Kirk Chisholm – A Paradigm Shift Is Happening in the Markets

Sep 29, 2022

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BIO: Kirk Chisholm is a wealth manager and principal of Innovative Advisory Group and Host of the popular podcast Money Tree Investing.

STORY: Kirk shares his thoughts regarding the current status of the global markets.

LEARNING: Always check your assumptions. Cash is now safer than bonds. Now is not the time to buy.

“Everything you think you know about investing is now wrong.”

Kirk Chisholm

Guest profile

Kirk Chisholm is a wealth manager and principal of Innovative Advisory Group and Host of the popular podcast Money Tree Investing.

He and his firm specialize in Risk Management, Inflation, Self Directed IRAs, Alternative Investments, and advanced tax strategies.

They truly are outside-the-box thinkers in everything they do, and as you will hear on this show, Kirk is a unique and all-around interesting guy.

Worst investment ever

Kirk is not new to the My Worst Investment Ever podcast. He made a previous appearance on episode 138. You can go back and listen to his experience of investing internationally in a Chinese coal company. Today he doesn’t delve into his investment mistakes but rather shares his thoughts regarding the current status of the global markets.

We come to our opinions by someone else giving them to us

Kirk believes that we form our opinions based on other people’s points of view. You may imagine that you think independently, but that’s actually not true. What happens is you do something, and your brain justifies it afterward.

When you form an opinion, most likely it’s after listening to someone else’s point of view. For instance, you may have been watching the news and then forming an opinion. That’s how our brain works. When you understand this, you’ll be able to look at the world differently.

There is a paradigm shift going on in the markets

A paradigm shift is happening in the markets, and most people either aren’t aware of it or they’re not respecting it. For the last 40 years, we’ve had declining interest rates and declining inflation. In the US, interest rates and inflation peaked in 1981 and have been going down for 40 years. In the last 40 years, we’ve had an enormous bull market in bonds, stocks, real estate, and pretty much everything. We’ve had asset growth, wealth creation, and abundance across the spectrum for the last four years.

However, this year the paradigm has changed. We have inflation at eight and a half percent, and the old paradigm won’t work in this type of market. The old paradigm supported the buying and holding strategy and viewed cash as bad. This strategy, however, doesn’t work in a recession or a bear market. It’s just a great strategy during a bull market.

Always check your assumptions

Investors have been making assumptions based on the 40-year market. In large part, investors assumed that real estate always goes up, which was wrong. This assumption caused the whole system to implode. So we always have to check and reassess our assumptions. Better still, if you understand the inflation part, you’re gonna be so far ahead of everybody.

Cash is now safer than bonds

Bonds have moved from a safe investment to a risky one. Cash is now safer. Stay away from the growth areas and focus more on the value areas because value tends to do well in recessions. This doesn’t mean you won’t lose money. It just means you’ll be safer.

Real estate is really dangerous

The biggest problem with real estate is that it’s illiquid. If you’re a homeowner and don’t need to move in the next five to ten years, you have nothing to worry about as long as your mortgage is fixed and not variable. You’ll still be fine if you get to 50% interest rates. However, if you plan to move in the next five years, sell now and rent.

Is now the time to buy?

Kirk has been through the ups and downs of the markets, and he knows what a bottom and a top feel like. According to his experience, we’re not at the bottom. The interest rates aren’t going to stop rising—at least for the next four months, according to Wall Street’s picks. It’s probably going to be longer than that. So if you’re wondering if it’s the right time to buy, no, it’s not. It’s better to stay on the sidelines until we see things easing up. Don’t take any risk in any asset because it’s not worth it.

The worst times are ahead of us

We’re heading to the worst times. But, it’s not going to be worse forever. We might have about six to 24 months when the markets will probably get progressively worse. Then we’re going to hit a period where everything’s really low, and the market will bounce back. This means there will be good buying opportunities in the next 10 years. Stocks will get cheaper, and you could find some fantastic deals, even if they’re at a higher nominal price from a valuation perspective.

Andrew’s takeaways

We’re getting close to a global price equilibrium

We’ve had 40 years of declining interest rates and inflation, and there was not much that the Fed or anybody could do about it. There were deflationary forces that were overpowering money printing, and as the US sent its inflation abroad, wages and other things rose in other countries while Americans enjoyed lower prices. But now, wages abroad are much higher, and we’re suddenly getting close to an equilibrium.

Taking a career risk

Most people who are active fund managers are incentivized to hug the index because they’ll suffer if they underperform.

The hindsight bias

You may think you have an independent mind, but basically, we’re given our opinions by media and other sources and then justify them afterward. In other words, we can only see what happened in hindsight.

Stay put in your house, for now, don’t sell it

If you own a house right now with a 30-year fixed mortgage and a reasonable interest rate, ride it out. Don’t do anything; you’re in good shape. Just like getting a bond, if you hold it to maturity, you’ll get the yield initially promised.

Bonds are still unattractive

Bonds and equities aren’t an attractive investment right now. Cash is gold (not trash) when everything’s falling. So if you have the opportunity to hold cash, then take the chance.

Shift to the new paradigm

Forget the old paradigm of buying on dips. Just focus on getting cash because, in the next six to 24 months, there will be some great opportunities to invest in.