The economy is stuck in bizarro world, where good news is bad. As a result, investors are getting burned by buying the wrong things. In 1960 DC Comics introduced the cube-shaped planet htrae, or “Bizarro World,” where everything is the polar opposite of how it should be. It’s also the name of this week’s Markets Hub podcast.
1. Don’t Be Afraid to Buy
The bizarro economy makes it difficult to predict what the markets will do next. We’ve entered a world where good news, such as a strong jobs report released this morning, can be bad news for the market if it raises inflation fears. But it’s important not to be afraid to buy in this environment. Despite historic inflation and record-high prices for food, energy, and goods, the consumer is still spending. This shows that our bizarro economy may be on the verge of a soft landing. If that’s true, stocks will rise as interest rates decline and the Fed begins easing up on its rate hikes. If not, stocks will fall as inflation accelerates and the Fed tightens rates. Both outcomes are possible and both could be equally positive.
2. Don’t Be Afraid to Sell
The stock market sometimes reflects the state of the economy, but more often than not it does so in a perverse way that mirrors a Bizarro comic-book planet in which the laws of life and physics are the polar opposite of those on Earth. This bizarro world has created strange investment scenarios, including one where good economic data (such as today’s strong jobs report) turns into bad news because it would help the Fed’s fight against inflation.
To avoid these perverse outcomes, it is important to be brave enough to sell when the time comes. That’s why you need to have a solid selling strategy in place.
3. Don’t Be Afraid to Short
Whether it’s the infamous Pfizer-Allergan merger fiasco, the Fed’s monetary policy, or the bizarre reaction to this morning’s strong jobs report, we are living in Bizarro World. Things that would have normally been positive for the economy and the stock market are instead being treated as negatives (i.e. bad).
For example, a government doing exactly the opposite of good advice given to it by its central bank is the stuff of bizarro comic books. In fact, a senior Bloomberg economist recently likened today’s unsettled economy to the cube-shaped planet htraE (Earth spelled backward), where everything is the opposite of how it should be.
The bizarro economic landscape is creating an environment that’s very difficult for investors to navigate. That’s why it is important for investors to be brave enough to short in order to protect their portfolios from the worst of the bizarro economy. Fortunately, there are a few strategies that can help. More importantly, it is important for investors to be aware of the risks associated with shorting and to make sure they understand why these risks exist. Then, they will be able to make informed decisions. That is the only way they can hope to survive in this strange new economy.
4. Don’t Be Afraid to Hold
This bizarro economy makes it more important than ever to be brave when holding on to a job that is not yet secure. Similarly, it is crucial to be brave when holding on to a stock that is not yet fully valued. Markets are currently in a phase where good data (such as the strong jobs report that was released this morning) is being dismissed because it is viewed as bad for the Fed’s fight against inflation. In this world of perverse interpretations and outcomes, a careful market timing strategy has no chance to be successful. This is a world where the rules of physics are turned upside down, just like a Bizarro comic.
