Fake Markets...

I am finally finding some time to reflect and research on all the available data publicly to make some very important decisions regarding my financial position. With my recent sale of my home (still think it was great timing), I am sitting on more assets than I have usually had in the past. My goal continues to be to reduce my debt burden so I have really earmarked the majority of the cash to payoff another mortgage I still have pending. However, given the time I will have to get out to the bank and deal with the payoff, I have been looking at ways to leverage the float for the short term. It is not to speculate although the opportunities remain high with all the disconnections being seen currently in the market.

The issue is that these prices we are seeing around the financial markets are not only irrational in most cases, but are also fake in my opinion. While current value is always determined by future performance (of mostly cash flows), uncertainty does not seem to be valued in current prices in the market. Most analysts currently get by by saying that current valuations are ignoring 2020 results which makes absolutely no sense to me. Time Value of Money includes the current year always and with the new learnings we have had with financial assets actually being worth less than zero (like oil), current results must be taken into consideration. If not, the investors can risk climbing into a hole, too large to recover from.

In fact, I think that many sovereign debts will have to face the same reality as well as many continue to aggressively issue debt to deal with the crisis and provide stimulus to the economy. We also see how not all countries can even come up with enough stimulus to offset the economic impacts of the shutdowns being imposed on worldwide. This will continue to push another phenomenon which is not healthy for investor portfolios; the weight of few Companies will continue to drive the Market Capitalization of the indexes and markets they belong to. We already see this with the big technology names today.

This all becomes pretty frustrating for those that actually can invest as what may seem as obvious investments like buying hedges with put options or shorting Retail and Commercial Real Estate (like I have done), do not work out in the short term. The Federal Reserve has been putting their newly minted fiat currency to work buying almost every asset within the fixed income markets which have manipulated asset prices. I read that 20% of that market is now owned by the Fed. That means that the remaining financial markets, which mostly includes the equities available are bought up to raise prices. This has exaggerated the "everything bubble" in my mind.

This also punishes or penalizes savers like myself with cash on the sidelines. Look at the yields of bank accounts and money markets just to see how interest rates have been impacted. This only helps those issuing debt as they have the Fed to buy it all up. However, it does not help us who have been prepared and responsible to save for a rainy day. Effectively, the only way I can save is really continue to paydown my debt which remains above 6% yields. Savings those interest payments is effectively better than leaving it in the bank at 0.10%. It will come back to well known advice to "not bet against the Fed" so I guess we have no choice!