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Sean HymanSean Hyman
Keymaster
Post count: 3783

Robert, the Fed stepping in earlier (after the latest crash) to support the market emboldened investors and it encouraged them to buy more. However, it also eventually promotes the deception that “the market can’t go down because the Fed is supporting it”.

The Fed can’t ultimately hold a market upward. They can only encourage it upward. But if the Fed could ultimately control markets, there would never be downtrends/bear markets. The 2000 and 2008 crashes would have never happened if the Fed could prevent that. They can’t.

So, the Fed sped up the initial recovery but they just prolonged market overvaluation. It did offer the savvy institutional investors an opportunity to get out of their overvalued positions while retail investors were gobbling them up and uber-bullish.

Ultimately, no entity (the Fed, the government, central banks around the world, etc.) can hold stocks eternally at overvalued levels. It will come down as it always does in states of overvaluation. And it always gets ugly before it gets prettier. Thankfully, it doesn’t bother me one bit. Why? We hold some cash, regular investors hold no cash or almost no cash. We buy undervalued stocks that are solid. Most people hold overvalued stocks. We take advantage of market down-swings by averaging down at strategic levels whereas the average investor is “all in” and only gets punished by market downtrends. Plus, we own some defensive assets (SLV, PPLT, FXY, CAH, etc.). Most investors own no defensive assets at all. So, we’re positioned far differently overall than the average investor. The average investor has plenty to fear. We have nothing to fear, even though we’ll experience pullbacks but not devastation like they’ll experience due to how far their overvalued stocks will drop.