A Warning For The 2023 Stock Market

What's up, Graham? It's guys here! So, 2023 is already off to an interesting start because, in just the last week alone, we've seen a woman go viral for buying a 1998 Ford Escort for 289 dollars a month for the next 84 months. A teacher was charged for running a crypto mining operation from the school crawl space, and BBC News said that presenters could relax their dress code because the sweaty and dirty look is more trustworthy. Hold on, I'm going to be right back. There we go, that's better.

Although, if you thought it was done, it gets worse! A federal judge just ruled that emojis can now count as financial advice. Morgan Stanley's evidence suggests that the current stock market rally is a bull trap, and Warren Buffett called his critics economically illiterate right as rich Millennials lose confidence in the markets. That's why we really need to talk about exactly what's going on, reveal the three assets that Millennials are beginning to buy, and break down exactly what you could do with this information to potentially make money.

On today's episode of "Yes, it is possible to go to Disneyland every single day for eight years," although before we start, if you want to be kept up to date on market news and financial topics just like this, it would help out tremendously if you hit the like button or subscribe for the YouTube algorithm. It helps with the channel tremendously and is a thank you for doing that. Here's a picture of a rare owl! So thank you guys so much, and also a big thank you to public.com for sponsoring this video, but more on that later.

Alright, so let's start with the stock market because right now there's the mindset that prices are about to plummet. It all starts here. First of all, you've probably noticed that the stock market's been on an upward trend since October of 2022, having increased as much as 17 percent in just the last few months. Now, most of that was the result of slowing inflation, strong corporate earnings, and price cuts that gave the impression that the worst was over. But, uh, that might not be the case.

Instead, we got inflation that was hotter than expected in January. People were found to have spent more money than anticipated, and as a result, the FED is expected to keep interest rates higher for longer, causing stocks to once again begin falling. And that's what leads us to today. As of now, it's said that the market has completely given up on a Fed pivot this year, and with that comes a warning from Morgan Stanley that the bear market rally will resume. As they say, U.S. stocks are more expensive than at any time since 2007 and the global financial crisis.

Although, in terms of a bear market rally, to be honest, none of this is out of the ordinary. Now, technically, a bear market rally simply refers to a stock market increase of more than five percent in the middle of an even larger downtrend. In the big picture, it is incredibly common. In fact, Investopedia announced that every bear market between 1901 and 2015 spawned at least one five percent rally, and rallies of 10 percent or more interrupted two-thirds of the 21 bear markets over that span.

But as far as whether or not we're currently in a bear market rally, the truth is nobody has the slightest clue. For example, Barons believes that a decline in earnings has already been priced in. Market highs are continually exceeding market lows, and technical indicators suggest that we have more room to increase. Not to mention, another analysis has found that since 1981, there have been no instances where the FED has continued to tighten their policies during a recession. That means that if things were to get too bad, it's very likely the FED would begin to pull back, or that could age just as horribly as this Yahoo article that proclaimed the FED would stop hiking rates in February based on history.

However, like I mentioned earlier, this is just the tip of the iceberg. And in terms of what Warren Buffett is doing about all of this, you're going to want to sit down. Now, typically when you think Warren Buffett, the words economic illiterate or silver-tongue demagogue don't usually come to mind. But in this case, those were his exact words, and it all has to do with an increasingly controversial topic that can make some investors a lot of money, and that would be stock buybacks.

See, here's the thing: anytime a publicly traded company makes a profit, they could spend that money in three different ways. They could either reinvest that money back into the business to continue growing, they could save it and then have to pay tax on that, or they could give it back to shareholders. And that's where things get a little bit messy. In most cases, a company could pay you a portion of their profits in the form of a dividend, which pays you based on the number of shares that you own.

But if a company believes they are fundamentally undervalued and they have no better use of capital, then they could use all of that excess cash to buy back their own stock, increasing its value and making its investors a lot of money in the process. In fact, over the last 10 years, companies have engaged in a record amount of buybacks, which is drawing criticism from politicians who believe that Corporate America should use their cash in other ways to boost the growth in the long term, such as employee benefits and capital expenditures, especially during a time where layoffs are increasing.

However, a tax foundation analysis found that once a company has excess cash that they cannot reasonably use within the business, they either hold on to it or they return that value back to shareholders. In this case, companies were found to make investment decisions first and then buy back shares with what's left over, not the other way around. That's why Warren Buffett argues that stock buybacks are a necessity; hence why he says his critics are either economically illiterate or a silver-tongue demagogue.

But Warren Buffett isn't just buying back his stock right now. Oh, no! Instead, he's buying into something that all of us could partake in that's practically risk-free, and that would be treasury bills. That's right! Warren Buffett is now holding on to 77.9 billion dollars in treasuries while reiterating that it's not so painful to be sitting in cash anymore. And this is for good reason because treasuries are currently paying a guaranteed five percent on 6 to 12-month terms.

And if you're looking to do something similar, here's what you need to know. Basically, treasuries are loans made to the U.S. government. In exchange for lending them your money, you get paid back with interest, which right now is anywhere between almost four percent to five percent depending on the term. The benefit to the government is that they'll be able to get a constant influx of money, and you as the lender get a risk-free rate of return that is substantially higher than what you would receive in a bank account.

Now if this sounds too good to be true, the answer is it's not. But there are a few points you have to be made aware of. First, to get the guaranteed rate, you have to hold on to it through maturity. This means that if you buy a three-month treasury, you're holding on to it for the full three months. The same thing also applies to a six-month, one-year, three-years, five-years, and so on.

The second point is there is a slight risk that interest rates go higher once you've already logged in. Like, say for example, you buy a 12-month treasury at five percent. There's nothing that says Jerome Powell can't raise rates even further, and then treasuries are paying 5.4 percent for the same thing. Now this certainly isn't the end of the world, and you'd still be entitled to your full five percent, but it is something to consider.

That's why, because of that number, third, a safer approach is what's called a treasury ladder. To do this, instead of throwing all of your money all at once into one treasury, you could spread it out over a few months to even a year. That way, you're always going to have more cash on hand to buy into treasuries in the event rates go up.

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Alright, now speaking of other potential investments, rich Millennials are taking a slightly more unorthodox approach. And if you're curious what they're buying, it's probably not what you would expect. According to a survey from Bank of America, those aged between 21 and 42 with 3 million dollars or more in investable assets only have 25 percent of their portfolio invested in stocks compared to 55 percent from those over the age of 43.

So what's going on? Well, Bank of America believes that Millennials have gotten tired of volatility, so they're putting their money in three asset classes that had historically held up well, with the first being real estate. As Bank of America explains, 28 percent of younger people said that real estate presents great growth potential, and 31 percent of the older group held the same opinion.

In addition to that, second, they're buying cryptocurrency. In fact, more Millennials believed that cryptocurrency was a greater generator of potential wealth than real estate, and on average they held 15 percent of their portfolio here. And finally, third, we have private equity. In this case, one in four Millennials believed that this was the best opportunity for their cash.

Now, personally, as someone who falls precisely in this category, I gotta say I think this survey is incredibly stupid, and the reason why Millennials own so little stock compared to older generations is that they haven't had enough time for that stock to grow substantially in value. That's why from my perspective, older generations hold more stock than Millennials simply because they've had more time to accumulate stock.

Although the biggest difference between generations is apparently emojis, and if you're not careful, they could land you in jail. Now, admittedly at first, I thought this is satire, but I quickly came to realize that this is real! And as of a few days ago, a judge ruled that these three emojis constitute financial advice. And if you don't believe me, it all starts here with NBA Top Shots.

For those unaware, these are essentially digital basketball cards featuring game highlights that could be bought in packs or resold on the secondary market for a potential profit. But there was a problem. One class action lawsuit argues that these are functioning as securities, and because of that, they would have to comply with the same rules and regulations as a publicly traded stock.

See, the SEC follows what's called the Howie Test, which clarifies the difference between a tradable sports card and a stock, and it all comes down to four points. It must be an investment of money in a common enterprise with the expectation of profit to be derived from the efforts of others. In this case, a judge highlights that Dapper Labs, which owns and operates NBA Top Shots, is a common enterprise that facilitates buying and selling, with his Twitter posts and emojis suggesting that these cards have the potential to increase in value over time under the expectation of profit.

As the judge explains, although the word profit is not included in any of the tweets, the rocket ship emoji, stock chart emoji, and money bags emoji objectively mean one thing: a financial return on investment. Of course, there are a lot of nuances in this claim, namely the fact that right now this only applies to NBA Top Shots in that one post in this one claim. But as the SEC continues to expand their enforcement, I would not be surprised if this were attached to other cases where profits are suggested.

But it is a reminder that intention is everything, and it's always important to take everything you see with a grain of salt. Kind of like buying a 1998 Ford Escort for 289 dollars a month for the next 84 months. And yes, the total cost of that does add up to twenty-four thousand two hundred and seventy-six dollars for a car that's probably only worth about twenty-nine hundred.

Now unfortunately, I tried to find the original source, but the reality is that these kinds of deals do happen and they're usually issued by privately owned car businesses that do their own in-house financing. My guess is that most likely the dealership gave her a loan with the expectation that they're probably never going to be paid back in full, hence why they issued such a high payment. But even crazier than that was this teacher who carried out an elaborate crypto mining operation that was only noticed once detectives investigated an excessive number of computers, electrical wires, and temporary ducting into a crawl space.

His reason for putting it there, you might ask? Well, he figured that he'd be able to piggyback off the school's electrical panel since electricity is so expensive. Thankfully for him, though, there's also free electricity in jail!

Okay, in all seriousness, as far as what you could expect over these next few weeks, with inflation picking up, we're likely to see even more rate hikes from the Federal Reserve when they meet next on March 22nd. Currently, the market is pricing in a 75 percent likelihood that the FED is going to increase rates by another 25 basis points, which would take their federal funds rate to almost five percent. But there's also a 25 percent chance that they'll increase rates by 50 basis points, which would absolutely shock the market.

Will they take a more aggressive stance on inflation? Personally, I'm in the belief that we're likely to see a series of 25 basis point rate hikes throughout the rest of 2023 because so far, everything they do lasts a lot longer than everybody expects. Honestly, at this point, nothing would surprise me anymore.

Except if you haven't already, hit the like button and subscribe for the YouTube algorithm. So, with that said, you guys, thank you so much for watching! As always, feel free to add me on Instagram, and don't forget that you can get a free stock with your sponsor public.com down below in the description when you make a deposit with a good gram. And also, they allow you to buy treasuries on there, so if you're interested, you could also do that very easily. Enjoy! Thank you so much, and until next time.