Hot money is a term used in financial and investing circles for money that is flowing into some area, some asset class, some investment. When money flows into some investment it makes the price go up and if you guess right you can sell for more than you paid for that investment.
Hot Money is how we get Bubbles. Financial Bubbles are when Hot Money flows into something and inflates the price of that investment. Remember the Housing Bubble? Hot Money. Remember the Tech Bubble? Hot Money. Remember the Dutch Tulip Bulb Bubble? (Try saying that three times fast) Tulips were Hot Money too.
Hot Money investments are based on the "Greater Fool" theory. The growth in value of those investments is not really based on growth in the market, demand, innovation or increasing market share, it is based on the hope that there is a "Greater Fool or Bigger Fool" than you that will give more for the investment than you did and the sooner the better. Once a Hot Money investor gets out of the Hot Money investment, they are looking for the "Next Big Thing."
Some money is "Hotter" than other "Hot" money. A Bubble may take a decade to develop or a few years or months or in some cases a few hours in what are "Flash Bubbles." The nature of Hot Money makes a Bubble and Bubbles burst and deflate. So now you know about Hot Money.
So where is the Hot Money today? Well, there is some money going into deflated oil stocks and hard assets thinking when they turn us loose and we drive again they will go up. You have some money going into Gold, from people thinking with all of this crazy stimulus it will go up before the end of the year and keep going up for a fair ride. You actually have some people putting money into China thinking they are getting a bargain and that China will bounce back. Of course you have some money going into the stock market, some sectors more than others thinking it will bounce back. I could go on, commodities, silver, I hear there are people looking into depressed real estate and farming, but as far as I can tell, the really Hot Money is on the sidelines. When they shut down people, they shut down the economy and with it, for the first time in my lifetime, they shut down Hot Money.
Oh, Hot Money will come back, just wait, but it is hard to tell where. No one expected Tulip Bulbs to be "The Next Big Thing" until they were. If I had to guess based on some educated guessing there will be more than one "Hot Money Market" and probably several won't be so hot.
Commodities that are necessary in one way or another for basic living will have to heat up. We are going to have a lot of people living pretty basic, we already have them. Anything that has to do with a vaccine will be pretty hot and the companies creating them and licensing them and administering them will be very hot when and if we get an effective one. Don't hold your breath, we have been working on AIDS for over 40 years and still no vaccine.
Financial Services is already showing signs of life. Somebody has to cash those stimulus checks and people are going to be running them through checking accounts. Debt counseling will come back when the payments hit the fan and you have to start paying your bills again without a job. But the closest thing to Hot Money these days is anything to do with Government Contracts. I can't say what I know or how I know it, but you don't have to be a Psychic to know the government is spending money and more today than before the virus.
Money is always flowing to some extent from government. Just yesterday the Supreme Court ruled the government has to pay the insurance companies for the losses they had with Obamacare. Investors talk about the trend to see where things are going and to be invested in rising trends. Government spending certainly is trending up and has for several lifetimes now. We are probably looking at the hockey stick part of the chart developing.
You have to figure out some way to benefit during this time. If you are not on the opportunity side of this you will be on the depression side of it. Higher taxes, higher inflation, scarce healthcare resources, increased rent and basic living expenses, failing pensions, IRA's, 401K's, you don't want to be crushed by what is coming.
If you want to talk about your financial situation, then fill out the contact form at www.eastbrookfinancialservices.com that is Eastbrook Financial Services and I will get back with you.
Best and be blest,
Scott Hogue CCFC, CCA