There was a tidal wave of economic and market data coming out today so let’s try to digest some of it.
First, the market closed out Friday on another negative. This is the second failed rally since “black Friday” mini-meltdown last week and this DOES NOT BODE WELL for the stock market. Failed rallies are a key indicator that the market is struggling for air. So what is causing the ‘parasitic drag’ on this fluid market?
We live in strange days, the pandemic caused shutdowns globally and that disrupted manufacturing and labor which pushed inflation to all time highs because demand never went down due to free stimulus money, rent moratoriums and seemingly infinite loans to keep businesses running.
We have a demand tsunami while having a supply drought. If that weren’t enough of a problem however, we have new covid variants, Omicron, that are spreading rapidly and primed to cause another wave of infections across the globe. While covid is generally of high concern to people over the age of 65, the mere potential disruptions this new variant can cause are sending fear into the markets.
Lastly, labor wages in the United States are seemingly growing monthly because there aren’t enough people willing to work even though much of the free money spigot has been shut off for months now.
As we stated earlier, we have moved to 80% cash and 20% stocks in our investment portfolio. We believe there will be a 10% or better correction over the next few months, between now (December) thru March or April. If we are right, we’ll be able to pick up stocks at a discount, if we are wrong, we will continue to wait. The S&P 500 is 200% of GDP right now in the middle of a pandemic with supply chain and labor issues.
We have been waiting for a while now and have no problem waiting this out. Crashes often come hard and fast and are very painful for those too greedy.
If you are in this market you have a few options:
- Sell! Sell! Sell!
- Buy protection – Buy puts on your stocks, if we owned massive amount of stock we would buy puts into July 2022 on our stocks as protection.
- Be prepared for the long haul if you do nothing. It took well over a decade for the Nasdaq to somewhat recover from the dot com crash and not all stocks recovered during that time.
Stay tuned and stay solvent…