The Temporary End of Speculation

In the last couple of days, I’ve picked up what I thought were “good values” in the market, and my cash position now sits at 75% cash and 25% stock/mutual fund investments.

I say this to make myself feel better as we’re going through repeated days of stock market drops.

How to explain what is happening? One can say that rational investors are now re-calculating the value of stocks based on higher interest rates and lower growth expectations.

One can also say that stock market gamblers are being chased from the casino by their massive losses, some of it on margin.

2020 and 2021 forced many people to stay home, forcing them to save money against their nature. Not driving to work means not having to fill the car with gas every 3 days. No vacations. No aimless clothes shopping. No more eating at restaurants for lunch 5 days per week.

Many people instead pushed their excess money into the stock market. See Gamestop, AMC, Wallstreetbets, Robin Hood, etc.

Now perhaps the party is over. Stocks with values higher than they probably should are coming back to Earth, causing general panic.

The panic is among institutional investors and hedge funds as much as among 19-year-olds with Robin Hood accounts. The hedge funds were playing in those meme stocks for fun.

The MEME stock ETF has lost 30% since Dec 8, 2021.

It also looks like cryptocurrency is going through its reckoning as well. Several cryptos are seeing their values deflate. Some down to $0.

NFTs will also be caught by this. NFTs are priced in cryptocurrency, so a 50% drop in $ETH will affect their price as well. But the so-called “floor price” for many popular NFT projects is starting to fall.

We can see that “Bored Apes” went from 153 ETH floor price to 92 ETH in the past 2 weeks.

Even the original “Cryptopunks” have fallen from 60 ETH to 50 ETH. I must admit, I wouldn’t mind owning a Cryptopunk just to say I did.

Anyways, I’m not here to talk about NFTs as much as to say that speculation is leaving the market.

The Nasdaq market has been one of the hardest hit. Down from around 16,000 to 11,300 this week. Down 27% year-to-date.

So while I’m dipping my toes into the market. The sign of “the bottom” hasn’t hit yet. This is still “catch a falling knife” territory.

Maybe I should wait another month before adding to any positions. There’s no rush.

Meanwhile, I’m earning 2.1% in a GIC.