Beyond GameStop - Have the rules of the game changed? 138 / Julian McCormack
——————
A recent Goldman Sachs report into the US financial markets found parts of the market “appear frothy,” with “signs of unsustainable excess.”
The peaks we’re seeing today, particularly among high-growth stocks and stocks with negative earnings appear to point to some kind of economic unreality.
“We’re a long way up the gang plank in terms of valuation,” said Julian McCormack.
“It’s a very elevated point in the history of the market”
When people start using words like “froth” and “bubble,” there’s a secondary assumption that at some point, the thin membrane surrounding it will soon break, releasing everything beneath in a cloud of water droplets and hot air.
To Julian, parts of the markets of today, particularly with the evangelism around tech stocks, evokes memories of the bubble in the 1920’s.
People back then started out their adult lives hopping on a horse to get to work and sending a carrier pigeon home to remind their kid to turn the open fire off. Within a relatively short period they were zooming around town in cars and calling their mates on the telephone — imagine how euphoric and unstoppable people felt during this time. We all know what happened next as the Great Depression hit and people were brought back to reality, fast.
Today everything is changing again. Innovation is causing constant change to the operation of our daily lives, and naturally this builds euphoria — a hype which seeps into share markets and ultimately supercharges sentiment.
But is it really a bubble, or are we operating in a new kind of system, governed by rules not yet written?
Interest rates are almost guaranteed not to rise, we’ve busted through any previous points of resistance in terms of all time highs in almost every sector – perhaps the punchbowl of quantitative easing has been replaced with a glass table, a rolled up twenty, and a little white bag.
The state of many parts of the current market is punctuated by a massive “if.” And as much as some commentators will try to tell you they have a perfect model for what is going on, there is no clear guard rails for these unprecedented times.
As Julian says, we must be wary of “the absolute impossibility of predicting outcomes in a chaotic system.”
So what do we do – what’s a rational response to an irrational situation? Cash out and stuff it in the mattress? Wait it out – call for the end of the world so that hopefully the market hears you? Or diligently keep building, knowing that in the long term, you should be okay?
While there’s no perfect answer, Julian reminds investors of the importance of keeping the investment fundamentals in mind.
“We all must be reminding ourselves to exercise general cautionary principles, even if markets might push higher,” says Julian.
________________________________________________________________
The NZ Everyday Investor is brought to you in partnership with Hatch. Hatch, let's you become a shareholder in the world's biggest companies and funds. We're talking about Apple and Zoom, Vanguard and Blackrock.
So, if you're listening in right now and have thought about investing in the US share markets, well, Hatch has given us a special offer just for you... they'll give you a $20 NZD top-up when you make an initial deposit into your Hatch account of $100NZD or more.
Just go to https://hatch.as/NZEverydayInvestor to grab your top up.
__________________________________________________________________
Like what you’ve heard?
You can really help with the success of the NZ Everyday Investor by doing the following:
1- Tell your friends!
2- Write a review on Facebook, or your favourite podcast player
3- Help support the mission of our show on Patreon by contributing here
4- To catch the live episodes, please ensure you have subscribed to us on Youtube:
5- Sign up to our newsletter here
NZ Everyday Investor is on a mission to increase financial literacy and make investing more accessible for the everyday person!
Please ensure that you act independently from any of the content provided in these episodes - it should not be considered personalised financial advice for you. This means, you should either do your own research taking on board a broad range of opinions, or ideally, consult and engage an authorised financial adviser to provide guidance around your specific goals and objectives.
If you would like to enquire around working with Darcy (an authorised financial adviser), you can schedule in a free 15 min conversation just click on this link
_____________________________________________________________________________
