Crisis Is Opportunity
Uncertainty is leverage
I know this might sound a bit cold, given the carnage we are seeing in the world right now in the Middle East. But this is just the perfect distraction.
Nobody cares about economic sanity when everybody is emotionally carried away by a war going on. If you are one of those people sleeping on the fundamentals of money during this time, you need to wake up.
This is when robbers steal. This is when the action happens. Everybody is looking at Israel right now. Nobody is looking at inflation or deficits anymore. Now, everybody can blame harsh economic conditions on the war again.
The US will have to print money for Israel and Ukraine. Inflation is not going anywhere. They can doctor the CPI report as much as they want. But on the ground, your money will be able to buy less and less. Here are 5 things you should know right now:
1. Economically Speaking, the Israeli War is a Distraction
If you are a serious investor, do not let yourself be distracted. Especially if you are operating in the US markets. Don't be carried away by the war rhetoric.
Also, note those who are using the war rhetoric to push for something economic. Notice how the tone of funding is changing. Notice who is having their way more. Notice who is accumulating more power.
The thing is that distractions become permanent changes. It is hard to pass a reform in peacetime. There is a lot of analysis and scrutiny. But in wartime, you want to do things fast and quickly. So, there is little or no scrutiny.
Don't be distracted. Watch your fundamentals and notice how they are changing. Don't let anyone deceive you that something is a temporary change. Temporary changes don't get reverted after the emergency period.
This was how income tax started in America. They said it would be temporary. Change is inevitable.
2. Stocks Move on Stories
One of the best statements I've heard this week is this - stocks are stories, bonds are contractual agreements. This means that the stock price moves on trending stories. But (corporate) bonds are more based on actual business agreements.
Corporate bonds are bonds that are issued by private companies. This is different from bonds issued by the government (that is also called, treasuries).
It is very easy for stocks to move. One good story can move a stock price upward regardless of what the balance sheet says. The company can be unprofitable and still edge upwards in stock price. Why? Stocks move on stories.
Good stories drive the stock price up. Bad stories drag the stock price down. It doesn't matter if those stories are true or not. What matters is if people believe it or buy it.
And this leads to a very slippery slope. For example, a news might come out to say that something is good. But if you look under the hood, it is actually bad news. But nobody is looking under the hood. So, the stock price goes up because a lot of people think the good news is good.
Reaction matters in stocks. How the market is reacting tells a lot, especially in the short term. But eventually, over the long term, the truth is more prominent.
When you are seeing a lot of good news with bad news under the hood but the market is turning a blind eye to the bad news, a moment of truth is somewhat close. Don't be naive - everything evens out in the long term.
This is why you hold your positions. Don't jump around and change your stance.
3. The Only Economic Strength the US has Left is the Dollar
It doesn't seem obvious now. But it is to me. The US is weak as a producing economy. But it is strong as a consuming economy. That is why you have those heaps of debts.
Production isn't as high as it used to be because everybody wants to produce where the currency is cheaper and sell in the US market where the currency is stronger.
The strength of the US dollar is in its global reserve status. That must not be lost. If that goes away the international demand for the dollar drops, and will likely result in a crazy inflation surge.
4. Watch Oil Prices
My educated guess is that Iran will be sanctioned again. Saudi and Russia will not increase production. And fuel prices will be up again.
Europe is a net importer of energy. This will affect the continent. You can expect airfares to go up also if the conflict in the Middle East lingers.
5. Pay Attention to What The World is Not Talking About
Investors buying bonds think it is a safe haven. And it is not. Cash still makes a lot more investing sense than bonds.
My main concern is that the US is making short-term decisions. They keep making these short-term decisions and they are piling up to become long-term massive blunders. Also, the open southern border creates a systemic risk for the next election. These and many more are currently ignored.
If you want the "creme de la creme" of investing opportunities during this time, look meticulously in the opposite direction of the Middle East. What is that war a distraction for?
Crisis is opportunity. War is a way to distract people to get certain things moved quickly or swept under the rug.
Investors make the most money in times of uncertainty like this. But you have to be smart and deeply resourceful to take advantage of it. Don't play a game you don't understand.