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OPINION: Should I be bullish or bearish?

In a recent interview, hedge fund manager Ray Dalio warned of troubled times ahead. He specifically mentioned 4 key factors (in order of declining importance) that drive the economy and our subsequent living standard:

  1. Productivity (Learning & Inventing) - Paralyzed due to Covid-19

  2. Short Term Debt Cycle - Averages 8-10 years, we are in year 12

  3. Long Term Debt Cycle - Averages 50-75 years, the current cycle began ~1945

  4. Politics - more specifically, how we deal with each other.

At present, the horrifying death of George Floyd is a prime example of #4 - Politics. Represented both in the unfortunate event itself and the destructive & riotous aftermath. Notwithstanding, Dalio points out that at the end of every #3 Long Term Debt Cycle, there is a new money credit event that occurs - where a new credit system is instituted and world order shifts. For example: In 1945, at the end of World War II, the dollar/U.S. dominated world order began. For more detail Mr. Dalio has a great Linkedin piece on this very subject.


Keeping the 4 above items taped to our proverbial mirror, we must move on to present-day and get a read on the immediate sentiment. The Nasdaq is within a stones throw of all-time-highs. Other indexes have recovered nearly 75% of earlier losses. Interest rates are near zero. 21 MILLION ARE UNEMPLOYED! Yet, I suspect the Federal Reserve has thrown enough money at this to keep the party going for a few more years. But after that things could get very ugly (a la Ray Dalio's prediction).


The fortunate difference between the average Joe and Ray Dalio, is the average Joe can change course on a dime. Hedge funds need weeks/months to harvest cyclical gains and build short positions. Joe can flip his $500,000 IRA in the bearish direction in a few short hours. Commercial real estate is a more difficult animal and would require some foresight to liquidate - but can be done with the proper planning and leveraging.


That being said - what I've learned over the past 8 weeks has been invaluable: Don't let your opinion of what should happen, keep you from making money. Many have been bearish (including your's truly), from the day the market bottomed back on March 23rd. The nature of the herd is to overreact in BOTH directions. The nature of the successful speculator must thus be the opposite: To seek reasons for caution when others are fearless and -- on the flip side -- to seek reasons for hope when others are hopeless. Don't let opportunities pass you by because of what you think SHOULD happen. As a wise pit trader once told me, "the easiest way to make money is to find a trend and join it." This economy may be doomed one day - but that day is not today. And it won't likely come when everyone expects it. Lest you keep the 4 items above in mind, tread lightly...but tread nonetheless.






#Macro #Covid19 #RayDalio #PersonalFinance #CRE

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