After a rough couple of trading weeks we felt it was time for us to give our general view on the current market situation.
“It seems to me very clear that the stock market is extremely overvalued and this is very dangerous,” says Andrew Smithers, an economist who has written extensively on how to value the stock market. “Bubbles usually end in tears.”
This quote comes from a recent Financial Times article. So is this true and are we all doomed?
Of course not! Even though yes the markets do look like they are stretched in evaluations right now it has mostly been supported by economic growth but ALSO due to the Federal Reserve banks measures in quantitative easings. We think that the anticipated end of tapering ( meaning the end of quantitative easing in support of the financial system) could possibly trigger a correction in the stock market this fall.
We have therefore chosen to currently put 20 % of our portfolio right now in cash for this possible opportunity.
We have recently taken some gains of the table in the following positions:
Clear Blue Technologies – Whole position gone
Thermal Energy International- Whole position gone
Cielo Waste Solutions – Part of our position sold
We urge all our followers to do an inventory check of their portfolio to see if there are certain positions you think are too large or where you could take some profits in order to have a cash reserve in case of a possible correction.
Something to consider
“Prices in the US equity market look extreme relative to history, but they look less extreme relative to interest rates,” says Inker. “If this turns out not to be a bubble, the answer will be that the underlying environment for financial valuations has changed, so investing in stocks with a much lower expected return makes sense.”
“I’m sympathetic to the idea that with very low-interest rates you can sustain higher equity valuations,” he says. “But it’s still very explicitly a bet on where real interest rates are going to be or that they’re going to continue to go lower.”
So the conclusion is stocks can both be considered overvalued right now or reasonably valued depending on if you compare them to historic evaluations or relative yields available for bonds! Undoubtedly it’s impossible to judge when or how a correction/recession will occur. However for the time being we prefer to stay in the safe zone with our 20 % cash position being prepared for whatever this fall holds for investors.
We own shares of these companies personally.
Investing in stocks is combined with certain risks and it is possible to lose your entire investment. Our posts are made for Educational purposes only and are not to be interpreted as tips , financial advise or recommendations of any kind to either buy or sell any stocks.
Companies may or may not be paying us for content posted on this blog
One thought on “Market update 15/9 2021 – when the going gets tough, the tough get going.”
Nice, objective, well-written post at just the right level. Thanks for making the effort.