You’d have to be living in a cave without reception to not know how expensive life has become or to understand how much less your hard-earned dollar is worth. Fuel is up, food is up, rent is up, rates are up … stress is up! And above all there is the need to keep up!
Saving is one thing, but when the hourly rate starts to barely scrape by keeping ones life and life style afloat something has to change. Of all times, the means to earn money and to make it work has never been more important.
However, that being said making money work either through investments and/or through the markets seems like its never been harder. There are endless messages, commentary and analysis of hope, caution, apocalypse … and booms that are ‘just’ around the corner.
If that wasn’t enough, there is some economic report being released each and every day that the markets seem to react to with extreme prejudice. CPI, PPI, JOLTS, Unemployment numbers, Housing applications, natural gas storage, Fed Minutes, Fed speeches … take your pick.
Each and every release of data seems to trigger some explosion. And then on rare days where the specter of stepping on another mine seems low, there are massive moves up … or down!
It would almost seem like whatever you do … or could do is doomed to fail! When you need to be in it to win it, survival is the most basic goal … just making it through to tomorrow!
So, what gives? Why does it seem like everything is so psychotic?
Welcome to Volatility!
What is Volatility?
Although there is a volatility index that is “remarkably” inverse to the major indices, volatility can be instead thought of a representation of the scale of market movements, where fast movements up or down are increases in volatility, whereas stability is the reduction in volatility.
So, what causes it?
One cause … It comes down to uncertainty.
And … there is plenty of it. If all of those reports above weren’t enough, last week two regional banks collapsed in the time it takes to check your social media feed!
But how on earth can the most viewed, scrutinised, and analysed Economic Sector be subject to uncertainty? How can the financial markets have scope for doubt or how can they seem to be lost?
Related: Crashes, Crypto & Money Disasters
Because … Everyone is an Expert
Well maybe not everyone … certainly not me, but between various media channels, websites, analysts … federal agencies … White House Appointments … everyone and everything has something to say and to date, there are plenty of people in positions saying things that don’t make sense, and really should know better.
But if everyone is an expert, why are things all over the place?
Perception is one thing, but everyone has a different perspective. The bulls [1] want things to go up, the bears see things moving down. Depending on about … A-Thousand various factors, the Bulls don’t just want prices and valuations to go up, but they want buyers to step in and push things upward.
The bears, will often be the ones delivering the reality checks, pushing dooms-day scenarios telling the world things are going to go downward in a big way. Come to think of it … I could be a bear!
So, with so many gurus out there, why is it that almost every day someone seems to have stepped on a land mine?
Related: Is the Inflation Bubble about to Pop?
Everything is Interconnected … and not!
Everyone might be an expert … but the picture is so absurdly complicated, that not every factor can be considered. Even when there is strategy, whether it be rooted in fundamentals or technical analysis, markets can turn on a dime, and right now they often do, seemingly based on nothing more than a headline or an incoherent speech from someone who really should know better.
In fact, in my view, its more likely than not, most people are idiots! Trust no one!
Just when you think you can accept what the secretary of treasury or the fed chairman have to say at face value, it can come to light they choose to ignore one set of data for another … and that’s before foreign economies post their reports.
Market direction is outright psychotic. Just 3 days after 2 regional banks have collapsed, and the market participants have raced for the closest bomb shelter and ATM to get ready for the next financial meltdown, we see the financial sector and the S&P Surge 2.02% (XLF) and 1.65% respectively. Even one stock listed as a potential candidate for collapse surged over 25%.
Phew! We’re all clear right?
Not so fast!
Markets work on momentum, so things aren’t always rational … I’ve said that a number of times.
You don’t need to look further than what the markets are doing now … endless games of chicken between the market and the fed, the latter of which is an unmoving-irresistible force that has stated on a number of occasions, that it will continue to push rates higher even if it costs jobs, the former … retail traders, investors who seem to be relying more on hope than anything else.
But eventually on any time scale, people will profess they were right!
Traders and investors have been playing chicken with the Fed since the middle of 2022 … placing their bets that things will pivot for the last three-quarters of a year. Even last week, the Fed was talking about accelerating hikes by another 50 basis points because the economy is doing so well …
And whatever the Fed in the US does … the rest of the world tends to follow.
Related: So … How is your relationship with Risk?
So, What about ‘Your’ Money?
Well that’s the multi-million-dollar question aint it?
I’ve talked about how everyone is an expert and how everyone is simultaneously stupid … often well-paid stupid people.
But I did come across something interesting recently. Over half of managed investment funds under performed the benchmark index last year! [2] needless to say, this made me feel a little better about some of the trades I placed for myself …
Regardless, when it comes to making money work, right now is a very challenging time to say the least. If you look at the S&P chart as little as 2 years ago till now, you’ll notice a massive difference in market behavior.
You will see small, steady, stable weekly movements emerging from the lead into and the worst reaction of the pandemic, all the way up to 2022 where weekly movements were the size of prior monthly movements.
And when it comes to large movements, despite the case they are mathematically very lucrative, they are also extremely dangerous to your money. And this leads to the investors / traders dilemma.
Related: Markets, Inflation, Recessions & What Comes Next
Dilemma?
Nothing is more important than risk management. Before you can make money, you have to make sure you aren’t going to lose it. And you can’t make money unless you can stay in the market!
So, when market movements are big, and whipping all over the place, the likelihood of getting booted from the trade are bigger. That means smaller positions or taking larger risk.
Larger risks, mean bigger losses. Smaller positions mean, smaller losses, but smaller gains.
Smaller gains … leads to taking bigger risks … and so it goes.
*sigh*
Regular investing is all about what to buy, sell or ignore and when to do it. If you’re on the right side of the trade … you win, when you’re not, you lose and when the market doesn’t move … well … nothing. sell into a downward trend, and you’ll probably end up watching the market go into orbit. buy into an uptrend … murphy’s law says you’ll have bought at the top. Do Nothing? You’ll just keep missing the opportunity.
Of, course there are other ways to make the money work. There are ways to make money when the market goes sideways, upward, downward … ways to trade stocks that are nearly free [yup there are …] , take finite risks, ways to exploit stability and ways to earn on volatility.
All of these extra choices might offer more tools and choices when it comes to making the money work, but they are no guarantee of success.
So, what’s coming next? What happens tomorrow?
No Idea! Everyone has an opinion, everyone is an expert and everyone is full of ****!
I for one … I don’t see good things on the horizon, either tonight, this week, month or even this year. Rates have been going up even if something breaks … and the cracks are their to see!
There is war already in progress, and state actors ready to take advantage of geo-political lunacy, bad policy … oh and two banks just went under. A major European bank is also showing major red flags … there is far too much incompetence with far too much influence out there, and there is a ton of gambling going on.
I for one don’t gamble!
Right now, its about survival. There is no telling what can happen and when, and no possibility should be taken off the table.
Buckle up or sit it out!
Related: Can Rising Interest Rates Stop Inflation?
2. https://www.barrons.com/articles/active-fund-managers-underperform-again-in-2022-ec4759fc
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