The United States stock market has historic run since the 2009 financial crisis. It has been 10 years of uninterrupted bull run and the Dow Jones Index is up more than 250% during this time.
Are we in the peak of the bull market?
A ton of economist agrees that economic growth has slowed down in recent years. The world market is contracting slowly. The economic data also suggest that the growth rate of the most powerful countries like USA, China, UK, France, and Germany’s GDP is slowing.
According to the business dictionary, a recession is a period of general economic decline, defined usually as a contraction in the GDP for six months (two consecutive quarters) or longer. Marked by high unemployment, stagnant wages, and fall in retail sales, a recession generally does not last longer than one year and is much milder than a depression.
Recessions are hard to predict. Although,
|Expected increase in home values |
|Mortgage interest rate||6%||4.4%|
There is a wider acceptance that a recession is now well overdue. Though a list of common denominators for recessions says quite the opposite story. Nevertheless, recessions always surprise people and these indicators correct later.
- Home price is in record high
Mortgageinterest rate in low
- Unemployment is low
- Customer confidence is high
History does repeats and sooner or later there will be a recession. No one really know when.
What really matters?
Well, recessions are bound to happen. It is part of the market system. Long term investors can not avoid it. Rather, they will have to deal with it.
What is the best way to deal with it?
Let us assume you don’t expect a recession and expect the stock market to grow. Let’s say market is yet to go up 20% and you don’t want to miss out. And then, out of nowhere recession comes around and market slides 40%.
If history is of any guidance, it will take you around 6.5 years to get 20% return on your investment. Unless you know how to precisely time the market.
Therefore, long-term investors are better off letting go of the initial 20% potential gain and be ready for the ill time. This is exactly what the
First, we have to acknowledge that the market is in saturation condition. Number one indicator for it is unemployment rate. Current unemployment rate is the lowest since 1968. People in this market condition behave irrationally. They think this condition will persist for forever and live a celebrity life with borrowing money. This practice is the beginning of a recession.
Recession is conceived during a good time, not a bad time.
A sensible investor should be willing to give up the initial 20% return and be ready with cash to deploy had the market gives a better buying opportunity.
Indeed, cash is the king.
In the current market, investing in the margin loan is as stupid as playing with fire. I wouldn’t do that. Even though, I was a big fan of low-interest margin loan for a long time, which was a great help for me.
Surely there still are great opportunities, here and there, if you are competent enough to look and find one. I will lose this game hands down. Therefore, I am not in this game.
Also, investing in the stock market by solely the help of macroeconomic conditions is as stupid as driving in the wrong lane. You might survive it but your chances are pretty low.
Lastly, the safest way, again I am talking to investors of my conditions, is to slowly be out of the risky area and take shelter. I know there is no storm just yet. But wait for the storm first and then wait again for it to pass and then get back in the saddle.