I reckon there's probably another thousand points of so to come...

I reckon there's probably another thousand points of so to come off the NASDAQ before it bottoms. It'll be in the 12000 range imo. The DOW is finding a bottom around current prices which is a good sign. When the market reaches correction territory no one wants to buy until there's a good reason or a bottom is in place.

This drift lower across all markets hasn't come out of nowhere. For over a decade reserve banks have been looking to stimulate economies with record money printing and interest rate decreases. Nothing has done the trick. It seems the only thing in the past that has had enough of an impact has been war. War causes supply chain uncertainty and increased costs known as inflation. The pandemic has had a similar if not worse effect on supply chains than war. After a decade of money printing and low interest rates the time has finally come for reserve banks to change policy with an aim to get a handle on rising inflation.

As money printing ceases and interest rates increase the valuations of businesses change. Profit is once again the key factor to consider in valuations whereas in the last decade the focus has been on growth at all costs. It was about addressing the most customers and gaining the most revenue. Losses weren't a concern because money has been cheap and some would say "free". Discount Cash flow or DCF method is a means to value how much a business is worth today based on projection of how much money it will make. The present value of future cash flows is determined by discounting cash flow based on the interest rate. As interest rates increase the present value of cash flow decreases. This means companies need to produce high cash flow to receive a higher valuation.

As you can imagine, when the interest rate is at or near zero the DCF method values cash flow very differently and what we have seen is a lot of unprofitable businesses being valued on price to sales. In simple terms, their valuation is derived based on revenue. In particular BNPL businesses ran very hot during the early stages of the pandemic because of increased stimulus (money printing). As governments produced large amounts of stimulus/welfare payments for workers this lead to increased spending and use of BNPL services for online shopping. As the demand for products remained high and the availability of products due to supply constraints caused by Covid decreased, an imbalance emerges and that means the price of products must therefore increase.

This is where inflationary pressure kicks in. The BNPL businesses grew large revenues and produced even greater losses during this period. Without any profit these businesses cannot hold the same type of valuation under a rising interest rate economy. So as it turns out, the stimulus and lockdowns that caused the rapid growth in BNPL is now presenting as a major headwind. The management of these businesses are now rapidly scrambling to reach profit and the catch phrase that we'll hear repeatedly will be "we have a pathway to profitability".

What we're currently seeing is reserve banks unsure as to how many interest rate hikes are required before taming inflation. This uncertainty causes a lot of unknowns for investors as a valuation calculated today could be vastly different in a months time.

So where does this all stabilize? In my opinion, March will see the Fed raise interest rates for the first time and quantitative easing will cease. In Australia, the RBA will cease it's $4b bond buying scheme and may also raise interest rates in the later half of the year, potentially even sooner. This probably won't stop inflation rising as we have to remember that the issue is coming from supply. There will likely be another increase after the March rate hike in the US and we could see inflation tapering off but not dropping. Once we see the inflation rate looking to be under control, markets will begin to stabilize. This will give better certainty to valuations as a known discount rate will available. I believe there's money to be made in certain pockets of the market however risks will be greater. I also don't believe we'll see a flash crash but rather this continued gradual drift lower until economic stability is found. These are just my opinions.