To my one follower (thanks mom), I know you’re sitting on the edge of your seat to see this news. I spent the majority of last year overseas in Kuwait while deployed with the Army. What a unique and interesting experience it was. Unfortunately my patience was thin, and so was the internet bandwidth most of the time, so I spent a majority of my time reading, studying, and planning my very nice 3 week vacation upon return to NZ and Australia.
While overseas I tried to stay up to date with markets but unfortunately found it difficult. I also am normally a pretty risk averse trader/investor so without being able to stay in tune with markets consistently I chose to pull just about all of my money out of the market.
Most of the information we receive on a day to day is negative in some aspect. The military does not succeed if it plans for the best, and pretend the worst isn’t there. You plan for the worst, so you’re constantly taking in information with negative undertones to them. With that said, I pulled all my personal account out of the market while overseas and put my money into various length CD accounts. Putting my money to work a little bit was better than not being able to monitor my account consistently and keep a pulse on things I was active in.
As a fairly active retail trader I am managing my own money that I worked for. Therefore, it is extremely important to me to protect. So naturally, one of my many flaws is that I am quick to get out of trade that doesn’t go my way right away. I would rather lose 5-10% on a trade then see myself lose 15-20% and hope that it bounces back quickly. That is not something I enjoy.
As I get back into the swing of work again and back in the markets, I am trying to reassess how I enter the market. So much has happened over the last year, and especially over the last 2. And there are so many theories out there on the market will go up, the market will down, only certain sectors will perform, etc.
Just about a week ago I had heard a theory on a podcast on how the U.S. equities market will continue to flare up. This was due to inflation, Government spending, and never getting to an interest rate that will tame it. The idea is referred to as “Project Zimbabwe”. While I don’t think anyone really thinks the U.S dollar will inflate to the same extent as the old Zimbabwean Dollar, the concept is similar. Uncontrolled spending, and keeping rates below inflation will not allow inflation to be tamed to the levels we have seen over the last few decades. With that said, the idea would essentially influence stocks prices to rise with inflation as goods sell higher, inputs are higher, but the people buying those goods wages remain relatively in line with prices of goods purchased.
There’s also the idea that maybe the Federal Reserve will try to actually tame the inflation dragon. However unlikely that is considering the Federal Reserve recently became a bit dovish in their most recent meeting. The markets took that as rate hikes have definitely stopped, and rate cuts were further priced in to the remainder of the year. I never quite saw things this way though. There have been signs everywhere that inflation never really stopped. Sure it slowed down from the 5% YoY growth we saw after 2020, however we have yet to see inflation slow to the idle speed of 2% which has always been the Fed’s target. As of late last week, with the latest inflation reports it does seem however that the market is starting to they think they were a bit over their skis. The most recent print put us at a 3.5% YoY inflation rate. This has caused some panic and choppiness to the markets after the S&P was hitting all time highs.
We’ve seen about a 4% drop in the S&P since right around April 1. Over the last 5 days every sector of the S&P is down over 1% with the Real Estate Sector leading the pack at about -5.5%.
All in all, I do think the next few moves could move the market lower by about 5% before it stabilizes and continues higher. Right now I think people are just reassessing what it means to have rate cuts pushed out another few months, and algorithms are adjusting positions based on these new inputs.
What will I be doing?
Well, I will continue to hold the Sprott Uranium ETF for the time being as I think overall nuclear energy will need to be a primary energy source going forward. I did sell my USO holdings after the Iran/Israel escalation primarily because oil did not move higher after the escalation, meaning most of the conflict risk was already baked into the prices. As the chip wars escalate I did buy some MU, as this seems to be the company the USG has taken in as it’s domestic source of chips. While the company has just about doubled in the past year, if there is any risk to the chip market and international trades, this would only be an input for higher prices.
Diary of a Retail Trader 