Inflation is reaching multi-decade highs and still rising, central banks are quickly increasing interest rates to fight inflation, the tragic war in Ukraine shows no signs of ending anytime soon, and China’s zero Covid policy is continuing to damage global supply chains. And so it comes as no surprise that we’ve reached extreme fear levels (on the CNN greed and fear index) and that broad stock market indices are in bear market territory with the S&P down 25% YTD, the Dow Jones Industrial Average down 20%, and the NASDAQ Composite index down almost 32%.
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And as the stock market continues to be very volatile, more and more investors are looking for so-called safe places where they can hide, meaning they are looking for investments that won’t perform as poorly as other assets during the current crazy stock market environment. So are there any safe places to hide at the moment? And what does all of this have to do with a concept called TINA that investors should be familiar with, well this is what I’ll discuss in this video.
As we are currently witnessing a ton of macroeconomic challenges, where can investors find shelter? I’d argue that stashing cash under your mattress is not a great idea considering a high inflation rate of around 9%. Broad stock market indices haven’t been a good hiding place either. What about bonds? 10-year US treasuries are offering a yield of almost 4% now, but that’s a negative real return if high inflation persists and 4% is probably not enough for most people to reach their financial goals. What about real estate? Well, home prices have come under pressure due to higher interest rates and as 30-year mortgage rates have jumped by the most since 1987 and rose above 7%.
Another area that may have been considered a safe place by fund managers so far are energy stocks which have outperformed broad-market indices. But over a long enough time frame, commodity businesses will typically perform rather poorly as they achieve below-average returns on their investments and have little to no pricing power.
So what is TINA? Well, TINA is an acronym for “there is no alternative.” And personally, I believe that if you take a long-term, multi-decade view, there is no alternative to stocks as historically, US stocks have been the best-performing asset class, outperforming all of the other asset classes.
○ Charlie Bilello: https://twitter.com/charliebilello/status/1574762324946214912
○ Fundsmith letters: https://www.fundsmith.co.uk/analysis/
○ Chris Mayer’s blog: https://www.woodlockhousefamilycapital.com/post/a-safe-place-to-hide
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