Thinking about the current economic situation
Considering the economic incidents we have currently been facing, it is entirely rational to assume that we are in a scenario where we will face a bubble before the next massive financial crisis. We discussed it in previous articles, but what should we do in the situation or the scenario? In this article, I will try to describe the current situation and consider how to counteract this situation.
From now on, the market will make you believe that the bullish market will continue forever,
The bubble is something that has historically happened repeatedly. You have to remember that there are no bullish trends that continue forever.
Generally, you lose money when your strong belief in the economy contradicts the reality.
You can slightly mitigate the risk of falling into that undesirable situation by knowing both possibilities.
One possibility is that the stock market goes up almost forever, while the other possibility is that the stock market crashes at some point, most likely around 2020.
It, however, is unlikely that the stock market( it refers to indices) goes much further than the current price.
To pile up short positions every time it goes up on Indices seems to have a higher probability than buying them without thinking anything.
Indices might be in a bubble.
There has been a prevalence of the information that tells us that we should buy ETFs and any indices. Historically, indices have outperformed almost any hedge fund and investors in the universe. Therefore, many people purchase indices with hard-earned money without caring about the actual economic situation.
That delusion might cause the bubble.
If you draw a linear Regression line on the S&P 500 chart( please look at the reference URL below the article), you can see something.
In theory, buying ETF, in the long run, might be the right decision because you will gain profit in 50 years anyway since the economic growth is continuous for sure. At the same time, however, if you believe the long-term economic growth exists and follows its linear regression line on the chart (it is the mathematical appearance of visible potential growth), it is not the time to buy ETFs or at least S&P500. My options are either to sell short on indices or to wait for the end of the next correction.
When it turns into a downtrend, there are many things to do.
Buying gold and Yen and selling short on indices seem to be rational decisions.
Disclaimer
I do not force anyone to do what I wrote in this article. Investment decisions must be made by yourselves ultimately.