LO LO
FINANCE
By Michael Schmanske
Where Do We Go Now? Market trends change, but informed investors ride the ever-changing waves In the past I’ve told readers I’d give some idea of what to do next, or at least what to watch for. This is not official investment advice and I am not a financial advisor. I am an educated guy with experience and an opinion which you may or may not find helpful. That being the case, I’d like to give you some food for thought that may help drive your personal investment decisions over the next decade. Yes, decade.
It’s not the very beginning, but it’s still a very good place to start The ‘70’s were all about stagflation, and inflation hedges outperformed in an otherwise crummy market. Agriculture, mining, gold and base materials did ok, but the best thing that could be said about the ‘70’s is that they finally ended before disco killed us all. The ‘80’s started to get interesting as high
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interest rates in the beginning of the decade led to the Fed gaining control of stagflation. The newly stable financial markets led to an outperformance of classic value stocks: Consumer staples, healthcare and utilities all outperformed. Eventually that stability and leveraged buyouts created a value bubble in stable cash cows, and it ended badly with the 1987 market crash. Interestingly, the nadir actually occurred with the savings and loan crisis of the early ‘90’s and the resulting washout along with Desert Shield set the stage for the ‘90’s tech rally.
Modern markets and the world of CNBC The 1990’s were the beginning of modern markets. Retail investors got involved and computers changed the world. Anything computer did well,
anything internet did even better. CNBC was on every TV, hot dog vendors became day traders, Y2K was coming and the Central Bank kept monetary policy very loose in preparation. Arguably they kept rates too low for too long leading to rampant speculative behavior and when the bubble burst in 2000 there was much weeping and gnashing of teeth. Like the ‘80’s, the actual end didn’t occur until the telecom credit market washed out. In 2002 Enron and Worldcom collapsed and we once again invaded Iraq in 2003. Iraq had better be ready for us—we don’t have another George Bush to elect, but the symmetry is impressive. Maybe we can just visit this time? The 2000’s returned us to nontechnology companies. Biggest performers were banks, energy stocks and home builders. Note: Technology companies from the ‘90’s were persona non grata until AFTER this regime ended with the Global Financial Crisis in 2008. Instead of invading Iraq that time, we began the greatest monetary experiment in history. The 2010’s were all about low interest rates. Globalization took over and logistics became king (the real power of Amazon wasn’t tech, it was LOGISTICS) and the anti-inflationary forces Cathy Woods loves so much meant that easy money was here to stay. Or at least it was here for a while.
“Oops I did it again” Here we are! It’s the 2020’s and we begin the story with a crisis, monetary policy held too loose for too long and the bursting of a decidedly speculative bubble. We can’t follow the ‘70’s or the ‘90’s playbook since history doesn’t repeat—it rhymes. The pain is real for holders of spec-tech, meme stocks or crypto, but it didn’t infect the rest of the market this time. Thankfully we did
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[ Q4 ] 2022
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