This Bear market

[Waltzing]

Big rallies in Bear markets.....

pump and dump....

[couta1]

I'm not buying anything at the moment - and don't have plans to over the next few months, but am watching all the inflation & interest rate movements with interest.

I posted this graph earlier this year as shows how ridiculously low interest rates were in America relative to the inflation, and give a picture of where they could climb to and what that would mean for their asset prices. American markets drive a lot of sentiment on a day to day basis.



Re the NZX, our rising interest rates could impact equities in two ways and each at different times. The 10 year treasury yield shot up to 3.86% (but is having a little relief rally and there is a lot of chat may have overshot in the short term), which in theory increases company WACCs and drives down their net present value. That impact is more or less immediate as interest rates rise and we've seen it happen in front of our eyes the last 6 months.

The second is what interest rates do to the economy and how long that takes. A lot of borrowings are fixed whether that by households or businesses. Mortgage holders probably fix for ~2 years, businesses for longer at 3-5 years on average but with some unhedged. There are still lucky households with ~3% mortgage rates, but those will be reset sometime this year. And as fixed lending gradually turns over, that sucks money out of households who eventually go on to spend less, and raises costs for businesses at the same time. Then you have wages which take time to respond to inflation as wage reviews are usually only once a year and collective agreements negotiated even more sporadically. Eventually corporate costs are rising steeply at the same time demand starts falling and we getting increasing unemployment which creates even less demand.

Eventually dividends get cut and investment sentiment is often at its worst during a recession even if that means interest rates are expected to reduce again.

And that's when I prefer to invest the bulk of my dough - near the bottom of the cycle - when sentiment is awful and the outlook is weak. But then interest rates eventually drop and we get to enjoy the whole spike up again.

Could take some time for us to get there. There are a lot of households who still have savings built up the two years, so things could be more resilient than you'd expect at first glance.

In the interim I am just plodding my surplus cash into a variety of interest bearing products with different tenures. So I can have some dough available as no one really knows what will happen, and also I think deposits haven't budged enough.

I've avoided the temptation to put more into more 'defensible' equities like generators, REITS and banks. The dividend premium for generators & REITS over bonds is currently at an all time low which can only resolve itself two ways. And many retail investors and instos are just waking up to interest products being viable products again so could be a flight to those away from generators & reits.

Banks might get a little rally they are in the "cost plus" business, so as their funding costs rise they pass it on and earn proportionately more income. But eventually bad debts sink in as the unemployment rises, a recession starts, interest rate expectations drop and bank stops drop. And once that happens I'll step in to buy. But the short term risk is they need to jack up their deposit rates more than they are able to pass on. Plus house sales were on fire the last few years and the outlook for house sales is pretty weak. So I'm not tempted by them in the short term. Plus commodity prices are super high which is great as an existing shareholder, but eventually they will drop too which could impact lending volumes. I'll just wait for things to bottom out more.

At the moment it looks like we might be headed for a recession at some point. That's okay not the end of the world, we go through them and we always will. It doesn't feel as scary as the GFC or April 2020. But who knows maybe bitcoins drop kills some hedge fund which hurts some regional bank and starts some mini crisis. Or putin uses a nuke. Its easy to see the global financial system catching an unexpected stray bullet.

Which is why when I do start deploying capital I'll probably break it up into chunks. If I want to buy more heartland or summerset or contact or whatever, say $100 for each stock, i'll watch the TA signals, but also do it in say 25 tranches instead of 100 over varying time periods. Inefficient. I don't have to pick the bottom but I want to de risk it by not deploying it right at the same time in case their is a shock. and as long as I do that on the bottom half of the cycle, I'm content.

And my own investor 'mental health' is a lot better seeing some of my investments fall as they are now knowing when I bought them.

Lots of unknowns in there for sure but I guess it comes back to an individual case by case basis, after my A2 catastrophe I'm completely unfazed by the current situation, I guess when you take a massive hit you become extremely battle hardened once you work through all the pain, unfortunately some don't manage to make it through such events and are no longer here which is incredibly sad for them and their families.

[Beagle]

Ahh just sit on your hands with your paper loss holdings and buy more cheapies if you have the dosh, give the Bear a hug and a nice wee pat, go big or go home or go big whilst at home.

Bear's are not pets. They are to be respected and feared.

[couta1]

Bear's are not pets. They are to be respected and feared.

I've got a half a dozen collector Bears and I respect them all but no fear, haven't been bitten by any to date.

[ralph]

Interesting F moose sums it up well ,the sp of a lot of good company's reits generators tech especially etc. Falling leveling off then dropping again getting to 5 year lows ,as commented previously the bears will eventually go in to hibernation when is anyone's guess ,seems to sum it up with OCA when a few weeks ago most Investors gave up on it breaking a dollar ,and most where forecasting on that thread 1.20 and it nearly got back there .
A lot of shares from good companies doing the same but its not over yet Interesting times ahead how low can they go hmm that American market !
The pump & dumpers should do well

[Habits]

...unfortunately some don't manage to make it through such events and are no longer here which is incredibly sad for them and their families.

"no longer here" on ST? Or something more tragic? Let's hope not.

[couta1]

"no longer here" on ST? Or something more tragic? Let's hope not.

Possibly both but definately the latter.

[ralph]

Oh dear its not for the faint hearted ,and most people learn the hard way I think I have . Diversification for safety
On that point is there anyone whom doesn't diversify whom just go all in so to speak I have never known that .!!

[Waltzing]

Its been a trading market for a while now. Dump em...

[nztx]

A large posse of traders now .. wonder if the long hairy arm of the Taxman will be looking at
putting a vice grip on any earlier & later gains as well for some of the unfortunates ?

Some of the unsuspecting novices may have already unknowingly painted themselves into a corner