Siberian
Gold Member
- Thread starter
- Banned
- #101
Let's create another example shall we?
Say for example I had a million dollars in my retirement portfolio but outside the normal tax structures of retirement portfolios. (Not that uncommon)
So I borrowed $500K and bought the limit of what I could of NVDIA or Apple stocks.
And depending on which I bought...I either tripled my money or doubled it this past year.
Even though I might have lost 5% these past two weeks I can settle that debt quite easily. I either have another million or half million dollars to pay interest (1%) fees and pocket the rest.
So...
Now that interest rates are climbing...
And risk is usually calculated between 3-9%and sometimes all the way out to 14% in addition for risk/reward investment calculations...those higher interest rates are also figured in for any borrowed money. Meaning that I am going to be more selective in what I invest in.
There's not going to be any margin call for the money I've borrowed. Provided that I've been prudent in what I invest in and that the lenders agree with my choices. They aren't going to complain or whine.
Now if I started off buying Micron when it was $90/share the first time last spring/summer...then they might have something to say when it dropped to 55/share...but with the current Market conditions they aren't going to say anything at all.
now, turning to your example.
You say - I can settle the debt.
But did you?
The growth we witnessed is made by partially QE money which go via banks to corporations which use it for buybacks or, in situation when inflation is accelerating, but accounts in the bank bring 1-2% (am I correct?) - there is no way for the people to save their money but to invest their savings in sonething which alone is still growing.
The stock market.
A giant bubble is created.
And imagine if even a small portion of these small investors decide to sell their stocks.
If the Fed really stops pumping 120 bln dollars a month of QE money into economy by March - there will be much less buybacks. If the market growth does not excede inflation - small investors will start leaving the market turning into gold or real estate. Stocks will first stagnate and ghen an avalanche of selling will follow.
Have you sold your shares?
You have not, so all your profit does not exist, it can and will evaporate because greed will make you wait if stocks dtop by 5%, then by 10%, then at 15% you will buy even more because "stocks always grow", and then at 21% drop it will become your personal financial catastrophe.