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Stock, Stock market Invest Now or Wait for a Stock Market Crash?

s economy, we’re, going to use different economic indicators to see if we can objectively gauge where the u.s economy stands today and then hopefully we can answer the question: do we invest now or wait for The stock market to crash okay, so let’s jump right in so i’ve added a few different economic indicators this month around debt, specifically around debt for people in households, so our first indicator looks at household debt as a percentage of gdp. Now i could find data going back to 1993 and, as we could see back during the financial crisis, well household debt was super high totaling, almost as much as gdp did now that’s what the 100 line represents. That’S 100 of gdp, so obviously it doesn’t have to be limited. It could go beyond 100 of gdp, but again that’s quite high, so clearly the lower. It is the better. Now things started looking good for a while, but then we had a decent spike as the coronavirus hit. Now this spike can be caused by two things. First, obviously is more debt, but also you could get a dip in gdp like we had in 2020 with the coronavirus, while a dip happened, debt increases, so this number could will end up being much it’ll go much higher much faster than we might anticipate. Now this chart actually only goes through the third quarter of 2020 because they haven’t released the fourth quarter numbers yet. But i think that we can assume that with lower interest rates, debt is likely to continue to move higher.

So when we switch over to our scorecard here well, i think it makes sense to give this point to the bears, since clearly, debt is a bad thing and certainly a future problem for households and for the country in general. Okay, now we shift over to a similar economic indicator in consumer confidence. Now clearly, this one is going to be a point for the bears as well since consumer confidence relative to its recent history is quite low. Now i say this is similar to the first debt indicator that we looked at. I got another one coming in a minute, but i could imagine that as people’s debt increases as household debt increases, i would imagine they’re going to lose some confidence in their financial standing and their financial ability to keep up with life and all of that stuff. So that’s, why i’m not too surprised to see consumer confidence on the lower end, as it is now? Okay, now over to our scorecard? Well now we get two points to the bears, since consumer confidence is also going to be a bearish point. Okay, now we shift over to a more macro economic factor for us to consider, and that is the yield curve. So this is a chart of the current treasury yield curve, and this is going to be a point for the bulls, since this is a positive sign for the economy. Now we also use the yield curve. The last time we did the invest now or wait for the market to crash video and – and we used it to illustrate how the yield curve works.

But what i realized is, i never really touched on why it works. So in the last video i showed this chart of the yield curve back in 2006, so this was leading up to the financial crisis and this would obviously be a bearish sign because short term interest rates, interest rates that expire in the next few months are higher Than long term interest rates – and this is a sign of overall weakness and then we showed the yield curve for february of 2020. So this was before the stock market crash and i got a great comment in the last video and they said: are you telling me that the yield curve predicted a worldwide pandemic and in replying to that comment? Well, i realized that i never really explained why an inverted yield curve is a bad thing for the stock market by the way, an inverted yield curve that’s. What this is called an inverted yield curve is, when short term rates are higher than long term rates, and one of the ways that this could happen is that investors, uh bond investors or uh banks or treasuries or banks or hedge funds or whoever it is. That is buying treasuries. Well, they start a flight to safety, so we might have heard the saying flight to safe safety and basically, what that means is that investors move their money out of riskier assets towards safer assets. Now, like it or not, treasuries are considered to be one of the safest of all assets.

So when trouble looks like it’s coming, money starts to be invested in longer term treasuries, the longer term the problem looks like it could be the longer term. The treasuries go up, so this is what a flight to safety is well as more money pours into longer term treasuries. Well, the yield on those treasuries begins to fall, because we have to remember the the relationship between price and yield. More people buy it. The price goes up, the price goes up, the yield goes down, so you end up with yields dropping in longer term treasuries. Now i could imagine not many people were concerned that the pandemic would extend 10 years out or 30 years out, which is why the very long term treasuries did not invert so the flight to safety well the yield curve. Ultimately, it warns us that big money is worried about stocks, so it’s, not that the yield curve was predicting the coronavirus or the pandemic. The coronavirus was already here when this yield curve happened. What it was predicting was that investors were worried about it and had we seen this back in february of 2020 well, we would have been more aware that something there was a big problem on the horizon and we know a few weeks after this time period. Well, the stock market jumped off a cliff, so that’s one of the ways that this works, and i am oversimplifying this a bit but generally that’s one of the ways we can look at it now if we switch back to today’s yield curve.

Well, we can see that this is looking positive. This is what they call a normal yield curve, and this is a positive sign for the economy in the near future. So back over to our scorecard here. Well now we have our first point for the bulls. Okay. Next up, we’ve got ceo confidence, so ceo confidence has remained fairly high and is likely a positive sign for the broader economy. Now this one’s a fairly easy one we’re going to give this one a point to the bulls, but basically the way this work is the way this works is the chief executive magazine does a survey of a whole bunch of ceos to get their opinion on or Their confidence on business conditions going out then in the near future. They rate it on a scale of one to ten ceo, confident, uh, ceo magazine then takes that average them out and that’s what we end up with. We end up right now, we’re at about a seven out of ten, which is fairly positive, so back on our scorecard we’re at two to two right now: okay, now sadly we’re heading over to some obviously bearish signs for the economy, and that is initial jobless claims Is our first one and clearly this is way too high right now and frankly, we need this whole level, this whole area to get back to where it was pre coronavirus. So once it drops down there, i think we’d be much more likely to call this a bullish point, but for now it’s still way too high.

We shift over to unemployment. Unemployment once again is way too high. Now i do think it is a good thing that is heading in the right direction, but as of now on, the unemployment level is still too high to say that this is a good sign for the broader economy. So when we switch over to the scorecard, what i did is i actually made the jobless claims a negative point, because we know that has to drop down to a lower level, but unemployment has continued to tick lower. So i made unemployment a neutral level. I made that a neutral point, so a point for the bulls and the bears now. I think that this is fair and hopefully somewhat objective: okay, now we’re shifting over to housing. So, first up we have home prices and the average price of homes, and this is put out by the national association of realtors. Well, the average price of homes is, as we could see, moving in the right direction. So this is going to be a positive sign for the broader economy and going to be a point for the bulls and along those same lines when we switch over to housing starts well. This is how many new homes are being built and once again we can see the number is in fact marching higher, which again is a good sign for the broader economy. So moving back to our scorecard here, we got two easy points for the bulls.

Now we got more houses being built, which is great and we have housing prices going up so hopefully not too many people are going out and borrowing against that housing which could add to the debt problem, but again we’ll come back to that in a second. For now, let’s shift over to manufacturing, so this is the ism manufacturing indicator and basically the way this indicator works. Is it all revolves around 50.? Anything above 50 implies that there’s growth in the manufacturing sector, anything below 50 implies that there is negative growth in the manufacturing sector. So, given the current level of this economic indicator well looks like this is a positive sign for the broader economy and over on our scorecard here. Well, i think it makes sense to give this point to the bulls. Okay, now let’s look at another consumer debt indicator and that is 90 plus days or more late on credit card debt. Now this one is a bit tricky, because what it does is it tracks how many people, or what percentage of credit card debt is late by 90 or more days but i’m, not sure this. That i’m not sure that this chart. This data is really up. To date, yes, the last official data we have is as of the third quarter of 2020, but what i’m saying not i don’t mean that it’s not up to date, it’s, not in 2021. Yet what i’m talking about is that, through 2020, the us government made it possible for people to cut a deal with the banks basically and postpone having to pay some of their credit cards.

So it’s very possible that many of these people that postpone their debt will in fact default in the near future. So i think that any if anything, this number is going to be a bit too optimistic. I think the numbers, the real numbers, might actually be worse than this. So clearly, this is going to be a point for the bears since in time this is going to be a bad thing for the economy. So the question now is: do we invest now or wait for the stock market to crash? This is what our scorecard looks like and for me, i think it makes a ton of sense to continue to invest as often as and as consistently as possible, but i do think it does make sense to strategically invest. I recently did a video where we talked about how the stock market looks overvalued and, with that being said, i’m, not sure it makes a ton of sense to just go out and buy the broad market. But i do still believe there are plenty of individual investment opportunities that could be great long term buy and hold stocks, and ideally we dollar cost average. These stocks are even etfs if we’ve been dollar cost averaging etfs. I think we should continue to do that. That’S a great thing: don’t, we shouldn’t waste our time trying to time the market, but if we’re looking for individual opportunities, i would stick with researching companies and trying to find the best possible stocks.

Now, if we are trying to outperform the stock market and pick individual stocks well, i actually did a video where i go through the eight steps that i use to analyze the stock and i tried to simplify the process for us investors. So if you’re curious, perhaps that could be a good next video for you to watch. I got a link right here. I’Ve got a link in the description below and thank you so much for sticking with me all the way to the end of the video. I really do appreciate it.

What do you think?

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