US economy is in a good shape.
But markets are overpriced.. is a crash coming?
A quick look at the US economy at the beginning of Nov-21 tells that we have quite good condition and the odds for a recession are really low.
But the pace of this growth of economy is somehow declining, mostly because of some inflationary pressure and shortages in raw materials / electronic components affecting many sectors.
- Housing markets is quite good, after having suffered some spikes during last months.
- Labor market is constantly getting better, quite close to pre-covid situation
- Industrial / commercial companies are experiencing a strong recovery, but components shortages are affecting this growth and this is very visible in the truck sales.
As for the whole automotive sector, delivery time for new trucks/cars are becoming an issue.
- Inflation seems to be stable, but is stalling at pretty high levels. Will it be just temporary as FED is claiming?
- Financial conditions are still very goods, allowing companies to invest heavily without high costs to bear
With this general picture, we can state that the economy is not at any risk in the short-mid term.
Recession is really unlikely and cannot be the trigger for a crash of financial markets.
On the contrary the opposite is possible: being stock prices so high, a drop of markets could trigger a recession if not well handled.
There are many stocks with unreasonable prices in the market, we all know it.
Many are calling for an imminent crash, but ... it is always like this. Every day you hear ore read that the "market is doomed".
We could read the same on Jan-21 on Jan-20 when markets were at ATHs. But markets kept on growing.
Even after two remarkable crashes (2018Q4 or 2020Q1) permabears were not ready to call an immediate recovery, they just kept saying that market was doomed, again and for more.
The point is that everybody knows that markets are overpriced and a crash is possible, but none knows WHEN it will happen, neither HOW BIG it will be.
Bottom line:
Our models will give us guidance when markets will really crash.
Until then, we keep on our daily monitoring.
But staying invested for most of the times is what really works in the long-term, thanks to the power of compounding.
HST model has given a breath-taking return of 161% during 2020 and +49% in 2021. We just need to step aside when a real bear market is coming in.
When this happens, HST investment will suffer a drawdown, no doubt.
Its magnitude can be -30% or even -50%, so we must be prepared for it, while hoping for the best.
If an investor wants to increase his/her capital in the long term, but is not comfortable with such possible money loss, the solution is pretty simple: reduce size of the invested money until the possible drawdown is acceptable.
We want to make money and have a better life, not to put our mental health under too much stress.
Hari Seldon Trader
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