We have all watched as the stock markets around the world have kept on rising despite all the bad news about the Corona epidemic, unemployment at record levels, and inflation on the rise. On average the different exchanges have doubled in value over the past 15 months which raises the question: How long can this continue?

There always comes a time to sell, take the profits, and sit tight until the next correction occurs, which it will. Timing this exit is always a problem as most of us are guided by emotional investing (see below) and always get in well after the markets start to climb and get out when it is too late. Good advice is always, get out while you are in the winning column. We will list the 3 reasons why now is a great time to sell.

EMOTIONAL INVESTING

The Corona Pandemic

The Corona Pandemic is a global problem and one where no government seems to have the right solution to eradicate it. It has the ability to completely shut down any economy as restricting person-to-person contact is the only way to get it under control. This means basically nothing in an economy can function normally.

As far as the stock market is concerned, it has assumed the virus can be conquered with the development and implementation of vaccines. This has been the assumption leading to the continued rise in the markets in the belief that everything will get back to normal with built-up demand exploding consumption, allowing corporations to get back to the sunny days of the past.

Unfortunately, this will not happen. Again, Corona is a global problem and until it has been removed completely from our planet, will always be around. The very concept of globalization will guarantee this. As late as yesterday, a new variant of the virus has been discovered in South Africa which appears to be much more infectious and may even be immune to any of the current vaccines. It has already spread to different regions in the world and can be expected now to spread rapidly.

Few countries have the current Delta variant under control and, faced with the fourth wave of infections, are already closing, or planning to close, parts of their economy. It is even now questionable how effective vaccines are against the current Delta variant as it appears they don’t offer more than six-month protection. If they are not effective against the new “Omicron” variant this would mean we are basically back to square one.

This will be a continuous “revolving door” scenario that could last for years. This is reason enough to get out of the market now to observe what might happen in the near future. Just the initial news of the Omicron variant sent the markets down by more than 2% in one session. Cash in and enjoy the incredible gains you have probably achieved. Don’t succumb to the mistake of emotional investing.

Inflation

The Central Banks have been the catalyst for the markets to rise so quickly. With the onslaught of Corona, they reduced interest rates to below zero to encourage consumption and simultaneously increased access to cash by flooding the markets with money.

This resulted in the possibility to access cheap money and where did this money finish up? In the stock market. Not only did the institutions take advantage of this opportunity, consumers who were in some cases sitting at home with nothing to do also got involved. The same applied to real estate as consumers were able to obtain mortgages at rates not seen in decades. This has also created a real estate bubble.

The question now is: How long can the Central Banks continue with this philosophy? Inflation has raised its ugly head and has reached levels not seen in 30 years which means, under normal circumstances, the Central Banks would have to increase interest rates to fight inflation. This will cause a problem for all those who have taken on debt, including governments, corporations, and consumers.

The real problem is for the stock market. Corporations loaded with debt will look increasingly unattractive and, as their share prices fall, could create balance sheet issues. With demand for products and services hitting problems with the continued presence of Corona, it is hard to see how stock market values will continue to rise or even maintain their current, inflated value. A reason to cash in and observe the next stage from the sidelines.

Tapering

Tapering is a term not too many are familiar with. It means the reduction of the process of flooding the market with cash that the Central Banks have been using during the Corona epidemic. The Federal Bank in the USA has already announced its intention to gradually reduce the purchase of debt instruments, one of the ways it floods the market with cash.

What will this mean? Simply less money is available to be invested in the market. If nothing else, this will curtail the continued rise in share prices. This tightening of monetary policy by the Fed will simply mean the end to the environment which has led to the market doubling in value in less than 15 months.

As soon as the market stagnation begins, professional investors will start moving money in some investments to safe havens such as government treasuries and/or even cash, waiting for the market to find its equilibrium before they catch the next wave. Now is the time for you to do the same.

Update

Even as I am writing this column, news of the new Omicron virus variant is arriving by the minute. The spread of this new version of the Coronavirus is now in full swing as country after country announces its discovery within their borders. Doubts are now being expressed on whether our existing vaccines will even be effective against this new strain. It now seems pretty clear this news will move the markets on a downward spin in the coming days.