Or so said Henny Penny in the well known story and this seems to be the reaction of everyone on my LinkedIn feed at present. So a little bit of context is needed and as usual this context is provided by looking at data – a surprisingly rare occurrence in the world of finance.
If you have placed $10,000 into STW an ETF that tracks the S&P/ASX 200 at the March 2020 low as the market was reeling from the first shock of COVID that $10,000 would now be worth $14,560 an ROI of 45.6%. The current drawdown in STW from its peak as measured by the close today would see a drawdown of a staggering 3.23%.
Since the recovery from the initial COVID shock the market has over the long term given you 45.6% and part of that return has included a drawdown of 3.23% – that seems pretty fair and hardly indicative of a crash. Naturally, it would have been a tremendous bit of luck to buy at the low of the pullback but that’s not the point of this exercise. The point of this exercise it is to look beyond the hyperbole to what the market is actually doing as opposed to what is being said about what it is doing.
To as the natural question is this the beginning of a crash I have no idea, nor do you and nor does anyone else. The market will do exactly what the market wants to do irrespective of your opinion, hopes, wishes, or dreams.
You are but a mere passenger.
All true with one caveat. The ROI quoted has primary been the result of massive debt driven fiscal and monetary stimulus creating an everything bubble. Predicting the timing of a crash my be impossible, but if history is a guide, a crash is inevitable. The financial system nearly collapsed in the GFC event of 2008 and has been on central bank life support since. The length of time this patient can be kept alive in the central bank ICU is limited.
I would perhaps posit that it doesn’t matter what may or may not have caused markets to move. My view has always been that money doesn’t know where it comes from. It has no conscience.