I believe this fund (VNQ) will rally higher, otherwise we would not still own it. We'll see what the next few weeks brings.
Bonds: We continue to see the same rally unfold within bonds that I have mentioned for the past couple months. This plays well for some of our holdings. I believe there is more room to run. And coincidentally, long-term bonds rallied yet again coming off the news that the Federal Reserve will raise rates for the 4th time since it started to do so 18 months ago. More on that next week.
In Our Opinion...
I am not sure if I made this up or subconsciously heard it somewhere, but I like the following phrase:
"On a long enough timeline, any prediction can come true."
I say this as a few more prominent investors predict that the stock market will endure a massive crash in the near future. A crash, they estimate, could be upwards of a -90% loss. These are some of the reasons I routinely hear, based on fear or weakening investor demand:
- The Fed - specifically years of artificial monetary stimulus that they believe has caused irreparable damage. Years of bond-buying and a 0% federal funds rate, which were done in tandem to suppress interest rates and stimulate economic growth
- International debt problems - in China, greater Europe and elsewhere
- Aging baby boomers - who will slow their savings habits and begin to spend more and invest less
- Millennials - who are slower to start careers compared to previous generations and seem less interested in investing
- Risks of war or terrorism
- President Trump's economic policies
I am not going to start listing names and sharing links (you can easily search for them) as that is beside the point. The fact is, many crash predictors have been at it for years, going back to the initial rebound coming off the last recession bottom in 2009. They have been routinely, flat-out wrong each time. Meanwhile, the market has steadily risen with the exception of some stagnant periods (2011, 2015) and a few 10% or so short-term losses (which are actually normal).
So what makes this time different? I have no idea and neither do they.
They would argue that this market rally is driven by unsustainable methods, namely the Fed and other international central banks. But even if they are right this time, they will not be vindicated. The same way that a batter who strikes out nine-straight times is not universally praised if he gets a hit in his 10th at-bat. You cannot keep making bold predictions - keep being wrong - and then pat yourself on the back if/when it actually does happen.
Furthermore, many of the crash predictions you will hear are made using VERY wide windows of time. They don't say a crash will happen "next month" or even "in the next three months". Rather, they will say something broad/vague like "this year or next" or "sometime soon". They do not tell you exactly how they are invested themselves and they give no attention to the previous market gains that they missed out on by exiting the market years ago (at least I presume they have been out of the market, or there is a real problem with their sentiment). In some ways, missing out on a gain is just as damaging as absorbing a loss.
The biggest difference between today and even a decade ago is the presence of social media, which allows literally anyone to make a bold market call and catch some traction. Now imagine if you are someone with clout... You can see how easy it is to spread provocation. A lot can be said and interpreted through a blog post or 140 characters.
So what do you do? Nothing.
Stay the course. There are periods that we reallocate more conservatively, using certain bonds and even cash (though not preferred). When we do it though it is not based on some doomsday prediction. It is based on the ongoing market analysis that I perform each day.
In Our Portfolios...