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WTF just happened!? - August 2024 (#31)

Hey hey! On Monday your dude Brent was watching with his popcorn and his finger over the buy button. Why? Because the global stock markets had a full on MELTDOWN. I’m here to tell you WTF happened out there and why YOU should not be worried.

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Motivation

Never let a good crises go to waste.

-Winston Churchill

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TLDR; several risk factors converged Monday and tanked the market. I’m not worried because both politicians and the Fed are well positioned and highly motivated to keep us out of a recession.

Whelp… On Monday the market shat the bed… and that might not be expressive enough language. Much of the morning Monday was a complete and total DUMPSTER FIRE. Virtually every major stock market was down BIG TIME. So much so that people REALLY GOT SPOOKED and suddenly news outlets were saying the R word on repeat… Yes that R word.

R E C E S S I O N ! ! !

Virtually every risky asset tanked. Crypto, of course, went down hard as well. I could feel the general panic take over as I surveyed the landscape… I noticed the familiar butterflies in my gut, the irrational thoughts about the stock market potentially never coming back from this, friends reaching out asking if the world was ending, and I knew it was time… TIME TO GO SHOPPING!!!

Over years of watching markets I’ve learned that when fear and panic set in, both generally and personally, its time to step back… and consider what the opportunity is. I’d encourage you to do the same as you cultivate your own mentality toward building wealth.

Ok, so what even happened? And why did I feel confident enough to go shopping? Let me break it down for you.

Here’s what happened:

• Like any good tech bubble, AI has had it’s moment and it appears the shine has worn off. As usual investors have plowed money into a new technology before the technology actually makes any real money. Investors lost patience and collectively realized that ‘duh’ it might be a while before any real profits materialize from AI. This realization caused NVIDIA to crater. The CEO is estimated to have lost about 6 billion in one day! Bummer dude…

• There’s been a MASSIVE carry trade with the Japanese Yen and the U.S. Dollar. Basically because interest rates on the Japanese Yen are crazy low and the U.S. Dollar has much higher rates, there’s been some financial witchery afoot. Hedge funds have been borrowing in yen, converting it to the dollar, and then getting that sweet sweet interest difference between the two as gravy. However when interest rate volatility spiked those same hedge funds scrambled to get out of the trade for fear they’d lose their butts. Anytime there’s massive selling of an asset it sparks massive fear… contagious fear. And sure enough people freaked out and started selling their own assets like no other. Japan’s Nikkei stock index had its worst day since the massive crash of 1987. 

• So U.S. investors woke up Monday to Japan being down HUGE, the AI trade coming undone, AND came to terms with all the bad news surrounding jobs from previous days. So of course they collectively lost their crap and screamed ‘RECESSION INCOMING!!!’ They then proceeded to sell whatever they could get their grubby paws on.

Here’s what I realized when I took a step back and reviewed the situation:

• It’s an election year (sorry politics and finance are inseparable these days). The powers at be will do EVERYTHING THEY CAN to ensure there’s no recession before the election. Why? Because when recessions happen politicians lose elections! And all the bureaucrats who work for them will lose their jobs too if the politicians lose! So ya… lets just say there’s high motivation for NO recession to happen in these next few months.

• Interest rates are HIGH (compared to just a couple years ago) and the amount of open market operations happening are comparatively LOW (again, compared to a couple of years ago). As such the Fed has PLENTY of room to cut rates and juice the economy if things get dire. Aside from inflation, thats the other big reason to crank up interest rates… it gives the Fed the ability to fight off a recession should one come.

So having digested those last two bullets I found my courage and decided to go in swinging! I was able to make a nice little addition to my bag thats already up as of this writing. I don’t always win on days like that, but win or lose I’m proud of myself if I follow my plan and my gut… regardless of the outcome. I encourage you to adopt the same perspective. NO ONE bats 1000. Especially not mere mortals like you and me.

So there you have it. General panic because several risk factors converged… and that created a killer buying opportunity. The irrationality that comes during these panicky times is what creates the opportunities. If you missed this one, never fear. It will definitely not be the last stock market pullback!

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That’s all folks!

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