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The Russian stock market is not the time for long-term purchases!


Dear subscribers, readers, listeners … today I would like to convey the following idea to you:

In the world of finance, assets are not discontinuously connected with each other, like the law of communicating vessels, we have talked about this more than once and clearly demonstrated this by publishing ideas on the topic of intermarket technical analysis.

In this post we will try to intelligibly explain, giving arguments, why they are skeptical about both the stock markets in general and the Russian market in particular, but first, some preface:

The fact is that the value of money is determined key rate and monetary policy of central banks, the lower the rate and more money allocated by the monetary authorities, the better it is for stock markets and vice versa, tightening conditions for the money market is always perceived negatively by securities holders (the cost of raising money / servicing debt becomes more expensive, fixed income instruments start to bring higher coupon yields)

The task of central banks is to create favorable conditions for the economy, to regulate the activities of credit institutions, and influence the balance between inflation and deflation, this implies such a concept as inflation targeting ( for example, in the USA the target for the annual inflation rate is 2%, in the Russian Federation – 4%)

For this reason, central banks are closely monitoring the dynamics of changes in the rate of inflation, and one of the main weapons in the hands of the Central Bank is the key rate, raising / lowering which has a restraining or stimulating effect.

Against the background of a pandemic and isolation in the world, it is quite logical that there was a strong recession in the economy, the demand for goods and services collapsed, the cost of metals and energy resources fell to their minimum values. The natural reaction of central banks to this state of affairs was monetary stimulus, the reduction of the key rate to zero in developed countries, QE, distribution of money to the population and the provision of preferential lines of credit to businesses.

What is happening now?

Many countries are preparing to weaken quarantine measures, open borders … the number of new cases is rapidly declining, vaccinations are in full swing, and at the same time, stock markets / cryptocurrency and other risky assets are at historic highs, rising prices for real estate and cars, commodity markets are recovering rapidly in price (and some even at multi-year highs). Historically, as a rule, any pandemic lasts no more than two years. And what happens when the economy starts up in full? – given the unprecedented growth rate of the money supply around the world – RISK OF UNCONTROLLED INFLATION

The debt market is already setting this scenario (note the growth in the yields of 10, 30-year US government bonds)

What will central banks be forced to do? – TO CRUSH MONETARY POLICY

In this regard, the indicative picture of the Russian market is the best moment to form a portfolio of shares over the previous 10 years, it was 2014, when the Central Bank of the Russian Federation raised the rate to the maximum 17%! What stock market could we talk about when people were quite satisfied with the yield on bank deposits at the level of 15-20%, and at the present time the picture is directly opposite, rates are at historic lows in the Russian Federation, even the most conservative pensioners are no longer satisfied with the yield on deposits, which in in the last ranks they carry their hard-earned money into securities.

Now the monetary authorities will not talk about possible options for tightening monetary policy, because they are well aware that a lightning-fast reaction will begin in the markets, in the form of sales, no one will wait for actual inflation and rate hikes, everyone will play it back in advance. Hence follows HOME THOUGHT IDEAS – MARKETS LIVE EXPECTATIONS

Look at the chart for the Moscow Exchange Index (basket of the most liquid RF shares) – on the chart, in the form of footnotes, indicated the minimum marks that were on the history, and with what it was connected. Conclusion – the best moment for long-term purchases, when everything is bad around, negative prevails, few people consider the stock market as an investment object (and this is a kind of pyramid – the one who enters first earns the most)
And now it is not so … everyone is convinced that a bright future awaits us, the fear of the participants has completely disappeared, or rather, it did not exist at all, since a whole generation of new “investors” has come

In this regard, there is Buffett’s catchphrase: “Buy fears, sell greed”!

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