Cash, Fear, and Demographics

In today’s Money Morning…you can go short, cash out now, or set a stop-loss…lots of things that could crash the market and why this is irrelevant…what about the 85% crash?…and more…

Dear Reader,

Sticking in cash is an expensive luxury for a generation that has sensible interest rates.

Or more generally, a sensible world.

In a world of manatees emblazoned with the ex-president’s name, billionaires one-upping each other with crass ego-stroking space travel, and a joke currency that has a market cap equivalent to the GDP of Tunisia with a canine as its mascot, is it any wonder young people are sceptical of cash?

It’s more than just these various absurd touchpoints, though.

Inflation is coming like a freight train and young people can’t afford cash.

Just keep stacking increasingly worthless bill after increasingly worthless bill in a dinosaur bank so you can buy a small flat on the edge of town?

‘No thanks!’ would be the chorus, I reckon.

There are legitimate reasons to want more than meagre experiences such as these.

But this isn’t a hackneyed conversation about age, modern abstraction, and the death of stability in an era of exponential tech.

This is about the three options you have if you buy the bear narrative.

Namely, you can go short, cash out now, or set a stop-loss.

Almost needless to say — I’d be cautious about how this would benefit younger investors that can recoup losses with earnings, but think about this first…

How to Limit Your Risks While Trading Volatile Stocks. Learn more.

Lots of things that could crash the market and why this is irrelevant

Sharp tightening of rates, bond yields, stagflation, automation and associated labour market shocks, sovereign debt unwinding crisis (anywhere), war in Asia, major war anywhere, collateralised loan obligations, Evergrande and the Chinese construction industry, new nasty variant of you-know-what, general economic malaise, cryptocurrency leverage unwinding scenarios, another war somewhere, and so on and so forth.

Maybe all of it at once — in which case I’d be looking at a fortress in New Zealand or a Moon colony.

It could be something not on this list, and that’s perhaps the primary reason why I believe these bear narratives are irrelevant.

It’s always an unknown.

So here are three options for you if you think the Four Horsemen of the Market are in the sky.

Option #1: Go short

There’s a fortune to be made if you time the crash like Nicholas Nassim Taleb and Michael Burry.

The short geniuses.

But as Taleb himself admits:

Mild success can be explainable by skills and hard work, but wild success is usually attributable to variance and luck.

Maybe Taleb and Burry are just part of a cohort that had to get it right eventually — just like some people will wind up billionaires in this world.

(I doubt being a billionaire is 100% skill.)

And a percentage of people will time big index shorts to perfection and their wild success may breed copycats that want the same accolades.

This could be variance masquerading as foresight.

There might be almost as much money to be made from ‘I told you sos’ in the media about going short as the actual short positions themselves.

Putting that to one side, go ahead, go short on indices with serious capital.

Read through what Ryan Dinse said yesterday about M2 and markets right now, and you too could watch that short position get annihilated as the market rallies another 30%.

A hedge every now and then when things get dicey is entirely reasonable.

But seeking mega-gains from leveraged short positions? That’s casino behaviour, especially in light of the repetitive antics of central banks and interventions by government.

So if that’s not for you, here’s option #2.

Option #2: Cash out

When life gives you lemons, say stuff it and bail.

Take a tidy sum out of the market and modify your capital requirements for a few years.

This might be sensible for slightly older people who can’t be bothered with the nauseating psychological roller-coaster ride of reading the headlines.

Not an inherently bad idea given the turbulence we’re experiencing — it’s more so about what you want from life and where you are in the various age brackets.

Option #3: Set a stop-loss

Say the market was kind to you during the advent of extreme money printer activity shortly after April 2020.

Maybe you’re up 80% on your initial capital, or more, and want to relax a bit.

Well, you could set a blanket 20% stop-loss on all your positions and still walk away with a tidy sum in the event of a correction or some Independence Day-type scenario for markets.

Sleep sound at night, knowing you made hay when you could.

Sensible.

What about the 85% crash?

Maybe that list of potential bear crash triggers wasn’t exhaustive and it’s actually far, far worse.

An 85% crash would, for me, mean societal collapse and a new Dark Age.

Best get a bunker in a remote location. Dead set, not even joking. People think like this and cash is best allocated towards personal security in this scenario.

Conclusion: I’m saying the S&P 500 could tack on another 20–30% in the next 6–12 months, with some hiccups along the way.

…long, bullish, optimistic, maybe proven wrong, but definitely against sticking in cash.

Regards,

Lachlann Tierney Signature

Lachlann Tierney,
For Money Morning

PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here


Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


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