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Strange Times: Where Do We Go from Here?


We’re at a fascinating crossroads in the world of investing, and in many ways, a truly unique place.  While the adage: “this time it’s different,” always gets burned by the markets, this time, we’ve never been here before.

The best news: we’re almost near the end of the pandemic.  The good news: the economy is screaming thanks to unprecedented monetary (the Fed) and fiscal (Congress) stimulus.  The strange news: things are really out of whack in the markets, and this has quickly become visible in everyday life.

Lumber and building costs have skyrocketed, some things are still hard to find in the grocery store, and there are plenty of job openings, yet a high unemployment rate.  There are also strange things like “meme stocks,” and skyrocketing crypto currencies nobody had heard of until three months ago.  Let’s peel back the onion a bit.

So Much Money

Eight TRILLION dollars is a lot of money, and that’s a rough estimate of what has been dropped on the US economy by the Fed and Congress since the pandemic started.

The US government has sent checks to individuals, boosted unemployment, and supported almost all businesses in a variety of ways.  The Fed has been printing money to the tune of an additional $120 BILLION every month.

While the pandemic raged, the nation attempted to keep everyone and everything flush with cash to minimize economic fallout, but this process set up some strange dynamics.


As the economy recovers from the pandemic, shut downs, and lock downs, money is once again flooding into goods and services as life returns to a new normal, and pent-up spending plays out.  The economy is whipsawing from the tremendous drop in output we saw last year to something approaching pre-pandemic right now.  That wave has a tremendous amount of momentum.  Economists were aware this was happening, yet inflation still came in four times higher than predicted last month, raising many eyebrows.

We’re now seeing prices increase in everyday life, coupled with businesses raising wages and offering incentives to attract workers, which also stokes inflation.  What do the financial markets say about this?

The Bond Market

The bond market tends to be intelligent, the smartest money in the room.  The Fed’s message to the bond market has been: this wave of inflation is just a wave, and with the economy getting back to normal, inflation will return to long term averages soon.  The bond market has priced this in as the absolute truth, because it is the absolute truth.

If inflation gets out of hand, the Fed will increase rates quickly, and force inflation back to long term averages.  If you’re old enough to remember double digit mortgage rates from the 1980’s, you’ve seen the Fed do this in real time.

The risk: the Fed doesn’t react quickly enough, is forced to increase rates faster than anticipated, and chokes off the current expansion, possibly creating a recession.

The Stock Market

The stock market is “all in.”

In the world of “blue chip” stocks (think S&P 500 and Dow Jones Industrial Average), the market is behaving as if rates will stay low forever, and the current expansion will never end.  It’s overpriced by most historic measures, and more money is ending up here because it has no other place to go with bond yields so low.

Then we get to strange places like “meme stocks.”  The current example is AMC.  The price of AMC increased by around 400% in one month when nothing really changed in the business of movie theatres.  In the normal investing world this would have meant that AMC figured out some new technology, created a monopoly, or found tons of gold buried under a theatre.  We’ve seen examples of this blind speculation recently with GameStop and others.

We’re at one of those places that feels like the dot com bubble where everyone seems to be trading stocks online, and making a killing because everyone else is buying like mad too.  Remember companies like: Ask Jeeves, eXcite, and Geocities?

Other Strange Things

The crypto currency space is frightening, and this won’t end well.  It’s difficult enough to justify Bitcoin, but these other crypto currencies, spiking almost randomly, make very little sense.  Much like the AMC example, people are dumping their freshly printed money into crypto currencies. What is the long term purpose of these strange coins?  They pay no interest, offer no dividend, and have no real utility.

The list of strange things goes on with things like tokenized art (non-fungible tokens or NFT’s), and SPAC’s, which are “blank check” companies, I give you money, and then you tell me what I bought.

Wrapping It Up

We’ve never been here, but some of these things look oddly familiar, and it’s strange to have them in the same room at the same time.  Inflation may or may not take us back to the 80’s.  Stocks may or may not take us back to the dot com bubble of the 90’s.  Strange things may or may not take us back to Beanie Babies, and Cabbage Patch Kids.

But, we’ve never been in a place where humanity is coming out of a gut wrenching pandemic with so much money to spend, and not enough places to put it.  This will surely end badly for some.

If you’re a regular reader of these blogs, you already know the punch line.  A balanced, diversified portfolio will weather whatever comes as this unprecedented wave in the financial markets passes, and serve you well in the post pandemic new normal on the horizon.

Not as exciting as a Dogecoin, but just as cute, and you’ll sleep well at night.  Please let us know if we can help, we’re here to help answer your questions.


Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – or from Buoyant Financial upon written request. 


Stuck in the Middle with You: Clowns & Jokers

Thinking about this post, the Stealers Wheel classic kept coming to mind.  We seem to be at the natural half time of the COVID pandemic, medical experts have been consistent in that we’ll probably see a vaccine during the first several months of 2021, which means we’re currently stuck in the middle.  Stuck in the middle is also the story of US markets.  The bond market and Federal Reserve are priced for the absolute worst-case scenario, and the stock market is priced as if things couldn’t get any better.  Clowns to the left, jokers to the right, but none of this feels very funny.  

I often mention to clients that the bond market tends to reflect a smarter, longer term view, and the stock market is naturally more speculative and prone to craziness.  On September 16th, Fed chair Jerome Powell made it clear that rates would remain at zero until at least 2023, and the Fed was willing to watch inflation exceed it’s target.  They’re essentially saying things are so bad, we’re going to do everything we can to stimulate the economy until it overheats.    

This isn’t ambiguous, in the past they might have said something vague like: “until conditions change.”  The new language is very clear, and while open to criticism, nobody trades against the Fed because the Fed always wins.  They wield enough power to put the bond market where they want it, and keep it there for better or worse.  So, the bond market is in line, and has been in line.  To put this into perspective the 10-year US T-Bond is currently yielding around 0.63%, over the last 20 years the average has been closer to 3%.  People buy bonds to protect money, and that buying pushes yields downward.  After nearly 7 months in COVID world, the bond market remains priced for the end of the world.  These clowns are sad, but tend to be smart too.  

The stock market on the other hand is priced as if it were in some other magical world.  It seems to ignore that unemployment has only come down to where it was during the great recession of 2008.  It seems to ignore that overall economic output has been knocked back to 2018.  It seems to ignore that corporate earnings, while recovering, are nowhere near where they were in February, and are much harder to forecast given all the uncertainty we face. 

The value of stocks can be measured by the price to earnings ratio.  This simply looks at how much you’re paying for $1 of earnings.  Looking at the largest US corporations (S&P 500), investors are currently paying around $26 for $1 of earnings.  Last year, when the economy was solid, this number was around $23, and historically back to 1970 this number averages closer to $19.  What do these jokers know that the clowns don’t?  Nothing. 

There are many explanations as to why stocks prices have been driven up.  Some of this is Fed driven, when rates are at zero stocks are naturally worth more for reasons I won’t bore you with here.  Some of this is driven by mom and pop investors with too much free time on their hands, trying to get in on the action.  Some of this is driven by gamblers with a habit to feed, and a lack of sporting events (the sports betting market is measured in the hundreds of billions).  The jokers seem to be running wild.  

I’m stuck in the middle with you.  Historically, we know pandemics fade into history, and that the world is indeed not coming to an end, but the clowns are very depressed and scared.  Historically, we know stocks aren’t usually worth $26 for $1 of earnings even during the best of times, the jokers have lost their mind running with lady luck.  

The real answer will be somewhere in the middle.  Long before 2023, as inflation rises, the Fed will allow longer term rates to rise while keeping their promise of a zero overnight rate.  Stocks will find fair prices as earnings stabilize, and the realities of a long recession take a toll on corporate earnings.    

With clowns to the left of us, and jokers to the right, the only place to be is in a diversified portfolio of stocks and bonds reflecting your risk tolerance, and retirement goals.  

We’re happy to be stuck in the middle with you, please reach out if you have questions, or would like to talk about your financial plan and portfolios.  

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – or from Buoyant Financial upon written request.