Is The Gloom And Doom A Sign We Are Nearing A Bottom?
The FUD is spreading like wildfire. We all know the world is coming to an end. Whatever we face, it is going to be of epic proportions.
At least this is what we are told according to all those videos on YouTube. Of course, Twitter is no better with its share of the gloom and doomers.
So what is really going on? The reality is nobody can really predict markets. They might be ready for a larger crash or we could see a massive rally. Markets do not operate upon any fundamentals, it is pure emotion.
Thus, what we are facing.
There is little doubt the economy is slowing down. The numbers globally are pretty bad. While some point to things they view as positive, the fact that China is closing cities while US retailers are getting stuff with inventory is not a promising picture.
Some even assert the move by China is done to cover up the fact that orders declined a great deal. We warned repeatedly that demand was going to dry up in 2022. The imbalance was starting to show in the 4th quarter with record jump in inventories in 2 out of the three months.
Here we are 5 months later and we see it growing. The major retailers all tell the same story. However, the reality is US companies were caught with their pants down during the lockdowns, causing them to be ill-prepared for the purchasing that took place. Since services dried up, people bought goods.
These companies did not want to fact that again so they ordered to make sure it wouldn't happen. Of course, this sent issues up the entire supply chain with many reading too much demand. Suddenly, when this was realized, companies started to cancel orders.
And that is what worked up the supply chain.
Therefore, due to a number of issues, including the fact we are now dealing with deflationary money throughout the entire global banking system, it is likely we see parts of the global economy head into recession.
The EU is getting close. China is looking pretty bad. Japan is having major issues. The only question remains whether this will enter the US or not?
The Economy And Markets Are Different
We could post dozens of reasons why the economy should tank the markets. Certainly, logic says that is how things work. Unfortunately, it is not.
Hence, we could face a situation where the economy is tanking yet some markets are going up. People will always be operating under the flight to safety. Where investors feel money is the least at risk is where it will flow.
At the same time, we have a lot of money under management. That cannot sit in cash for extended periods of time. This is especially true as we enter the second half of the year. That is when the money managers have to make their numbers. Parking money in cash for a short period of time is acceptable but after a few weeks, they have to put it to work.
After all, cash doesn't provide much of a return, even with the increase in interest rates.
So what is going to set the market in motion. It always comes back to fear or greed. While is most prevalent?
When you see the systemic overture in one direction or the other, then you will likely have an indication of where things are going.
Of course, if things go too far in one direction, suddenly we could get a whipsaw. Markets do not operate on logic so applying that is useless.
Right now we see a lot of doom being touted. There certainly is enough for people to base this conclusion upon. However, when investing, we have to remove emotion as much as we can. What do the facts tell us?
Again, markets are their own animal. Anyone who played them for any period of time learns this. So, what are the markets telling us?
Right now we are seeing a lot of negativity and that is being reflected in price action. That said, the sentiment is so overwhelmingly awful, we could see a rapid change. It is something that often happens and we should be prepared for.
None of this is financial advice but it is good to pay attention to the overall sentiment and be ready if it shifts. Nothing goes one direction forever.
For this reason, could all this doom be a contrarian indicator? That is something each person will have to decide.
Just be mindful that it could be a sign we are nearing a bottom.
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