For a long time I’ve been warning absurdly, insistently, about the concept so basic, obvious, mature and rational that any teenager already understands as soon as he has the perception about money:
FAIR PRICE MATTERS! VALUE MATTERS!
After all, how difficult is it to enter the markets with this concept? After all, Anyone uses it even when they are going to buy a loaf of bread! The following list demonstrates exactly that over an entire year: there is no point in buying any asset that is extremely commented and driven by the general media regardless of prices! It will be corrected! Over the last century this has happened so many times that it is ridiculous for people to fall into the same situations. In fact, there’s a clear reason: it’s easier and more comfortable to follow most people than to study, read, learn.
The two backgrounds: ARK (pink) vs BRK (blue).
- ARK trying to price the distant future, still non-existent, reaching over $300.00 in February 2021.
- BRK keeping the concept of a sixth grader: buying at a discount! Pricing the past and buying discounted assets in space and time (entering a time machine and buying at the price of the past). The result is irrefutable!
No matter how much ARK momentarily flies to the moon; it’s the capacity of your fuel tank that will guide your future.
Tank = Profit
No matter what they say; a fact will always be a fact: German inflation has exceeded all limits since 1951! At some point the market will correct abruptly because of the individual monetary loss and the quality of life of the small/medium investor. When there is no more solution and no increase in income, also increasing basic expenses, asset sales will be the only way out for the vast majority.
American inflation has also reached frightening levels (Red and Gray Lines) and there are still those who say that it is transitory. It is always important to warn that inflation in the American economy is “exported” to the whole world, including the wheat that makes its daily bread.
Still following the inflationary line and the loss of the basic quality of life of individuals, above, Goldman Sachs already projects an exponential increase in the increase in the energy cost of a barrel of oil for the next 3 years. This will interfere even more with the production and consumer chain as a whole – from gross production, logistics and reaching the end of the consumption chain. All the cost will be passed on somehow.
If you still have any doubts about what lies ahead, look at the performance of the energy sector since 1926. The previous lowest levels corresponded to the most perverse recessions of the last century and unfortunately we are experiencing the same cycle.
Above, the history since 1988 already demonstrates in the Yellow Line that there is an 80% probability of a very close acute recession. These recessions are demarcated by gray bands. The Blue Line indicates the S&P 500 index throughout these recessions.
I warn you that, since 2008, the market itself has not suddenly felt this process because of the very low interest rate and also by the issue of asset purchases by the Federal Reserve (FED). However, we have reached a “threshold” of zero interest rate; high inflation and virtually infinite “creation” of the dollar by the FED. Therefore, there is no one more plausible way out for the markets to continue holding absurd highs.
FEELING OF CONSUMPTION
While this painful process begins, American consumer sentiment is prolonging new possible lows (Blue Line): getting below 5%. Practically reaching the last major recessions (1990, 2000, 2009). Everything is lining up perfectly for a massive *crash* correction of the financial markets.
NASDAQ REAL VS NASDAQ VIRTUAL
The image above speaks for itself: the bearish conversion has started and there is a long way to go. Note that the Blue Line (Virtual Nasdaq) tends to follow the Red Line ( Nasdaq Real).
Another historical image reflects the current moment: the share prices of technology companies reaching historic highs; entering deep corrections after the summit. As reported in previous reports, the vast majority of companies in other sectors are already in sharp corrections since February 2021.
Far be it from me to be clairvoyant, but data collected as per the image above, demonstrates that possible sharp corrections will take the S&P 500 to approximately 3000 ~ 3600 points. Therefore, it is important to adapt the emotional and psychological factor for abrupt corrections, or not, of the S&P.
To finish: there are no more words to describe the moments lived in the markets after the image above. We are facing something still unimaginable, surpassing all the major corrections since 1905. Even so, there are countless really trained, studied and intelligent economists who continue to go against so many literally drawn facts.
I usually overlook these economists, influencers and youtubers, because I learned over time that they really need to believe, even against their principles and all the facts, that everything is going very well well. They need to capture and win old and new customers (followers) every day for their own business. And no “customer” wants to see someone being so pessimistic about their money.