Marc Cuniberti In an article on April 15, 2023, Yahoo Finance concludes that despite the brief 2023 rallies we have seen in the markets, the average retail investor is down 27% on average since November 2021.
Hopefully, your portfolio didn’t lose that much but those are the numbers.
Investors looking for a “V” type recovery as we saw after the 38% Dow trouncing in March of 2020 have been burned repeatedly by believing the bear market rallies we saw all through 2022 and even into the start of 2023 were the real deal.
Instead, each 2022/2023 rally fell apart shortly after it started and the market continually plummeted to lower lows.
Most analysts agree that inflation and the Federal Reserves (FED) attempt to stop it is the cause of the continued market erosion.
Embarking on a historical series of interest rate increases, the FED has to dampen demand to cool inflation.
In my opinion, this market crash is very different than all those that preceded it in the last 40 years.
Since the 1980s, every market crash has had the same response from the FED. They lower interest rates, print a ton of money, and spray it everywhere. Well, everywhere but to you that is.
Most of the newly created money is done under the guise of helping the average Joe and saving him from a crashing economy.
However, outside of the $600 refund sent out to you during the 2009/2010 banking implosion, most of the money the FED gave out previously went exclusively to financial institutions.
The thinking was that the average citizen could roll over and the economy would survive. However, if the banking system went kaput, the whole system would collapse.
Probably correct in this assumption, that our economy has arrived at the point where the financial piping is so fragile as to be susceptible to complete collapse is a problem of the FEDS own making.
Too big to fail comes to mind, while you are too small not to.
Since 1980, analysts have always warned that if the FED kept throwing money around to bail out failed intuitions, inflation would rise up and smash any recovery brought about by the money raining down from FED heaven.
Since 1980, every market crash has been followed by a firehose of FED cash. After multiple market crashes were put out by the FED cash firehose yet inflation did not rear its ugly head, the FED, and their handlers, Washington, came to think printing up oodles of cash did not result in inflation, so they repeated the process whenever markets crashed.
Market crashes were addressed from then on with the same remedy. More cash into the system. (Not your system mind you). But you knew that.
The FED thought they had found the Holy Grail, the sweet spot of markets, the magic blue pill, which fixed all crashes.
Print up trillions and toss it at the banks and whoever else was big enough to be a member of the “Too Big to Fail” club.
Like Pavlov’s dog, every time the crash bell rang, they fired up the presses.
Fast forward to CoVid and the FED slightly altered the recipe, however.
This time around, the cash went to the banking system, true, But now they thought they could turn the cash hoses on every man, woman, and grown child in America.
After all, this CoVid thing had shut down the world’s businesses entirely. This was not a slowdown, but a shutdown. Down went commerce and its owners and customers as well.
This time around, the printing presses ran over time, and instead of a $600 check, many individuals got thousands, hundreds of thousands, and even businesses and conglomerates held out their hands for billions more.
This time around the amounts given out dwarfed all previous amounts far and away of what is imaginable.
And finally, true to decades of analysts’ warnings, inflation did take hold. Failing to recognize it early on, they kept the money spigots open, until such a time when the inflationary fires were raging hot.
Having finally put two and two together, the FED realizes the blue pill won’t work. In fact, turning on the cash hoses now would only make things worse.
The FEDS cannot print away this crash. The inflation chickens have finally found their way home. The medicine is truly the cause of the illness. No more free cash. The printing presses must remain idle.
That is the reason this market correction has been so prolonged, and in this analysts opinion, will continue. And where it stops, nobody knows.
“Watching the markets so you don’t have to”
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(As mentioned please use the below disclaimer exactly) THANKS (Regulations)
This article expresses the opinion of Marc Cuniberti and is not meant as investment advice, or a recommendation to buy or sell any securities, nor represents the opinion of any bank, investment firm or RIA, nor this media outlet, its staff, members or underwriters. Mr. Cuniberti holds a B.A. in Economics with honors, 1979, and California Insurance License #0L34249. (530)559-1214. He was voted best financial advisor in the county 2021.
