Is the rate cut by the ECB (or Milli) a countdown to a bubble burst?
Hello, this is Shimonyama.
Last week, the U.S. Federal Reserve decided to cut rates.
As a result, the wave of monetary easing may spread to countries outside the United States as well.
It is pointed out that such a possibility exists.
For example, the European Central Bank (ECB)
may cut interest rates in September.
Then, in the future globally
When monetary easing policies spread
what kind of things might happen?
The world economy will be affected by various factors such as
“US-China trade frictions”
and
“Britain's departure from the EU (Brexit)”
as these elements become intertwined,and frankly
the outlook is uncertain.
However, there is one trend we can say with certainty:“When monetary easing expands worldwide,
bubbles are more likely to form.”
Why is that?
There is a section that explains the reasons in an easy-to-understand way,
so I will introduce it.
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Nowadays, information and communications, tourism and entertainment, finance,
and other service sectors have come to occupy the core of the economy.
As a result, the money that overflows from monetary easing tends not to go to real investments like capital expenditures,
but rather to financial assets and real estate investments.
This tends to trigger asset price bubbles.
This is one background for why bubbles have become more likely to occur in recent years.
Kōkyo Hiroshi
‘The Easiest Japanese Book on “Investment” and “Money”’
(Cross Media Publishing Co., Ltd)
January 3, 2019, first edition
From P.123
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When the money overflowed by monetary easing tends to flow into stocks, real estate,
rather than real investments like plants and equipment,
it can lead to bubbles.This is one background for why bubbles have become more likely in recent years.
Google
Amazon
Facebook
Apple
Netflix
representative world-leading companies
do not own large-scale factories,
and industries that do not require large-scale investment are now mainstream.
Therefore,
the money created by monetary easing
tends to flow into “stocks” and “real estate.”
And,
when money flows into stocks and real estate,
their prices rise excessively
and form a bubble, but…
history has shown that bubbles inevitably burst,
which you surely know well.
When investing,
people naturally imagine a favorable future for themselves,
and tend to say, “There will be no crashes now,”
but
to be prepared for anything that may happen,
you should always keep in mind.
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To you who keep buying “treasure stocks” introduced in magazines
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Even if you hear this,
many people willconsider risk and
continue to search for stocks that will rise dramatically,
as always.
There are many sources of information, but
the easiest way to gather information might be
to read investment magazines.
Every month, words like “stocks with sudden surge”
appear on the cover, and
many readers inevitablykeep reading.
But,
if you are one of those people,please be careful.
If you read investment magazines merely for reference
and
buy stocks based on what is written
you cannot help but think,
“It is impossible to consistently earn from stocks.”
That is what I must say.
The reason is…
the following episode will be a helpful reference.
This is an episode from writer and economic commentator
Kuiyonghan, who visited the president of Diamond Publishing
of Diamond,
the episode.＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊＊
When I decided to start playing the stock market,
I went to visit Shiro Ishiyama,
who was the president of Diamond Publishing,
and I said,“I would like to know which stocks to buy.”
Then Mr. Ishiyama
looked very troubled.
He said,
“Even if you say it’s difficult,
And half-jokingly he said,“This building wasn’t built with money earned from stock trading.
It was built with money earned by selling stock information.”
He made me laugh.
He emphasized that
selling stock information
and whether it hits accurately are
two different things.
Kui Yonghan
‘Lose Money to Learn Stock Investing’
PHP Institute of Research, Publication
December 2, 2005, First edition, First printingP.25
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There is knowledge to be gained from reading magazines as well.
There are discoveries like,
“I didn’t know such stocks existed.”
and so on.
However,
to read hoping that merely by buying the stocks written there you will profit
is not right.
Think about this.
For example, if a friend
advised you, “This stock is good to buy.”
and you asked,
and the response was,
“No, I don’t trade stocks myself.”
Would you trust that advice and buy the stock?
Probably not.
Similarly,
even if a non-investor gives you advice,
you shouldn’t rely on it.
It’s the same thing.
The people who write magazines’ articles about investments
may not themselves be investing and earning profits.
Therefore,
you should not take what’s written in magazines at face value and trade.
In the first place
investors want crucial information that can make or break returns
but such information is unlikely to be found in a magazine that costs less than 1,000 yen.
Reading magazines is your freedom,
and I do not intend to deny that.
It can be educational.
But if what’s written there is assumed to directly lead to profits,
you should rethink it.
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There are things that only become clear through mistakes.
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Nevertheless,
you may still be swayed by words like “treasure stocks,”
“sudden surge stocks,”“big breakout stocks.”
You might be tempted to chase them.
If so, being swept along once might be
not a bad idea.
See what happens with your own experience.
You may end up making a lot of money.
But there is almost no chance you will continuously win.
Frankly speaking,
trades that aim for large profits all at once
are no different from gambling,
and even if you win temporarily,
you will eventually lose your funds.
And when that happens,
you will truly realize
that you have never left the realm of gambling.
Unfortunately, humans have things they cannot understand without making mistakes.
We are not saying you should deliberately fail,
but if what I’ve said today does not resonate with you,
then please do as you wish.
And if, as a result, you fail,
then recall what I’ve told you today.
With that,
thank you for reading until the end today.
I wrote today’s article hoping you will be able to earn profits in stocks as you wish.
I hope it is somewhat helpful.
Keizo Shimon
