Financial markets are confusing the hell out of me. Here's why

in hive-175254 •  5 months ago 

A few days ago I wrote about how Nifty Index, the Indian equity large cap benchmark, was irritating the hell out of me. That was because it was neither supported by govt spending, nor was India's economy looking good enough to lure foreign capital. Therefore the index was also neither at ATHs like US indexes, nor was it at an ATL. It was looking confused, and that was adding to my worries.

However, in the past few days, even US indexes have cooled off from the highs.

Most tech stocks, such as those of Apple, Microsoft, Amazon and even the rocket ship stock of Tesla have come tumbling down one after the other like Jack & Jill. Lot of technical indicators and market participants, all have been calling this a euphoric rise with a much needed correction. We have seen that but what happens from here?

The US Fed has been pumping money into the economy via QE, which is great in pushing asset prices higher. They hope to see a bump in CPI but what we have achieved in the past many years is asset price inflation, and thus bubble scenarios in many asset classes. QE stays intact going forward. Will it lead to CPI and thus Fed becoming hawkish? I doubt that will be the case and even if we do see a decent uptick in CPI, the fed will stay accommodative and keep rates low. Thus all good for stocks.

With US Presidential elections just around the corner, we can continue to expect volatility. The ups and downs on a daily basis will also be justified using the probability of a JB/DJT presidency. It doesn't matter one bit because no matter who gets elected, they will be supportive of markets. Politicians are asset holders and they run campaigns, thanks to corporate funding.

Liquidity should keep flowing, Fed should keep rates low, so then what remains the other fundamental aspect to look at? US-China war of words or the economy? I think the economy is the most important here. I think what we will see is a slow recovery. To be honest, I myself sometimes get confused about the state of the economy after having seen this fast rally back to ATH in equities. However, the reality is all too different. Most economies are still opening up. People are not going out as they used to. Consumer Spending is not at its peak. Most small businesses are suffering and banks have tightened lending. All this is not good for any economy trying to kick-start itself after a big economic shock. Also, COVID cases are on the rise as economies open up. If money does not flow and people don't start borrowing to spend more, I don't think the economy will pick up.

While there has been a correction as of now, I think the rally will continue till the US elections. At some point I do think people will take the economic situation seriously. And when they do, I think they should move over from chasing growth and momentum to value. I am personally very confused at the moment. I fundamentally believe that the current charts of equity indexes are akin to FAKE NEWS. I need to keep ample liquidity to be prepared for the most adverse economic scenario. Therefore any large investment or investing in a volatile asset such as bitcoin is out of the question. I wouldn't mind investing in monopolies/duopolies/market leaders in sectors such as utilities, consumer staples, public sector holdings (that will have to pay dividends to the govt) and infrastructure. I am also looking for debt free or net debt free companies that can survive any situation. Also, I am trying to find stocks that are usually not volatile. There is a handful of those but that's about it. I don't mind increasing my exposure to companies I already own in my portfolio. Buying some cheap puts on the market is also advisable. Even though DXY has fallen sharply, I wouldn't mind adding long dollar exposure in some form, either by longing currency directly or buying shares of companies with USD revenues (Exporters that don't hedge fully).

Not selling anything till US elections are done. DJT will keep trying to pump the markets. Staying away from Gold as the market is talking about inflation again and that means I may get to buy gold at cheaper levels from here. Staying away from Bitcoin. I know that it doesn't matter whether BTC is 10k or 20k or 5k, if I am HODLER, which I am but as I said, cannot afford too much volatility at this point.

While I am trying to do all of this, I am still not 100% sure about my assumptions so happy to hear what you have to say. Let me know in the comments.

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