Well, here we go again.
It’s been a while, but a bear market is upon us. Unfortunately, it is a bear market in most every asset class: stocks, bonds, gold, crypto; they are all in downtrends. Real estate is probably the next shoe to drop. It has been estimated that $8 trillion in household wealth has evaporated in this bear market. Pundits are calling for the stock market to fall another 20% from here. Could it? Maybe. Will it? I don’t know. I do know that if you look back to March of 2021, just a little over a year ago, the stock market indexes were lower than they are now. The indexes topped out early January this year so when we measure from the top, things feel a bit worse than they really are.
Anyway, think about what’s causing this downturn. Off the top of my head, here are some excuses for the decline: inflation, the war in Ukraine, reduced consumer spending and confidence, lower housing starts, house sales are down, China lockdowns, supply chain issues, $6 gasoline, the pandemic. You could probably think of others.
I think we could probably make the case that the Federal Reserve, in its inflation fight, is going to knock the economy into a recession. This is the most likely reason we are seeing asset values fall, and as the old adage goes, “Don’t fight the Fed.” The perception is the Fed is no longer going to be accommodative, no easy money, no easy asset appreciation. And whether or not that is true, perception becomes reality. If we avoid a recession, it will be amazing.
I personally think the inflation we are seeing is more supply oriented, meaning demand is high but the supply of the things we need or want are low. Raising interest rates isn’t going to change that. So I’m afraid that the Fed’s fight is going to be futile.
What will change the mode we are in is time. Markets will adjust. And they will adjust just fine as long as they are left alone to deal with the issues. Recessions clean out the dead wood and that’s not necessarily a bad thing.
When you see the declines in stock values that we’ve seen in the past 5 months, there is a recency bias that we tend to extrapolate out in the near term that prices will keep getting lower. And we tend to kid ourselves into thinking we’ll step up to buy when prices fall to a certain level. Here is the truth though: no one wants to buy a stock at the price they were waiting for. Why? Because when it gets to that price, they figure it will go lower. And maybe it will. But, so what? If you pay the price you want and get good value, you should be happy. That’s what we wait for and that is what patience provides.
Anyway, here is the one thing I want you to take from this short video. “You make most of your money in a bear market, you just don’t realize it at the time.” A wise man named Shelby Davis said that. And I just want to remind you of that reality.
Until next time, I’m Phil Albitz. Thanks for watching.
