You are not crazy - why do financial markets make no sense?

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Over the past decade, financial markets started behaving in a very strange way. Assets which were overvalued became more and more expensive, while those which were undervalued continued to decline. The Market’s reaction to news events was completely counter-intuitive. Every rational investment principal has been thrown out of the window, and replaced with rampant speculation. Those who embraced the insanity saw enormous returns, while those who refused to play along counted their losses.

An old adage in the financial world claims that one should always “buy low and sell high”. This makes perfect sense, doesn’t it? If you buy an under-valued asset, and sell it when it is over-valued, you are certain to make a profit. But in the past decade, this strategy simply didn’t work. Tech stocks, which according to various indicators were overvalued as far back as 2015, continued to rally relentlessly. Commodities, on the other hand, which according to the same measures were undervalued, kept going down. It was as though the laws of economics were suspended, and fundamental analysis didn’t matter any more. I argue that none of it was natural, and that it was all due to central bank intervention.

But now that inflation has erupted, and central banks have no choice but to hike rates, this is all coming to an end. If I am correct, the next decade will look nothing like the previous one. Instead, it will look very much like the 1970’s, with very little growth and persistently high inflation. The Federal Reserve will no longer be able to support the stock market, and the indices will probably grind lower for years to come. Vital commodities, on the other hand, will be all the rage. And just like we’ve seen during the 1970s, they will be led by the precious metals, gold and silver.

Music: Cinematic Melody (Main) by Daddy_s_Music

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