I think I have been reading way too much Zero Hedge lately because I have bought into the idea that the market is overvalued and a decline is imminent. I have moved to mostly cash and even bought some Bear ETFs which rise on a stock market decline. If you look at people trying to beat the market then you will see in almost every case they lose. This will probably happen to me, so writing this article will be a good record of poor decision making. But let’s see the evidence before reaching a verdict.
The market’s PE Ratio is current over 25 meaning that the stock market is priced at 25 times its annual earnings. This is much higher than its historical average of 15.6.
China’s growth is slowing. This has hurt countries that are close partners, but China deals with just about everyone, so the ripples will expand. In my area buyers from China also buy half the new homes so as it becomes harder to move money out of China that will hurt property prices.
The world is entering a new period where growth will be slower, this provides fewer good investments and therefore the price quality investments goes up.
Unemployment is at the lowest level ever and the Fed thinks the economy is good enough to consider raising interest rates.
Other doom and gloom scenarios
While I’m on the topic of market drops I might as well bring up other scary scenarios. I have no idea how these will affect the market, but their effects will be more than financial.
It is happening and changes in climate cause problems for lots of people. If sea levels rise lots of money will be spent trying to protect the coast or lost as the sea levels overcome many areas. Watch the Olympic opening ceremony again to see their projections.
There are food shortages in Venezuela as inflation destroys the value of money. Climate change presents a problem for food production as droughts could reduce yields and floods can destroy. This article puts it together very well.
War could break out. It is already rampant in the Middle East. There are many areas of the world which are at odds over one thing or another.
I really don’t know when the recession is coming or if we are already in it. I’m fine keeping most my money in cash earning 0.95% because I want to be ready to buy a home if the property market drops significantly. We can’t predict what will become of the market, but we know in the long run it goes up, so me pulling out is a bit illogical. A fear for the future globe as we don’t price nature very high and therefore are willing to destroy quite a bit for a buck.