are known to have high returns.
However, like the stock market there are more than enough bad eggs. While there are alternative market investments that provide high returns, there is a good reason alternative market investments are considered risky. Many alternative investments are bad investments, and some are frauds. The SEC does not regulate alternative markets. While the SEC is infamous for missing some fraudulent activity including Bernie Madoff, they do help in the regulation of the stock market to prevent fraud. Alternatives may have some advocacy groups including ADISA, but that is not a government agency. It has next to no enforcement capability. Alternative markets are just as likely to be manipulated as the stock market, and probably more likely to have fraudulent activity.
Bill Blain claims that the stock market is over and alternative markets will rise. However, stocks are ultimately pieces of paper traded on a regulated public market that claim ownership to a company and a right to the earnings. Investments in alternative markets are the same except the public market is not as regulated. As soon as investors are interested in buying an investment that someone else owns and others want to regulate it, you have a stock market. Even if this is the end of the stock market, it will restart. It may not be the same, but it will come back.
The Rest Of The Claims
Real – The rest of Bill Blain’s post talks about what directions he expects some stocks and other assets to go in. He mentions the dangers of following the Fed and whether the Fed has the best interests in mind. Read his post for the details, but spoiler alert I mostly agree with his claims. I believe breaking it down on my post would just be a bit redundant and take away from his credit. Make sure to read his post.
No one likes where the economy is going right now. Many even believe this is the end of the stock market. I do not see that happening and even if it does, we will restart it. Do not confuse an economic downturn with the end of a system. Humans are the origins of this system and the Coronavirus alone is certainly not going to end humanity.