Last week was one of the worst weeks we saw in the market since the COVID-19 pandemic started hitting the headlines. But today, the market bounced back.
With the jaw-dropping scale of governments’ ability to borrow and print money, as well as expand their balance sheets, it is hard to imagine the overall market going down. The IMF predicts that in this year alone, rich countries will borrow up to 17% of their GDP to pay for their tax cuts and economic stimulants. This is indeed a new era. Central banks are now giant market makers on Wall Street and will buy virtually any asset in order to provide liquidity, even AT&T, Coca-Cola, or Apple bonds.
These days are an amazing time to be a trader. Whether we like it or not, I believe that knowing how to trade and having some financial literacy skills are now important requirements of modern civilization. Whether we want to be a trader or not, we need to stay updated on what is happening in both the financial world and in macroeconomics.
Let me give you an example on why this matters. When we purchased our property a few years ago, we chose a variable rate on the mortgage because we anticipated near zero interest rates in the short and medium future. Without any sign of inflation in the bond market and no upward pressure on prices, the borrowing by governments seemed limitless and there was no need to increase short-term interest rates from near zero levels. Countries like Japan and Germany have even introduced negative interest rates. The lawyer who closed the deal for us was a 60-year-old baby boomer who had experienced +15% interest rates in the 70s and 80s. As soon as he saw 5%, he scrambled to fix his own rate for 15 years at 5%. Now I am paying a 1.45% interest rate and he is fixed on 5% for decades. In Vancouver’s real estate, this difference is a lot. The difference is to be aware of how the market works.
When I was growing up in the Middle East, in addition to being able to read and write my country’s own language, learning how to use a computer and learning English were also considered literacy basics. Possessing financial literacy is now a fundamental requirement for living in the contemporary world. It is definitely no longer simply an elective or a hobby.
Thank you for being a member of our community. It is an amazing community because of each and every one of our members – including you!
To your success in trading and life,