By Sabine Saadeh, Financial trader and writer
When it comes to investing, traders usually gauge the markets through three different outlooks; the first is the fundamental interpretation, the second is the technical stance and the third is the psychological frame of mind. The three are imperative to make sound investment decisions. Throughout the period after World War II, these three factors have been clearly defined and distinctive and it was usually when the outcome of the three converged that a successful investment would occur, regardless if the market is bullish or bearish and regardless if the economy is in a recession or hyper inflating.
Post-pandemic, not only did the psychology of the world change, but the fundamentals are radically distorted, which creates a threatening environment for investors. During lockdown, people that were relatively financially stable had the opportunity to undergo self-reflection, they realized they deserve to have full lives and so they resigned from their routine jobs and sought out individualistic pursuits. Fair enough, only individualistic pursuits are much harder to attain a financial reward from than employment. So two years after that, inflation is at an all time high and people need jobs to pay for their lives, and so they went back to work reluctantly. Now here is where the situation gets a bit tricky, it is true that people went back to work but this time they took on a most risible conduct that has been dubbed as “quiet quitting”.
Quiet quitting means employees are not as productive as they ought to be, which decreases the productivity of a business as a whole. This means that even though the business is operating, it is not making the profits that it needs to continue operating in the long run. Clearly the result of that would be either businesses firing quiet quitters and hiring others and that is the rosy scenario or businesses will shut down and therefore collapse a whole economy. Now nobody wants that because where on earth are consumers going to get money to spend on their lifestyle?
This is from the fiscal side! From the monetary side, central banks are raising rates to decrease liquidity in the markets in order to curb inflation, but there is also a sticky situation here. After the great recession, with the near collapse of the financial system, people have been disinclined to place their money in banks and are more than willing to invest in meme stocks or decentralized assets. They are even willing to spend every dime and not park their money in banks even with a 5% deposit rate on their savings. This is why inflation will not come down until a forced recession happens.
With the economy globally being in an unprecedented situation, this makes investing extremely challenging, but what is more likely to happen is that markets have not fallen enough and that an equity markets decline of more than 20% is what should normally happen. So the recent bull run is not realistic and will be very short lived.
For the time being, I would recommend keeping a generous amount of cash at hand, yes this is very unconventional but it is better than investing in a volatile environment where there is a massive risk of a global societal collapse or civil strife. My investment recommendations would be the following:
- Financial stocks have been remarkably cheap for a long period of time now and have a great upside potential especially if they are spearheading financial innovations in green investments, and supporting trade diversification with new trade corridors by decreasing their dependence on one source of supply.
- Technological stocks have undergone a great selloff yet they are the core of global mega-trends that are reshaping our world, and despite the fact that the pandemic exacerbated the digital divide; it proved to be most essential in carrying out the trivialities of our daily lives. With inclusion and sustainability as the pillars for growth, these stocks offer little resistance for positive gains.
- Dividend aristocrats are like gold, it is never a bad idea to invest in them!
- Revolutionary stocks for high risk appetites; for example psychedelic stocks have an enormous upside potential. They are the pathway between eastern and western medication, their benefits will far exceed their breakthrough in only treating serious mental health disorders.
- Green stocks are the moat stocks of a post-pandemic world.
Finally, and this cannot be stressed enough, calculating the risk of social behavior where there is a need for massive financial rewards in exchange for little effort will lead to devastating consequences, and this risk should be calculated in investment decisions, it can even be a new finessable economic indicator.