Hey there!
Welcome and thanks for joining my very first newsletter! This is exciting for me and hopefully for you too!
My main focus for this newsletter is to write about the stock market from a macro perspective. It will consist of market cycles, main events/news, market psychology, fundamental analysis, technical analysis, and whatever else I think is important to inform you about.
Before we start here is my full disclosure: None of this is financial advice. This newsletter only consists of my thoughts and opinions at best. You can disagree with me too which is okay, but if you do please share your perspective with me so that I can learn your point of view. Lastly, please do your own research.
Here we go!
Stock Market Will Crash in 2021
I think the stock market will fall hard according to the below Dow Jones chart and ultimately bottom some time in 2021 (take it with a grain of salt because I could be wrong too). Obviously I don't have a crystal ball, so I have no idea on the exact timing, but nonetheless it's best to be prepared to take full advantage of cheap prices when it happens.
To further explain the below graph just a bit. That white line where the red arrow meets is the mean or average historically. My prediction is that the stock market will touch that white line and when it does the true crash will happen below that white line.
"Buy Low and Sell High"
The best analogy I thought of to "buy low" is the following. Think about the stock market just like how you would about Black Friday. Why do you want to literally buy everything on Black Friday? Because prices are dirt cheap at a 50% discount or more. Essentially you want the best deal right? In the same way, you want to buy stocks when prices are dirt cheap, but that only happens when the stock market crashes.
Easier said than done of course and this actually dives into market psychology because it goes against human nature. Humans are good at following the crowd or the masses. Come today many people are experiencing FOMO by jumping irrationally into the stock market, so apps like Robinhood have reported its highest trading volume to date. If everyone thinks the stock market will go higher and higher, I beg to differ by thinking the opposite can happen by expecting a crash.
End the Fed
The Federal Reserve, Fed for short, is a private entity that only does two things: 1. Control interest rates and 2. Print money. The Fed has already exercised both of their tools. Rates are currently at and will remain at 0% until 2023 according to Fed Chair Jerome Powell (this just means banks can borrow money for free to lend out to consumers). The Fed has printed $3T from the first stimulus package and very soon a second stimulus package around $2.2T once it’s passed.
But what does this mean for you? One thing. Every dollar you own in your bank account will be worth less due to the Fed printing money or in other words more inflation. I expect current inflation to outpace the Fed's estimated annual 2% inflation rate.
How does this affect the stock market? The government can only purchase assets with this printed money. This is why we’ve seen the stock market on a rampage since March. We could see something similar once the second stimulus package is passed quite frankly before the crash.
"Be Fearful When Others Are Greedy and Be Greedy When Others Are Fearful"
The above quote is from Warren Buffett, one of the greatest investors. This quote is best used as a "buy low and sell high" rule in my honest opinion because it goes against human nature. And going against human nature is the secret ingredient in making better money in the stock market.
Look at the graph below. I believe we've entered the Greed to Delusion phase and closing in the New Paradigm phase. My current sentiment is to be more fearful than greedy given the circumstances.
Also take notice at where the public money comes into the picture. It is well after smart money and institutional investors. These are considered the pros. In sports, pros are the ones who make big money. The same is true for the stock market. Wall Street exists to take your money at the end of the day. Keep that in mind as you build your own stock portfolio.
Hopefully you found this first newsletter helpful and learned something new today =) Thanks for reading, stay safe, and please be kind to your loved ones. Many people are hurting out there during these unfortunate times.
Until the next one,
DHL
p.s. If you enjoyed this first issue, reply back with "I'm in!". If there is enough positive feedback, I'll start preparing the second issue for you.