As we write this, the market is in the middle of a face-melting rally. And yes, that's the technical term for it. To recap: in the three weeks before the election, the market lost 7.5%. There were widespread expectations of a "blue wave", and the market didn't like seeing the specter of inflation in all the anticipated government spending given Democratic Executive and Legislative branches.
Since election day, the market's up 11%. In a week. Initially, the market rallied on the much ballyhooed "blue wave" not materializing. If there's continued gridlock in DC, then it falls to the Federal Reserve to try and stimulate the economy. Which means more QE. Since all QE really does is drive up stock prices, the market was happy.
And then this morning, Pfizer comes out with a positive announcement on their Phase 3 trial, and the market rips. Small caps up 8%. Airlines up 16%. Cruise lines up 23%. Movie Theaters up 60%. Retail up 24%. Even Hertz (still bankrupt, by the way) up 25%. Face melting.
The problem here is that nobody really knows anything.
Part 2. There is so much to unpack economically here, it might take us the rest of the year. So we’ll just start for the time being with a real-time post-mortem of the stock market and economy. A peri-mortem, perhaps.
Things in the land of fiat money and made up valuations are...bad. Like, Stewie destroying Mr. Rogers’s Land of Make Believe bad.
The S&P 500 had a closing high on February 19 of 3,386. As we write this on March 19, exactly one short month later, the S&P 500 is sitting at 2,323 about 15 minutes into the trading day. That is a loss of 31% in a month, which is the fastest drop into a bear market from an all-time high on record (the red line).
In honor of it being March, let’s talk about leprechauns.
First - did you know that Leprechaun (the movie) was Jennifer Anniston’s first film role? Starring film role, that is. Apparently she had a bit part as one of the McDonald’s dancers in Mac and Me in the late 80’s. Which, from what I can gather, is kind of like if E.T. was produced, directed, and starred Ronald McDonald. But I digress. Back to leprechauns!
Second - did you know that prior to the 20th century, leprechauns were depicted as wearing red, not green? True story. Yeats actually claimed both, that it was the solitary leprechauns who wore red and the “trooping” ones that wore green. So go ahead and wear your red proudly at the St. Paddy’s Day parade this year, you solitary leprechaun, you.
Third - we all know about the leprechaun’s pot o’ gold, ostensibly at the end of the rainbow. But do you know what leprechauns do for a living? Yes, they have an occupation. They are - wait for it - cobblers. Which, unless things are drastically different in the fairy realm, is not the most lucrative of professions. So how does a race of (usually) unseen cobblers become known throughout the world for hoards of gold coins? The only possible explanation is that…
Fourth - leprechauns are masterful savers. While I can’t entirely condone the whole “bury your gold in the ground” thing, I think there’s a lesson for all us in the uniform way that leprechauns across the board have managed to save up massive amounts of money.
Way back in the first ever Rogue Waves, I gave out the two secrets to investment success. Remember what they were? Time and compound interest. Leprechauns are perfectly illustrative of the time component. Even if you get zero growth on your money, a little bit of savings will turn into an entire pot of gold with enough time.
Now, since you as I, as mere humans, don’t have the savings time horizon of a leprechaun, we’ll need to take advantage of investing secret number two: compound interest. How do we do that? There’s an easy bit and a hard bit. The easy bit is to put your money in things that actively pay you interest or dividends - bonds, real estate funds, dividend-paying stocks. Happy to talk through your options with you.
The hard bit is putting your money in things that actively pay you interest or dividends AND match your risk tolerance. If you see your account value going down and you hit the eject (sell) button, then both your compound interest AND your time stop working for you, and you’re 0 for 2 on the investing secrets to success. At which point you may very well think it a good idea to start chasing rainbows looking for pots of gold.
Until Discovery Channel starts airing a “Rainbow Chasers” reality TV show, that’s probably not a brilliant way to make money. Stick to the budgeting/saving/compound interest over time method, and you’ll be alright. And if you need a little help getting on that path, drop us a line - firstname.lastname@example.org.
Too Soon to Start Investing? Financial Experts Weigh In.
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