Before the festival, there was a lot of discussion about holding shares or holding currency for the festival.
In the end, I was still worried about ghost stories happening outside.
Now the results have come out. Except for the obvious rise in oil prices, although other assets have jumped up and down, the overall change has not changed much.
But the dominance of oil prices is not a good thing. Crude oil has risen by 50%+ last year, and it has risen by 20%+ this year, which means that inflation is still under pressure.
Sure enough, the Fed started again these two days.
But staring at the Fed every day is boring and pointless.
So taking advantage of the holidays, I roughly turned over the ups and downs of U.S. stocks in previous years to see where he is in history.
01
So far this year, the S&P 500 is down 23.6%.
To put it simply, U.S. stocks have experienced similar declines only three times in 2008 (financial crisis), 2002 (Internet bubble) and 1974 (food crisis + oil crisis).
But the 2008 and 2002 references are less meaningful.
At that time, the main problem in the world was the lack of effective demand, so the solution was relatively simple. One “print” solved thousands of worries.
More similar, it should be that in 1974.
In 1974, the S&P 500 fell 29.72%, and U.S. bond yields were always in an upward channel, a bit like this time.
The difference is that the year-on-year GDP growth rate in 1974 was the lowest at -2.3%, while the current year-on-year GDP growth rate of the United States is still 1.8%.
“Stagflation” was the main problem facing the United States at that time, and it was also the most worrying problem in the world at the moment.
The difficulty of “stagflation” is that both economic downturn and inflation occur at the same time.
If inflation is to be controlled, short-term employment and economic growth must be sacrificed.
If jobs are to be preserved, long-term inflation will have an impact on the internal viability of the economy.
One short pain, one long pain.
In short, it is difficult to have a balanced method.
Last time, the United States chose the former, and it succeeded.
This time, the United States still chose the former, but compared with the 1970s, the external environment is more complicated.
The Russian-Ukrainian issue is still fermenting, the impact of the epidemic is still ongoing, OPEC has begun to cut production, the world is more globalized, and the US mid-term elections are approaching…
02
This time, whether the U.S. economy will fall into the quagmire of “stagflation” again, and whether Federated Energy can make the right choice again, no one knows.
I don’t care, and I don’t have the ability to make that judgment.
But now that the macro narrative is back in the 1970s again, it means that our environment has changed over the past 30 years.
Growth is becoming scarce and inflation is becoming the norm.
At least the issue of “stagflation” needs to be included in our consideration.
This is a problem that all the post-80s and post-90s have not personally experienced, but it may be a problem that we need to deal with now and in the future.
In this case, it will test everyone’s mid-term coping and configuration ability.
No-brainer allocation of real estate, equity, fixed income, or cash may not be the right choice.
According to the Merrill Lynch clock, under the “stagflation” cycle, the performance of each asset: cash > commodities/bonds > stocks.
As suggested, it seems that all positions should be in cash.
However, cash and equity assets at both ends may be the objects that need to be focused on.
03
It is true that under the “stagflation” cycle, the performance of cash assets will be better.
However, we cannot judge the pros and cons of a certain type of assets and make bets only based on the periodic investment returns.
Because this requires us to have the ability to judge the cycle, and be able to switch to the next-stage optimal asset with unparalleled precision every time.
Obviously this is not realistic.
But under the stagflation cycle, cash will indeed need to be treated as an asset more than ever.
On the one hand, the cash flow of a company will be affected by the economic cycle.
When economic growth becomes uncertain, blind investment is more likely to lose money, and when there are no good investment opportunities, holding cash assets may not be an option.
On the other hand, the cash flow of each of us is also affected by the economic cycle.
When economic growth becomes uncertain, setting aside enough cash for emergencies is not the wrong choice for individuals or families alike.
But paying attention to cash assets does not mean holding only cash.
Full cash is not a wise choice at any one time.
In the 1970s, although it was an era of “stagflation”, it was also an era of equity market masters.
From 1970 to 1976, Buffett’s total return was 240.3%, beating the S&P 500’s 188.9% return.
From 1977 to 1981, Peter Lynch’s total return was 352.4%, beating the S&P 50’s 308.2% return, and Buffett’s total return was 247.9%, beating the S&P 500’s 203.7% return.
At first glance, it may seem surprising, but this conclusion could not be more normal.
Although “stagflation” will have a negative impact on the current equity assets, it also gives the opportunity to buy high-quality companies and assets at a lower cost.
Because, in the long run, the “stagflation” will always pass, the “average” will always return, and the “enterprise” will always grow.
At that time, the cheap equity positions you hold will become a source of income for you to surpass others.
Of course, there is also a premise here, that is, your duration is long enough to be able to wait for the replacement of the cycle and the reversion to the mean.
Therefore, cash and equity, two types of assets that seem to be contradictory, are actually not contradictory.
Just one to deal with the present and one to win in the future.
The age of certainty demands bets.
In uncertain times, more emphasis is placed on configuration.
04
In another day, the big A will also open.
In addition to the impact of the United States on the global economic cycle, we ourselves have many problems to solve.
The economic cycles between China and the United States are not synchronized, and the core influencing factors are not the same.
Therefore, the previous discussion on cash and equity assets is not only aimed at China.
But the uncertainty at the macro level, this thing is certain.
Cheap and long-term, this thing is also certain.
more and more,
The great changes that have not been seen in a century are not empty words, but the real moment.
We can’t choose the era we live in, but we can’t ignore the era we live in.
Again,
In uncertain times, configuration is more important than betting.
To be honest, I don’t have high expectations for this year’s yield, but I have high expectations for the long-term yield.
Let’s end this chat with a sentence I saw today at Big Cattle –
“I hope everyone can live safely to their due age”
Because of the meaning of duration, there are actually two layers –
One is financial and the other is physical.
Good health and good luck to work~
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