On Tuesday, as Federal Reserve Chairman Jay Powell began presenting his biannual monetary policy report to the House Financial Services Committee, an unexpected event occurred. The Dow Jones Industrial Average (DJIA) did not rise; instead, it fell.
In a truly free capital market, the DJIA would naturally increase and decrease. However, it’s crucial to remember that the U.S. stock market is far from a liberated market, especially given the significant intervention from the Fed.
When the Fed makes statements, one would expect the DJIA to rise. At least, that’s what President Trump appears to believe. While Powell spoke, Trump posted a live commentary on Twitter:
“When Jerome Powell started his testimony today, the Dow was up 125, & heading higher. As he spoke it drifted steadily downward, as usual, and is now at -15 […]”
President Trump seemed to fall into the post hoc fallacy, confusing correlation with causation. Was this a deliberate connection or simply ignorance? That’s for you to decide.
Still, the Federal Reserve bears its own responsibility for fostering a market where upward movements are the norm. Yet, the Fed’s influence is not omnipotent. Eventually, the stock market will evade its control. But when will that occur?
Cheap and Yummy
The DJIA has experienced a prolonged ascent for nearly 11 years. During this time, there have been several moderate corrections, but nothing severe enough to instigate widespread panic.
After so long in a bull market, many investors have come to believe—wholeheartedly—that the Fed has instituted protective measures to keep the stock market on its upward trajectory. They think the Fed will always provide the necessary liquidity to save the day.
This has led to the idea that bad news is actually good news. A slowing economy, rising unemployment, recession in earnings, trade wars, global pandemics, drone strikes, presidential impeachment trials, and climate change… the worse the news, the better for stock prices.
Bad news implies more liquidity from the Fed, more liquidity leads to higher stock prices, and higher stock prices create inflated stock portfolios. An inflated portfolio equals a fulfilled and meaningful life, and in this mindset, the individual with the most toys is deemed the winner.
What are we to make of this?
Years ago, a friend attempted to start a restaurant named Cheap and Yummy. He was convinced it would succeed as long as he could deliver affordable and tasty meals. Who wouldn’t want delicious food at a reasonable price?
Of course, the restaurant remained just a concept. Frankly, it was a laughable idea, and no meaningful steps were taken to make it a reality.
The takeaway here is this…
The Secret to Fun and Easy Stock Market Riches
After four decades of aggressive liquidity injections into credit markets, the Fed has offered investors a far more precarious illusion: that investing in stocks is simple and enjoyable.
However, there’s an important insight you need to grasp, and it might go against traditional wisdom.
Essentially, the secret to effortless stock market wealth, as propagated by the Fed, is to refrain from overthinking. Research shows that the most successful investors over the past 11 years are those who have merely purchased stocks without second-guessing their decisions. They have emerged as the true victors.
Conversely, those who discerned the disconnect between the stock market and the real economy likely exited years ago, and some have been holding cash, baffled, ever since. They’ve missed out on significant gains.
Additionally, investors who focused on fundamental analysis, wise asset allocation, and value investing have suffered for their moderation. They failed to understand the key to simple stock market riches and, tragically, relied too much on their reasoning.
Therefore, the advice is simple: stop overthinking and start buying shares of Tesla. Ignore the fact that Tesla often operates at a loss. Just buy!
To be completely transparent, we believe the secret to effortless stock market wealth will remain effective until the exact moment it no longer functions. Proceed with caution at this stage.
Sincerely,
MN Gordon
for Economic Prism
Return from The Secret to Fun and Easy Stock Market Riches to Economic Prism
