We’re not seeing a crash, but a correction in real assets.
There is a crash for garbage. Garbage cryptocoins. Garbage stocks. Garbage assets of all types.
Here’s why.
When money costs money, even a little money, things that were bought with free money are worth less. The punch bowl has been taken away. Those who benefitted from the party are throwing a hissy fit.
Inflation, they scream. Crash, they cry.
Uh, no. Markets adjust.
Since markets are huge, that adjustment hurts some people. Take the private investors who have bought up all the single-family houses. When money costs money, the carrying costs of those homes rise. With money costs rising there are fewer buyers. Housing prices will adjust, although that won’t help affordability until investors start selling.
What about the stock market, which I’ve been covering for over a decade now? Everything falls, but not everything falls by the same amount. Speculative issues fall hardest. Tech companies that can fight inflation by automating management will fall with everything else. But they’ll eventually justify investor confidence because they cut costs, thus inflation. Let the tide wash out on what beats inflation through productivity and you will be OK.
You don’t have to look far. Amazon.Com is now selling for less than three years expected 2022 revenue. They’ve done nothing special to benefit shareholders under Andy Jassy. Still no dividend, no buybacks, no stock split. I think they will do something.
Target is now selling for a PE of under 16. Bank of America is at 12.4, with a dividend of nearly 2%. Berkshire Hathaway sells for 8 times earnings. Bargains are high spots as a flood recedes. If you have some cash, nibble on this stuff.
A second leg down began in the market today over Russian threats against Ukraine.
Foreign policy analysts who think Putin has the U.S. “right where he wants us” are ignoring the economic facts of life. Putin is desperate. All he has are oil and guns. The market for the former is declining. The latter has limited utility. Putin thinks he can hold the old Soviet Union by shooting people, but it’s a Potemkin USSR. There’s nothing behind the false front. He doesn’t have us where he wants us, he's in a box and the box is getting smaller.
The realization of this fact, once American policy acts on it, will be a turning point in financial history.
