With markets in sell-off mode, you can expect a slew of news articles coming out about how one should always buy and hold in stock markets long-term. Well, that may have been true for the past 50 years but we are facing a very different future now.
The baby-boomer generation (born after WW2) threw away the austerity of their parents and were responsible for fuelling the mass consumerism we have today. The money men of Wall Street convinced them not to save for retirement but rather to give their money to the bankers and brokers and they would grow it in the markets. Of course this worked quite well while the baby boomers and their children have all been earning salaries. The massive bull run in stock markets we've seen since 1950, apart from a few minor corrections along the way, has been fuelled by boomers and everyone else seeking ever higher risk returns. The music has hardly stopped playing, until now....
Because those baby boomers are now all retiring en-masse. They are not earning like they used to and they are not buying the dips like they used to. Their children and grandchildren are mostly mortgaged and indebted (house, student loans etc.) up to their eyeballs with expensive property and toys. With markets in sell-off mode, we can expect greater and greater runs to the safety of cash and boring instruments such as government bonds. We should not expect markets to recover quickly again as there simply isn't the volume of readily investable cash lying around any more. The retirees need it now.
The 2008 GFC saw a massive deleveraging of wealth from consumers to businesses and HNW's who were able to turn the easy money into easy profits, in housing and stocks. This has created an even greater wealth disparity and inequality across the world. The average man in the street in New York, London, Sydney and Maputo feels poorer than ever before, and that's without hardly any inflation at all.
Pension and tracker funds have propped up markets for the longest time now. Of course we can expect these to continue but in an uncertain world with rising interest rates and inflation, and with low growth (even in the US) the best we can expect is stagflation. I've said this before here but Japan was once the world's no. 2 economy before stagflation hit them in the 90's. They're only kinda recovering now.
Yes, of course markets will recover. But I suspect we're in the early stages of a slow grind downwards. As I said here before, this feels like October 2007 again, where there was a slow but steady decline, before the final crash came in 2008. Depending on how macro events play out here, I expect a similar situation this time, only at twice the speed now. So we should know if we're into proper crash mode by Christmas / early Jan, or if this is just a prelude.
Either way, I reckon the fundamentals of the stock market are changing for good now. Too many people chasing returns. The mathematics of Capitalism doesn't work like that i.e. it asymmetrically rewards the top 20% with great wealth, whilst the bottom 80% must get less than average returns.
