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Monthly Market Muhsings - November 2021

Markus Muhs - Dec 02, 2021
It's time we put an end to the cycle of fear
Brian Wesbury, Chief Economist at ETF provider First Trust wrote it best in his Monday blog post this week entitled Riding the COVID Rollercoaster. With the umpteenth threat of yet another variant 21 months into this pandemic are we not all getting tired of this yet? It's no longer the virus wreaking havoc on our lives but, as Wesbury puts it, "our fear as economists is that certain urban areas in the U.S. could be stuck in a cycle of fear, with each variant leading to more draconian measures."
 
We can at least be thankful that in North America we're not quite as beholden to the neurotic swings of politicians, and their most craven proponents, to try to control a viral pandemic over which we have no control. The news out of parts of Europe and Australia/NZ over the past few months is horrific, and none of it involves hospitals bursting at the seams nor body bags piling up, as at the very start of the pandemic. Forced vaccinations, curfews, manhunts for quarantine-evaders, police knocking on people's doors. It's disgusting.
 
 
 
 
Here in Canada, meanwhile, we're able to attend sports events at full capacity, go to bars, restaurants, movie theaters, travel. I don't think there's any appetite for lockdowns again, so I think things will stay this way. That at least seems to be the vibe I'm getting from the more rational voices on social media. This cycle of fear has to end; we can't keep doing this.
 
 
 
 
A few weeks ago, I had the pleasure of attending the #Iceteka soccer game between Canada and Mexico with 45,000 friends and amigos. Despite the frigid temperatures, it was a long overdue return to somewhat normalcy; cramming on to a subway train (they could barely close the doors it was so full), and literally shoulder to shoulder with everyone through the concourse of Commonwealth Stadium.
 
There's a theme you might have noticed in my blog and newsletter over the years, and I'll admit it: I have complete and utter contempt for almost all newsmedia, or "noisemedia", as I like to call them. They are not there to inform; they are there to make a profit off your viewership, readership, and clicking on their articles/ads.
 
This becomes more obvious with each passing day; no more so than when a certain local nightly news reporting on the Omicron variant stated (and I'm paraphrasing here) "scientists are not yet certain if the new variant spreads faster, how resistant to vaccines it is, or how much more deadly." It's like they don't even want to entertain whether or not the new variant is more deadly than the Delta variant—that's not scary enough—how much more deadly is it? You can see their agenda clearly here.
 
I think we recover from this pandemic not when the virus goes away (if ever) but when we learn to tune out these negative forces, and when we rational pragmatists start to be louder than the paranoid chicken-littles calling for lockdowns at every opportunity.
 
 
 
 
So, the markets had another one of those months where they hit all-time highs again somewhere in the middle while also threatening to break below a threshold in my drawdown table above. The TSX Composite did hit the -5% mark to close off November, and as I write this on December 1st, the S&P 500 closed just a few points above the 4507 level that would denote a 5% drawdown below the all time highs.
 
Let me remind and emphasize those last three words: all time highs. Whether markets proceed lower this month or not, let's not forget that we were at all time highs in November, and at this point we're talking about the markets being up around 20% for the year (following two years in which they were also up double-digits), instead of being up 25%. If the S&P 500 drops 500 points in December, or around 14-15% below all-time highs (almost "bear market" territory), we finish the year 2021 with a historically average 8% return.
 
The above Drawdown Table is always far more important than the Market Review above it, I think. The Market Reviews I mostly update out of fascination, or as a mile marker along the road. Oh look, the market's up 20% for the year! Wow! Oil down 20% in November, huh? The Drawdown Table is what really should matter to us investors. Pay attention too to the frequency of such NORMAL 5% drawdowns, at least historically.
 
 
 
 
The markets are completely random and unpredictable. There are people who think they can predict them, whether through technical analysis or fundamentals, but all of that work gets thrown a curve ball when something like the Omicron variant pops up out of nowhere. Or the original virus outbreak in February 2020. 
 
I've been seeing the above meme of the two bus passengers going around of late. It's a reminder that not everyone experiences every situation the same. You aren't investing with the same time horizon and objectives as a short-term trader. 
 
The short-term trader (not an investor at all in my mind) is feeling the pain of markets whipsawing in completely unpredictable fashion. December 1st saw the S&P 500 shoot up as high as 86 points above yesterday's close, then finish down 54 points (a 140 point swing in a day!). Maybe he shifted some money into crypto when it was all the rage a month or so ago and is down 10% on that. Maybe he bought an energy fund in early November.
 
The long term investor cares nothing for these daily swings, or the Omicron variant, or what Powell happens to have to say on any particular day. He's happily taking photographs out the window, knowing that long term investing in the great companies of America and the world is the pathway to a happy and prosperous retirement. He concerns himself with the fact that the money he has been putting aside every month of every year for as long as he has been working has grown substantially, and will continue to do so over the long term future. When he's retired he'll be able to draw from his portfolio a growing stream of dividends along with principal which has kept up with or ahead of the cost of living since he originally invested it.
 
It is difficult to near-impossible to "trade" random and irrational markets. So, don't. Buy stocks (equity funds/ETFs) today. Buy them tomorrow—especially if they're cheaper! Buy them every month until you retire. A pullback, such as a (now) 25% drop in the price of the Earth's most valuable energy resource—believed to be facing supply issues just a little over a week ago—is a godsend to investors (the lower price of oil also might allay inflation concerns). A market tantrum over the prospects of "tapering" and the eventual rise of interest rates from the lowest rates in 5000 years to something slightly higher but still historically low also presents a great opportunity. So are depleted valuations in stock prices in every area of the market BUT large cap U.S. growth (ie: value stocks, all small caps, and stocks all around the world).
 
 
 
 
Merry Christmas and Happy Investing!
 
 
 
 
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