THIS OBSERVATION I BELIEVE TO BE SO VERY IMPORTANT TO YOU.
extract from model x portfolio report 11 February 2021, commenced 25 November 2020, +22%
Good afternoon, we have remained largely out of the market for an extended period, after being whipped about a little during exaggerated volatility.
We have just sat on our hands really, as what is going on in markets generally, is perhaps even more extreme that the great Tulip Bulb disaster of the Netherlands a long time ago. What happened then, was that a whole society became obsessed with getting rich quickly and easily by speculating.
What occurred then, in this making of a disaster, was that quite simply the price had been going up so quickly, beyond anyone's expectations, that others had in fact become quite wealthy as a result. So, inevitably, gradually at first, and then with a rush, everyone else wanted in.
Widespread participation of inexperienced investors and traders in a market where all reasonable standards of valuation have been forgotten. It was just too easySound familiar?
It went on until a single tulip bulb, perishable, was worth more than the average home. That is how crazy things can get.
Having 34 years economic and market experience around the world, and knowledge of events such as this, has actually been a significant handicap to performance over the past 12 months. It is one of the reasons many experienced fund managers missed out on one of the sharpest rallies we have ever seen. Of course, my error last year was to be focussed on Main Street economics and valuations. When, it would have clearly been better to have focussed on simply stimulus and low interest rates.
It is also the case however, that in modern times anyway, we have not really witnessed this 'everyone swept up' in the idea of easy money. My personal view is that this is such a temptation to the human psychology for a variety of reasons, including the great support to the ego derived from making money in the market. It has a particular allure. We are all subject to this to some degree.
We have seen it in individual stock movements before, that became front page news on the way up, and again on the way down.
We have never seen it, in our time, across entire markets however, and seemingly occurring everywhere all at once. This has been new, and now we are left with just feeling our way as to how long it can last.
The most important point of all, is that the turn in the market will not be clearly telegraphed. It never is. I have certainly been too early in looking for the top. I do want to highlight, that it is important to be aware that what has been happening, will not be without a sudden end. These situations always end in tremendous losses for the great majority of participants.
When I first launched the new Model X Portfolio, it was to accept that we had to join the now well established upside trend, but with hedging signals always in place. There is no doubt that this commitment to buying, is the reason for strong performance so far. We have to do more of that, but the past two weeks have been too tricky to jump in again. A bit like jumping into a muddy river for a swim with no local knowledge.
Things are currently calming down a little. We will respect price action with the above in mind. Always, with the awareness this simply cannot go on indefinitely. The post US stimulus period could be a market check.
IS THIS 1927-1929 AGAIN?
January 12, 2021
Good morning, and we just closed an incredible trade in Tesla.
At the time, it felt we were buying late near the top, but it worked out as one of the best trades ever. So, we know respecting price action, even when disbelieving the levels achieved, can be highly profitable.
That said, the price action now, for Tesla, and the Tech sector as a whole, is heavier than the broad market. Tech needs to stabilise here, or risk becoming a downward snowball, quickly impacting other sectors and particularly the Australian market and extremely so in stocks like Afterpay that have never made a profit.
Yes, there is a bubble. We know that. Of gigantic proportions. Whether it is bursting today or can last even another 3 years remains to be seen.
I do note, rather pointedly if I may, that this actually looks like the the 1927/1929 period, where consumers were buying everything on credit, and goods and services were beginning to be over produced beyond real demand. China is a stark case in this regard. State enterprises pumping up economic data, while the consumer and private investment remains lack lustre. The US of course, is in a far worse situation. In Australia, there is this all over-riding, almost consensus philosophy, that all will be well. Even better than before. It is a nonsense with maximum broad based acceptance and belief.
All the makings of an impending, perhaps 1929 style crash, as a very real risk sometime this year. Just when no one expects it. That's what markets have always done, but they have never, ever, been so extremely leveraged. 1929 was a crash on borrowed money to invest in shares. Everyone getting rich. How much more extreme is the situation today.
Working families have invested heavily in stocks that have never turned a profit, like Uber, Afterpay, and the even more vacuous cryptocurrencies. How quickly could the financial well-being of a large proportion of the society... disappear.
If the market were to fall now.
This would have a wider, more instant impact than in 1929.
The Stupidity Index, Bitcoin, is down 25% in the past week as things begin to unravel. The process, if the big one, and we cannot be sure of that yet, will make its way through all markets in a matter of weeks, even reaching to the absurdly over-valued iron ore market in due course. When the big one comes, and it must at some point given the highest levels in history of participation and leverage and extreme valuation levels, then no market will be untouched.
After all of that warning, it must be said, that for the moment the broader US market is still in a potentially short term bullish consolidation range. Watch for a break below the past three days trading range in the S&P500 Index for further warning of the great unravelling getting under way. The market may hold, but it is looking increasingly ugly.
As the first commentator in the world, this is safe to say as it was completely in the face of all other views and market expectations at the time, to forecast the Dow Jones to 30,000 at the start of the previous decade for this year, I guess I can take some pride in this event. I could have made more of this year's rebound, but we certainly enjoyed the full bull market from 2009 to 2020. The only firm in the world to do so.
30,000 was even on the cover of Economic Horizon. my e-book published by a Wall Street firm many years ago. Free download available below.
This is perhaps the best forecast and the most courageous in my career, as many people vehemently opposed such a positive, yet as it turns out, realistic outlook.
We will continue to do our best for you.
JACK WAS THERE WHEN THE BULL MARKET TO 30,000 STARTED.
About the contemporary economic forces of our time and why the biggest bull market in history was underway. As well as a full description of the key economic principles that will continue to drive the global economy for decades to come.
Published by John Wiley, New York.
Today's global financial markets are every bit as vicious psychologically, and sometimes even physically, as the battles the great warriors throughout history have faced.