One of my closest friends recently said something to me that has stuck in my head for a few months, he said: "One day we'll all look back and ask 'What did you do back when MONEY WAS FREE?'"... He definitely made use of the opportunity. I have tremendous respect for him for a number of reasons, but mostly because he was "early", in my mind.
The thing that strikes me though, is that this is the psychology of the market. People rarely question how ideas get into their brain, but especially since 2008, that's pretty much all I do. I always look for the hidden message, the hidden meaning, the hidden anecdote.
(Backing up a few years) When I moved to Washington, D.C., after leaving active duty, I got a great paying job and wanted to get my own place. I was looking for a condo in Arlington, Virginia. I went to my credit union and they offered me a mortgage for $280,000. This was in 2005. I was shellshocked when I went to my first "priority preview" event for new condos in Arlington. Studio's were being priced in the $390,000-$420,000 range. What took me a really long time to understand, was that this exactly characterized what existed during that time, the real estate market was in a BUBBLE.
Despite working in one of the hottest industries, and having an excellent salary, I was priced out of the market. I decided to sit on the sidelines, actually, I was pretty much forced to sit on the sidelines.
(Ok, back to the present.) ... "when money was free." I've not had much of a conversation about it with my friend since, but that quote, to me, is the psychology of the market place. It's pervasive. Interest rates are at historically low levels, and they HAVE to be. Fifty-Thousand Dollar Cars won't sell if they don't have 0% interest with 7 year repayment loans. Houses? Well hopefully you aren't going out and looking around metropolitan areas for houses, they are incredibly expensive, AGAIN.
The psychology part of the economy is the most interesting to me. What worked in the economy since 2008 was getting people to go out and believe that their money was going to be worthless if they didn't spend it NOW. The psychology of prices, of nearly everything, going through the roof has a tremendous effect. The reality of what we've been living through over the past 9 years is the expansion of CREDIT, marginally from historically low interest rates, to zero and even negative interest rates.
It's my contention, that this psychology... The psychology of the Federal Reserve printing more and more money to chase you out of savings and into spending money, has, what I call a "saturation" effect throughout the world. More and more people borrow more and more money, until they, frankly, couldn't afford to pay the principle on the money they borrow if interest rates went up by half a percent. (This eventually leads to folks suggesting Negative Interest Rates... which essentially means paying back less than you borrow... I know, crazy)
The RUB YOUR FACE IN IT signal that the Federal Reserve really cannot force you to spend money can be seen in commodities. The "narrative" of more and more dollars being printed in 2008 sent a barrel of oil skyrocketing to up over 140 dollars a barrel. The problem though, was that high prices scared people away from gas guzzlers (demand destruction), and welcomed new sources of energy (new digging, new offshore wells, alternative energy). Today a barrel is hovering below $50. This idea that the FED can cause long-run inflation by buying treasury bonds (QE)... is at least partially debunked.
Ok... why am I saying all this? I really have nothing to gain by sharing my thoughts. The truth is... I really think it's important for you to understand that there are lots and lots of logical fallacies about the stock market, investments, and the world that the market, and Wall Street preys on. These fallacies continue to drive stocks to astronomical valuations, and drive more and more people into the speculative mania that exists today.
I'm not going to sit here and predict that we are going to see another financial crisis this year, or a 50% market correction next year, but prudence suggests that this is NOT the time to be 100% invested. Historical investment returns when the market reaches valuations like we see today have meant negative forward returns. Until the day comes, skeptics will be bullied and bruised... but at least if you come to your senses before the crowd, you won't be the slowest camper when the Bear comes.
The thing that strikes me though, is that this is the psychology of the market. People rarely question how ideas get into their brain, but especially since 2008, that's pretty much all I do. I always look for the hidden message, the hidden meaning, the hidden anecdote.
(Backing up a few years) When I moved to Washington, D.C., after leaving active duty, I got a great paying job and wanted to get my own place. I was looking for a condo in Arlington, Virginia. I went to my credit union and they offered me a mortgage for $280,000. This was in 2005. I was shellshocked when I went to my first "priority preview" event for new condos in Arlington. Studio's were being priced in the $390,000-$420,000 range. What took me a really long time to understand, was that this exactly characterized what existed during that time, the real estate market was in a BUBBLE.
Despite working in one of the hottest industries, and having an excellent salary, I was priced out of the market. I decided to sit on the sidelines, actually, I was pretty much forced to sit on the sidelines.
(Ok, back to the present.) ... "when money was free." I've not had much of a conversation about it with my friend since, but that quote, to me, is the psychology of the market place. It's pervasive. Interest rates are at historically low levels, and they HAVE to be. Fifty-Thousand Dollar Cars won't sell if they don't have 0% interest with 7 year repayment loans. Houses? Well hopefully you aren't going out and looking around metropolitan areas for houses, they are incredibly expensive, AGAIN.
The psychology part of the economy is the most interesting to me. What worked in the economy since 2008 was getting people to go out and believe that their money was going to be worthless if they didn't spend it NOW. The psychology of prices, of nearly everything, going through the roof has a tremendous effect. The reality of what we've been living through over the past 9 years is the expansion of CREDIT, marginally from historically low interest rates, to zero and even negative interest rates.
It's my contention, that this psychology... The psychology of the Federal Reserve printing more and more money to chase you out of savings and into spending money, has, what I call a "saturation" effect throughout the world. More and more people borrow more and more money, until they, frankly, couldn't afford to pay the principle on the money they borrow if interest rates went up by half a percent. (This eventually leads to folks suggesting Negative Interest Rates... which essentially means paying back less than you borrow... I know, crazy)
The RUB YOUR FACE IN IT signal that the Federal Reserve really cannot force you to spend money can be seen in commodities. The "narrative" of more and more dollars being printed in 2008 sent a barrel of oil skyrocketing to up over 140 dollars a barrel. The problem though, was that high prices scared people away from gas guzzlers (demand destruction), and welcomed new sources of energy (new digging, new offshore wells, alternative energy). Today a barrel is hovering below $50. This idea that the FED can cause long-run inflation by buying treasury bonds (QE)... is at least partially debunked.
Ok... why am I saying all this? I really have nothing to gain by sharing my thoughts. The truth is... I really think it's important for you to understand that there are lots and lots of logical fallacies about the stock market, investments, and the world that the market, and Wall Street preys on. These fallacies continue to drive stocks to astronomical valuations, and drive more and more people into the speculative mania that exists today.
I'm not going to sit here and predict that we are going to see another financial crisis this year, or a 50% market correction next year, but prudence suggests that this is NOT the time to be 100% invested. Historical investment returns when the market reaches valuations like we see today have meant negative forward returns. Until the day comes, skeptics will be bullied and bruised... but at least if you come to your senses before the crowd, you won't be the slowest camper when the Bear comes.
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