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To Investors,
Peter Lynch is one of the greatest investors to ever live. While at Fidelity Investments, he averaged a 29% return and managed the best performing mutual fund in the world. So it is noteworthy that one of his most famous quotes is “if you spend 13 minutes a year on economics, you have wasted 10 minutes.”
Pretty good one-liner, right?
The reason Lynch believed macro economics was noise is because he managed money during a time where everyone was constantly worried about monetary policy, geopolitics, and various topics outside financial markets. His strategy was simply to buy shares in great companies and wait for the companies to increase in value.
It wasn’t rocket science.
But here is the thing, the stock market has significantly changed over the last 50 years. We went from a market where ignoring macro economics increased your likelihood of success to the modern market where paying attention to macro economics is all that matters.
Let me give you an example.
Former Pimco CEO Mohammed El-Erian wrote yesterday “Forgive me for sounding like a broken record, but today’s market action is so illustrative of something I’ve been trying to convey for a while now.
The notable thing about gold today isn’t just that its price hit yet another record high, but how it has done so: Gold is surging on the same day that US stock indices have over 1%. This simultaneous climb in both a classic safe haven and risk assets is a powerful illustration that the drivers of the current gold rally are different from historical patterns.”
Safe haven assets and risk assets are both pushing higher at the same time. That isn’t supposed to happen. It violates everything an investor was taught in their Economics 101 class. So what is going on here?
Holger Zschaepitz explains the different sides of the debate:
“Despite the Nasdaq 100 hitting a new all-time high, market sentiment remains unusually split, a divide also reflected in Bitcoin’s wild swings.
Goldman Sachs sees two ways to read this: Cynics view it as a fragile equilibrium, where even a small shock could end the rally. Optimists see it as the hallmark of a healthy bull market – one that keeps climbing the proverbial wall of worry.”
So who is right? Should we be worried about the concurrent rise of risk assets and safe haven assets? Well, let’s turn back to Peter Lynch.
He once said “I’ve studied the Constitution and the Bill of Rights, and I don’t see anywhere that we have to have a recession every four years. I don’t see why you can’t have a decent environment for years and years.”
Spoken like a true optimist if you ask me.
My personal opinion on why all asset prices are going higher boils down to the macro environment. Markets are forward-looking and everyone has become convinced that the government won’t stop printing money, the national debt is going to continue accelerating higher, the Federal Reserve and central banks around the world have to cut interest rates in the coming months, and artificial intelligence is making companies more profitable with less employees.
Those four factors are causing investors to pour capital into almost all asset classes. They understand holding cash and bonds will likely be a losing trade. You can buy stocks, bitcoin, gold, real estate, or collectibles. The micro decisions are not nearly as important as the big decision to convert fiat dollars into some kind of investment asset.
People are not going to wait around for the currency debasement and persistently high inflation to wreck their portfolio. They are positioning themselves to benefit from the pain on the horizon.
Add in the fact that we are sitting in the middle of October, which means the year end chase is underway, and it becomes obvious that the bull market is not ending this month.
Risk assets and safe haven assets are going to continue performing. In this environment, some investors want to play offense and some want to play defense. But the number of market participants has expanded so rapidly that now there is enough capital for both types of assets to appreciate as money sloshes around the system.
Price appreciation won’t be a straight line to the sky. There will be corrections along the way. But as Peter Lynch advised us, “in the stock market, the most important organ is the stomach. It’s not the brain.”
So keep your head on a swivel and understand the macro environment went from something you could ignore in the past to potentially the only thing that matters today.
Hope everyone has a great day. I’ll talk to you tomorrow.
- Anthony Pompliano
Founder & CEO, Professional Capital Management
This Executive Thinks Bitcoin Will Hit $180,000 By Year End
Chris Klein is the Co-Founder & CEO of Bitcoin IRA (https://bitcoinira.com/pomp/).
In this conversation, we discuss how retirement investing is changing in the digital era, what people are actually doing inside their retirement accounts, and how the wealthy use these tools to grow their wealth faster. We also dive into broader topics like patriotism in America, macro trends, and the roles of gold, silver, stocks, and Bitcoin in today’s economy.
Enjoy!
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