URGENT WARNING Investors Need To Hear
The recent Stock and Crypto market Meltdown has been the target of sensationalist Media. As an Accredited Investor I’ve gotten dozens of questions on what does it all mean?! And what to do about it. So I made this video to sort fact from fiction.
In the past 4 weeks we have seen the DOW, Nasdaq & Crypto in a virtual free fall, with Crypto having a loss of 1.17 TRILLION dollars in overall value wiped off the map. You read that right. TRILLION. Many investment advisors are still saying “it’s fine, just buy during the dip” while most people are scrambling while their personal portfolio is losing 5-20% value. Let’s take a look at both the Macro and Micro Markets and how they affect some stocks, and all stocks.
Netflix, who has been a strong player for nearly a decade, has been experiencing slow growth and is up against several other strong competitors in the streaming service market. Netflix recently increased the price of their subscription, which has helped them rebound a bit. This is a prime example of a Micro Market, where there are competitor companies affecting the value of one stock.
We are currently experiencing some large shifts taking place in the market that are affecting all stocks (Macro). The first being the Federal Reserve. Here at the beginning of 2022, we are experiencing the worst off that we have seen since 2008. Since 2019, we have seen record low unemployment, record low interest rates, high product demand, and supply chain issues, all leading up to record high inflation rates of 7% in 2021. Economists traditionally look for 2-2.5% inflation as “healthy”. At 7%, we are over 3.5 TIMES that rate. Due to this the Fed will be increasing interest rates as soon as March 2022 in an attempt to drop that rate back down. With lower interest rates, both investors and companies are both willing to take on higher risk because the money is cheap, decreasing risk. As interest rates climb, investors and companies will begin looking at lower risk investments.
The second shift is that both companies and economists are afraid that we are entering a period of slower growth. With the stimulus packages we had received, American families had the highest bank account balances on average than in the past 20 years. Now those accounts are drying up, as did the stimulus, because the large purchases have already been made, and now the average American no longer has $1,000 in their emergency savings fund. This can be seen in retail sales, which were down 3.7% in December.
Third, with the combination of high demand and supply chain issues causing inflation to increase, we have an increase of prices on many products. Additionally, there is still a shortage of workers, causing companies to pay more to keep employees, find more workers and maintain their profit. This can be seen in the increase in wages and incentives offered in 2021, a larger increase than in the past 20 years. This all contributes to the increase in prices charged by companies for their products.
Cryptocurrency has also been feeling the effects of the down market. Since it’s peak, crypto is down 1.7 Trillion dollars. Russia has come out to say they will no longer allow cryptocurrency to be mined in the country, more regulation coming down the pipeline regarding cryptocurrency, causing some stockholders to begin selling off their shares.
With all of these things being said, what do we do next? I always look back at history for hints at how to make my next move. In 2008, after experiencing a very strong market & economy, we saw devastation in the real estate market, unemployment rates, and the stock market. Going through the down times and then growing a company 4X over the previous 3 years has taught me some valuable lessons. One, always save a portion of your paycheck and put it into your savings - then don’t touch it. Two, don’t panic - this is the market of the moment and American ingenuity always wins. Continue to invest as normal. The market will bounce back as it always has. When comparing the “slump” we are now in to past months & years, we are still up considerably.
What NOT to do, is to run and sell your shares, only to sell those stocks go back up in 6-12 months. History has a way of repeating itself and this scenario is nothing new - or nothing to get worked up over. In fact, I think quite the opposite. I encourage those who can to continue to invest, purchase those stocks while the price is down and continue to invest until we come out on the other side of this, with an increase in profits.
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