Wise Owl Trading

 

This weekend 12-20-2020 I wrote this...

Traders & Investors especially the CNBC cheerleaders are hyper-bullish as we run into the holidays...and of course I am raising many concerns over a massive jump in investor sentiment (seems very illogical).

In this euphoric and giddy markets stock valuations and real corporate earnings growth no longer appear to matter.   Nvidia is up more than 170% over the last 9-months.  Perhaps we will see similar gains from here.

For 2021 which is what the street seems believes with their price targets; of course, there is nothing like an epic FED induced and engineered stock market bubble that would otherwise be impossible without their incessant manipulation and intervention.  

On the back of the premise that historic low-interest rates simply justify high nosebleed market valuations. 

Another premise is that the FED can permanently inflate stocks using their seemingly unlimited supply of credit.

These premises are nearing their proverbial expiration date.  Investors that are counting on there always being a greater fool will discover what happens when you overpay for a stream of future cash flows that will not unfortunately exist.  At critical stages in the stock market “like now” your long-term success in this environment often comes down to what you do not do, as opposed to what you do.  Above all, you want to avoid doing something stupid like blindly following the herd of investors off a proverbial cliff.  Something that will set you back a decade or more in your goals of accumulating long-term wealth.

 The market is at a critical stage as after peaking at 3,386 on February 19^th (before the official Covid-19 pandemic started) thereafter SPX-500 abruptly loss over 34%, reaching an interim bottom in 2020 of 2,237 on March 23^rd since then, as of Thursday’s close (December 17^th) at 3,722.48 (an all-time closing high, over 1,485 points higher than it was in February before the Covid-19 started), the SPX-500 is up over 66%.  In addition to the SPX-500, the Dow and the Nasdog have also attained new record closing highs, utterly amazing during this dismal economic period!

 CNBC and other financial cheerleading financial networks are touting a resumption of a mega bull-market and are enticing many to buy stocks.  But remember, investing psychology goes contrary to most other purchases you will make in life.  While most folks can quickly discern a bargain price for a pair of shoes or a TV, with stocks, they have the uncanny ability (94% of the new-bull herd) to buy high and sell low.  Fear and greed emotions seem to always get in the way of rational thought and decisions.

 Just perhaps, as the economy starts to re-open back up, growth will come roaring back in mass like flipping a proverbial light switch.  Maybe the new Covid-19 vaccine(s) will soon make this all malaise and contagions just a terrible bad dream and seeing these possibilities would not now be a great time to buy stocks (😊)? This rose-colored glass scenario appears to be what many are banking on.  They continue to push stocks higher with every positive report of a vaccine rollout or a new stimulus bailout potential bill emanating from the lamebrains in our Congress. **Maybe they are right (but I do not think so!) ** Please remember my recent warnings as this is an extremely dangerous stock market.  There are plenty of nasty unknowns (mostly negatives) with respect to the economy and markets.

Ø  How much economic damage did the previous King-Trump and Governor’s lockdowns do, and what will the new targeted lockdowns do? 

Ø  How long will it take for the real economy to recover? 

Ø  What are the implications for the massive and I mean massive deficit spending and monetary stimulus measures that have been so rampant result in? 

Ø  When will this equity and the “general asset” bubble finally pop?

I know that I have been screaming the “bubble” is expanding to near popping size for several months now and have been wrong due to headlines about the vaccine and stimulus, as I have warned that the U.S. stock market’s rebound amid the Covid-19 pandemic is a bubble that will end up imploding and disseminating many investors. In the months since I warned (September 2020) the equity market, the bubble has continued to inflate and inflate as it stretched to new historic highs. 

 This is the 3^rd market bubble that I believe I have accurately predicted (Dot.com, Housing, and now the Covid-19).  My basic market premise and philosophy is very pragmatic.  It is centered on a commonly used phrase “reversion to the mean”.  This is a premise that all asset classes and markets will revert to mean historical levels from highs and lows. Reversion to the mean, as an investment philosophy, is the recognition that financial asset prices in relation to their underlying value will get out of whack from time to time (bubbles and cesspools).  The greed and euphoria of a bull market almost always significantly overshoot into a dangerous Hindenburg size bubble...similarly, during a fear driven bear market and mass liquidation, financial asset prices fall to a massive significant discount to their underlying value. Logic states that the time to buy is when prices are vastly discounted.  So, too, the time to sell is when prices are high. 

Massive Fed-induced bubbles often inflate much further and grow much more extreme than a rational logical observer would and could expect.  In a world gone mad afloat with central-banker liquidity, the divergence can grow wider and more extreme before the reversion starts.