Finally a day with the markets $SPX500 up. Only the $DJ30 is in red today as its largest component Boeing $BA falls by 1.6% after another crash of one of its aircraft. As for our portfolio, good recovery from $GME after a disastrous day yesterday. Most of our stocks are having a great day except for our $Oil stocks $PE and $CXO which are down because of lower oil prices.
This Decade will be BAD for US STOCKS ๐บ๐ธ
Last decade the US stock market $SPX500 was able to return an average of 11% per year. We should, however, not expect this decade to be the same. Just because something has been happening doesn't mean it will keep happening.
First, we need to understand what has been pushing stocks at all time high:
1. The low interest rates
2. tax cuts
3. Share buybacks
The most important factor, of course, is the low interest rates. The interest rates have been very low since the 2008 financial crisis and it seems that the Fed doesn't want to raise the interest rates in fear of a recession. Low Interest rates are like training wheels. When the economy is not doing so great, it needs training wheels but if things are getting better, the interest rates need to rise. If your child keeps using training wheels, she will never become a good cyclist.
The problem with the low interest rates is that the Federal Reserve System is losing control. They are injecting money constantly in the repo market because the banks don't have enough money. Right now, it's happening only in the overnight repo market, but there will be a point when they will truly lose control and this injection of money will lead to inflation. There are two possible scenarios:
1. Fed raises interest rates - this will make investors unhappy and stocks will underperform
2. Fed keeps interest rates low - this will lead to inflation. Most of the people profiting from low interest rates are people who hold financial assets. This is creating a wealth gap and we can expect more and more anti-capitalist regulations. Investors won't be happy about that.
The inspiration for this video came from Ray Dalio's article "Paradigm Shifts". The economy moves in cycles and right now, we are in a similar situation like in the 1930s. That was a bad decade for stocks.
I'm not telling you that US stocks will certainly do bad this decade. Maybe I'm wrong. I'm just telling you to be careful. Just because the markets gained 30% last year doesn't mean that it will happen again. So what shall we do? We can invest in alternative assets such as gold $GOLD or in other countries such as China or Russia.
If you look good enough, however, you can always find great companies in the US itself. There are still companies being traded at a discount.
In the long-term, I will never bet against America. Warren Buffett says that you should just invest in the $SPX500. In the long-term, it could work but for this decade, I'm not so sure. Why is Warren Buffett sitting on $128 billion in cash instead of investing in the $SPX500 ?
Watch the full video on YouTube:
https://www.youtube.com/watch?v=NHyyNyZzNKc&list=UUPO3uUyoXSaFWG-Ldq1mqEQ
You can find the full analysis on US stocks for the decade on my investment research partnership:
https://ishfaaqpeerally.teachable.com/courses/662813/lectures/13420604
Join my private investing group on Facebook for more:
https://www.facebook.com/groups/IshfaaqInvesting/
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