Some of you may have noticed that the stock market is dropping faster than Harvey Weinstein’s trousers. Coupled with rising interest rates, inflationary prices, the Russians giving the finger to Glasnost, and Covid giving Pfizer the slip by disguising itself with the DNA equivalent of wax lips, it is perfectly reasonable to remain confused, scared, and nauseous.
Here’s my take.
We continue to have very strong GDP and unemployment reports. GDP growth is very important. Why? Beats me. I suspect, however, GDP growth, coupled with this year’s stimulating and titillating payments from your rich Uncle Sam, has caused the money supply to expand faster than Whoopi Goldberg (and any assembly line that has the decency to obey rules and regulations).
Interest Rates (or, as my old Sicilian barber in Brooklyn called them, “Interesting Rates”) are, indeed, interesting. Basically, interest rates represent the cost of money and currently sit at a 40,000 year low.
Interest rates are a by-product of a growing GDP and money supply and when ratcheted up, are to inflation what a crucifix is to Dracula. There is an inconvenient truth that higher interest rates also make funding the government much more expensive. There is a further inconvenient truth that low interest rates made all types of financial assets more valuable (or expensive, depending on your household ledger). By financial assets, I mean houses, stocks, bonds, and any dog breed mixed with a poodle. What I do know is, wealthy people love low interest rates and big government spenders also love low interest rates. As the barber said, “interesting”.
It all adds up to a stock market as jittery as Ted Cruz in a Mexican restaurant. Not only have stock prices been previously buoyed by low interest rates, but future cash flows from new and existing business operations must necessarily be further discounted due to potentially higher interest rates.
So, stock prices are resetting, bond prices are resetting, and house prices may reset, and, if all goes as planned, CNBC says that before long, you’ll be able to buy a rump roast without a subprime loan. See how these things are all connected?
For the time being, don’t confuse the stock market for the economy. The economy is surprisingly strong. Wages are up, jobs are plenty, and innovation continues. Some point to Covid as an economic drag but my perspective is simply: when we buckle up in the car, do we visualize about how we might have gone through the windshield without the seat belt? Take YOUR covid precautions and get on with living. You won’t get these days back despite what the people from Peloton tell you.
If you do decide to take advantage of the fire sale in equities, I feel it necessary to remind you to please consult a professional (of which I am not) or at least the members of Congress who seem to consistently outperform Goldman Sachs. As for me, when I add it all up, I feel relatively confident that this too will pass. Exactly when do I think it will pass? Come on, Man.