Well folks, happy Friday! The market was down a (un)healthy 4% over the week and we feel it’s time to start shorting…the geopolitical and economic risk catalysts are showing us that there’s too much at stake for broad-based investment into equities to be the play in a rising rate world such as ours, so buckle up and read on for this week’s long term pick.
“A gem cannot be polished without friction, nor a man perfected without trials”
Market Talk & Long-term Recommendation (Short: S&P 500 Index)
Listen, this rating pains me to put out, however for the benefit of you the reader, I shall do it. To put it bluntly, equities are screwed. We all knew that the music had to stop one day, and today seems like that day. Through multiple policy errors under both the Trump, and Biden presidencies, plain and simply the central banks printed too much money, and now we shall reap what they sowed. The everything bubble is real, and especially apparent when you see stats such as yesterday’s, wherein each sector in the S&P went into the red. While we as investors never want to hope that this bulwark of an index will decline, the reality of the situation calls for extreme predictions.
You may be thinking “prices are returning to pre-pandemic levels and should stabilize here”, hate to break it to you but those thoughts aren’t going to pan out. While yes prices are returning to pre-pandemic levels, we’re dealing with an entirely different market psyche and economic landscape. In 2019 investors had been enjoying record gains year after year, as a result, no one was incentivized to remove money when prices moved upwards, in common terms, there were few bag holders in 2019. However, in 2022, investors who put money into the market over the past three years are salivating, waiting, and hoping for a move upwards so that they can offload their stocks at a loss that feels somewhat more acceptable. Psyche aside, in 2019 we weren’t dealing with a broken supply chain, massive inflation, rate hikes, or a war in Europe, and we sure as hell weren’t on the precipice of global famine.
The straw that will break the proverbial camel's back may end up coming from an extremely unlikely source, the Swiss central bank. Known as having one of the largest holdings of FAANG (if that term still exists) stocks, they recently announced plans to sell off shares, and use the profits to purchase Swiss Francs in an attempt to buoy their currency.
All of the doom and gloom aside, I’m not some tinfoil hat-wearing lunatic who’s calling the date of the end times based on the words spelt out in his morning bowl of cheerios. These crises will not bring an end to the world as we know it, however, it will likely batter equity markets in a way that has never been seen in our lifetimes. As such, we believe that shorting the S&P will provide the most returns during these troubling times.
Chart of the Day - Key asset index returns