SmartStops comments: Such great macro analysis that our cohorts at Real Investment Advice provide. All investors should take notice and ensure they are using our Smart Risk approach to protect their investments. As this article states: “The amount of speculation in the market currently is rampant. There have only been a couple of times in history when we saw similar investors’ actions, and both ended poorly.” And to paraphrase the most significant 2022 market risks are a reduction of corporate buybacks (see chart below), a reduction in liquidity (watch as the fed raises rates) and earnings growth which support valuations but now valuations have become overly speculative and unsupported by those earning projections.
Remember what Ray Dalio once said:
“The biggest mistake investors make is to believe that what happened in the recent past is likely to persist. They assume that something that was a good investment in the recent past is still a good investment. Typically, high past returns simply imply that an asset has become more expensive and is a poorer, not better, investment.”
Read the full article titled: Speculative Mania – Was 2021 The Peak?
Another good point made in this article is about the rise of liquidity and one of the key macro risks to pay attention to:
“As we head into 2022, as noted above, the global government and central bank liquidity spigots are getting turned down. Interest rates are rising, and inflation is starting to affect policy decision-making. The result may well be a reversal of those flows into equity funds as witnessed in 2015-2016 and 2018-2019 as the Fed tightened monetary policy and tapered their balance sheet.”