Today, the stock market is facing one of its most chaotic phases. With significant losses, such as a $30,000 drop in the author’s personal portfolio in just one week, the situation is critical. Bitcoin is also being sold off quickly, and even giants like Tesla are struggling. Market fear is growing with high inflation, large CEOs selling off shares, and IMF warnings about U.S. debt. Geopolitical uncertainties, like the conflicts between Israel and Iran, further aggravate the instability. Three major issues are highlighted: high inflation, elevated interest rates, and a U.S. national deficit far above the global average. Despite so much uncertainty, the author continues to invest and advocates for the strategy of “dollar cost averaging” in the S&P 500, consolidated dividend stocks, and occasional Bitcoin purchases. He emphasizes the importance of staying calm and well-informed, as no one can predict the economic future with certainty.
Key Takeaways
- Stock market in decline and significant losses.
- High levels of inflation and elevated interest rates.
- Geopolitical uncertainties increase market instability.
- Three possible futures: ‘hard landing,’ ‘soft landing,’ and ‘no landing.’
- Continued investments in S&P 500, dividend stocks, and Bitcoin.
The Stock Market is Booming: What is Going On?
And the stock market is booming, and the memes are flooding in. Many people think the stock market is about to explode and maybe go through a major reset. And this tends to happen every time the Federal Reserve talks about interest rates. Many people are asking: should we buy during this dip? But is this the real dip? Or is it just the dip of the dip? Or are we in the dip of the dip of the dip?
This is because the stock market has lost a substantial amount of money this week. Even my own stable blue-chip dividend-paying portfolio is down $30,000 in one week. Even Bitcoin was oversold this week. The entire market is on fire. And when I saw this, I thought: it can’t be that bad, right? I’m sure tech stocks are doing well. Like, how’s Tesla doing now? Well, Tesla isn’t doing well either. No one is safe in this market. And I want to know what’s going on because apparently, we’ve been fooled.
Inflation and Stock Sales by CEOs
Inflation actually hit 18% in 2022 using the old calculation method, according to Larry Summers. And that’s twice as high as we were originally told about inflation. Additionally, CEOs have been selling off hundreds of millions of dollars worth of their company’s shares. The IMF just issued another warning to the U.S. about our debt spending. And Papa Joe Powell may not come to save us anytime soon by lowering interest rates, which is crazy because most people thought by now interest rates would be lower. But he’s about to drop something soon. And they say it’s a hit. Fans are saying, “Oh, you like EDC? Well, this is EDC, FOMC style.”
But as someone who’s a magician and who I think has mastered the art of distraction, I want to explain exactly what’s happening. Did you notice that I’m wearing a different shirt, glasses, and a different watch than when I started the video? Magic. So let me explain exactly what’s happening, why people are afraid of the stock market, and why I personally am still investing. Let’s go.
Bad News and Fear of Global Conflict
There’s a lot of bad news happening in the economy that’s causing people concern. Some of these reasons are good. Some of them aren’t so good. But without a doubt, the biggest reason people are afraid is that they’re scared of war or global conflict. Right now, Israel is under attack from Iran. Rockets are raining down. We effectively have World War III underway. So, the threat of geopolitics is always a bad thing for the stock market in the short term because the stock market doesn’t like uncertainty. But in the long term, war profits are definitely a real thing.
Now, I managed to find data going back to 1939. And it turns out that during all major conflicts, the overall long-term effect on the stock market was positive, with an average return of around 11%. Another theory as to why investors are selling off their stocks is that we’ve just come out of tax season. And that’s when investors like to sell their losing stocks to offset some of their winning stocks. This is done to reduce their capital gains taxes, which is also done through a process called tax-loss harvesting. So, there’s a bit of that happening too.
Stock Sales by CEOs and Executives
Another reason why people are selling their stocks is that they feel something is wrong. They’re seeing headlines about CEOs and company executives selling their shares. And the headlines go like this:
| CEO | Company | Amount Sold |
|---|---|---|
| Jeff Bezos | Amazon | $2.4 billion |
| Mark Zuckerberg | $500 million | |
| Jamie Dimon | Chase Bank | $183 million |
And that sounds terrifying. The media knows that if you read these headlines, you’ll want to click on them. Trust me, I know. I do YouTube for a living. They’re my competitors. Well, kind of. Because if you read that some CEO, especially a CEO of a big bank that’s “too big to fail,” is selling their shares, you think: should I be worried? Maybe the billionaires know something we don’t. But the truth is, while this seems like fresh news to us, like a good magic trick, reality isn’t always what it seems.
For example, Jamie Dimon’s strategy was disclosed in October of last year. Mark Zuckerberg’s half-billion-dollar sale was announced at the end of 2023. And I just don’t think he could have known what would be happening so far into 2024 unless he’s truly an AI robot. Jeff Bezos recently sold some of his Amazon shares, and maybe he does know something we don’t. Or he needs to pay for his two mansions in Miami totaling $147 million and his $500 million superyacht. I have to say, that’s an incredible yacht. I would have to ask him something if I were on that thing. Mr. Bezos, do you like Bitcoin? Of course you do.
Actually, the real reason Jeff Bezos sold has nothing to do with any of these reasons because he also announced his plans to sell in November 2023. The real reason he’s selling is to reduce his capital gains taxes. He wants to reduce his capital gains taxes by 7% by moving from Washington State, where he’s been for three years, to Florida to live closer to his parents. So, the real reason is that he wanted to pay fewer taxes, not necessarily because he thinks there’s something wrong with the economy. Once again, it’s all a distraction.
Real Issues to Worry About
Now, the reasons I just shared with you, I don’t think are real causes for concern because that’s the distraction part of the magic trick. It’s designed to get us talking about it and create a buzz. But there are some real reasons that concern me and that I pay attention to, and here they are.
Problem 1: Inflation
The number one problem is inflation, also known as the speed at which prices are rising. So, this is the point where we were at the peak of inflation, and this is the point where we should be heading. But now we’re at 3.8%, so inflation is effectively twice as high as we want it to be.
Problem 2: Interest Rates
The second problem is interest rates, which are now extremely high, but they’re high because we’re trying to slow down inflation. But the problem is that even with high interest rates, inflation isn’t slowing down. It’s rising again, which is a very bad sign.
Problem 3: National Deficit
The third problem is the national deficit. The U.S., as a country, is spending and borrowing far more money than it has, and this is such a big problem that even the IMF, the International Monetary Fund, just issued a warning saying the deficit is posing a significant risk to the global economy. The amount of money we’re spending and don’t have is projected to keep increasing. The U.S. is spending so much more than it’s making that we’re going to have a spending deficit of 7.1% by 2025, which, for context, is three times larger than the global average of 2% for other advanced economies.
Possible Solutions and Outcomes
Now, even though the problems we have are solvable, no matter what solutions economists come up with, every time we hit a dead end, it’s almost as if we’re perpetually stuck in Yugi’s Millennium Puzzle, waiting for Pope Powell to pull us out. So let me show you some of the possible solutions so you can think like an investor and hopefully understand this crazy stock market, and then explain it to me, because I still don’t get it.
Solution 1: Print More Money
One of the solutions that the government seems to favor is printing more money. And we can, but we can’t. The reason is that whenever we borrow money, the U.S. does so by issuing debt. The way they do this is by flooding the economy with treasury bonds. Treasury bonds are things that people buy, hold, collect interest on, and are considered one of, if not the safest investments anyone can make because they are backed by the full faith of the U.S. government. Except there’s a problem with our bonds. Nobody wants to buy them. That’s because when the stock market is doing well, as it is, or was, we can’t get people to buy bonds because, based on risk, stocks yield them more money.
Solution 2: Offer More Money
So, how do you get people to buy the country’s debt? You do that by offering them more money. And you do that by raising interest rates. Think of it like a dividend stock. Many people chase dividend yields. They buy the highest-yielding stocks and then lose money on the principal and expense ratio, but that’s a story for another time. But the point is, this is how you incentivize people to buy something. You offer an interest rate they can’t refuse. Except we can’t offer a higher interest rate because we can’t afford it. We simply can’t afford to borrow more and then pay trillions in interest alone because there’s already a huge spending deficit. So, we can’t incentivize by raising rates, but we also can’t lower them.
Solution 3: Hard Landing, Soft Landing, or No Landing
There are three possible outcomes that people are betting on, and these are a hard landing, soft landing, and the relatively new “no landing.” Today, 7% of economists think we’ll have a hard landing. A hard landing is for people who believe we should keep interest rates as high as possible for as long as possible just to fix inflation, even if it means the cost of a recession and the cost of people losing jobs.
54% of economists believe there will be a soft landing. This means that the path we are on now will eventually lead us to 2% inflation, nobody will lose their jobs, and this is called a soft landing, which 54% believe will happen.
36% of economists believe there will be no landing. No landing means we won’t really lose jobs, but we also won’t bring inflation down to 2% where it needs to be anytime soon, and the economy will keep growing at a certain rate. If I had to pick one of these three camps today, I’d be in the no landing camp. But that could change over time, and that’s just my very wild opinion. But the truth is, I don’t know.
Why Keep Investing?
Even though I can make an educated guess, I still would never try to time the market. The CME Fed watch tool shows there’s a 96% chance that interest rates will stay the same, so higher for longer. And that means stocks and other assets will have to suffer for a little longer. At least until the Fed steps in and tells us they will definitely lower interest rates, which they might do. They might come in and surprise us because elections are coming up. And even though the Fed tells us they don’t get involved in the political process, there’s a chance they will, lower rates, assets will rise again, people will be happy, and the government will be re-elected. That could happen.
And even though I understand all of this, I still won’t gamble with my money because I’m not going to try to time the market. And even though I’ve shown you all this bad news about the stock market and the economy, I’m still going to keep investing in the market and doing dollar cost averaging. And here’s exactly why.
What you’re seeing on the screen are the average returns of different types of assets. But what you should pay attention to is this specific area here. This is the 20-year return of the average investor. And what it really shows is that many assets—whether oil, gold, real estate, stocks, bonds—all make money, but somehow the average investor significantly underperforms compared to all of these assets. And that’s because of moments like this. People get scared, listen to the news, sell, and lose a lot of money. But someone out there will eventually be right. They will be called geniuses. They’ll make millions or even billions and have their 15 minutes of fame. But at this point, you’ll have to remember that they may have been right for all the wrong reasons. It’s not because they necessarily knew what was going to happen, but because statistically, someone has to be right sometimes.
So, keep that in mind before you buy their course on how to become a millionaire. That’s why instead, I do dollar cost averaging in the S&P 500. I keep buying my boring blue-chip dividend stocks, and occasionally I buy a little Bitcoin as my plan B. But understand that no one knows anything about the economy or where it’s going. So don’t panic. Keep doing you.
Final Considerations
Now that we better understand what is happening in the stock market and the factors influencing it, there is one last consideration that deserves attention. Diversification is an essential strategy that can help mitigate risks and seize opportunities in different sectors and geographies. Diversifying means not putting all your eggs in one basket.
Another important point is to analyze the impact of international fiscal and monetary policies. Decisions made in other major economies, such as China and the European Union, can also affect global markets. Keeping an eye on these policies can offer a broader perspective and help predict possible changes.
Finally, it’s crucial to remember the importance of continuous financial education. The stock market can be volatile and complex, but with the right knowledge, it’s possible to make more informed and less emotional decisions. Reading, taking courses, and consulting with experts are valuable tools on this journey. This keeps investors prepared to weather any economic storm.
Frequently Asked Questions
- What is causing the stock market decline?
Several factors: high inflation, elevated interest rates, CEOs selling shares, and geopolitical uncertainties like Israel and Iran. - How is inflation impacting the stock market?
High inflation erodes purchasing power and negatively affects company profits, leading to stock sell-offs. - Is the “dollar cost averaging” strategy still safe?
Yes, according to the video, the author still supports this strategy in the S&P 500 and dividend stocks, even with the volatility. - What are the future economic scenarios being considered?
- Hard landing: Raising interest rates to combat inflation.
- Soft landing: Inflation stabilizes without job losses.
- No landing: Moderate growth without reaching the inflation target.
- Is investing in Bitcoin safe right now?
The author occasionally buys Bitcoin but with caution due to its high volatility.
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