What to do when risk is everywhere...

As you all know, I'm quite bearish for the current market for its near term and have been constantly talking about risks for weeks. So naturally some people don't like it as they may happen to be somewhat bullish or at least not so bearish. That's normal of course as this is exactly how the market is performing: bulls fighting with bears everyday!😇 Here is what I just heard some feedback about my views. I saw someone "complaining" that due to my constant negative market view in 2019, they were afraid of investing and lost the opportunity of enjoying the bull run then. To be fair, this guy did clarify that it might be due to his/her own misunderstanding of my views that led to his/her cold feet! While I was a bit flattered to learn that my blog has this kind of influence on people's investment behavior, I do feel I need to make it very clear how my blogs should be read.

- First of all, whatever I'm talking about here is my personal views and I can be totally wrong for sure! So never take it for granted for anything. After all, there is no certainty for anything in the market!

- Secondly, investing is a very personalized thing that needs to take into consideration a lot of factors, especially timeframe, timing, long vs short term goal, risk tolerance, etc. So there is no such thing as one size fits all type of advice. Most of the time, I'm just talking about the current market situation as a wholed either bullish or bearish or neutral. I don't recall I have ever recommended anyone to just blindly buy or sell anything here. Most of the time, I just call for caution when I see the market extremes. Granted, I tend to be early and the market extremes tend to last longer than I'd expect. So never take my words as an immediate timing indicator.

- Lastly but not least, the market is never exclusively either black or white, even at its extremes. It is often a mixed type but weighted more on one side at a certain point of time. So even when I see a very bearish setup for the market as a whole, one can still find something worth buying. As a matter of fact, I'm constantly buying or going long for something even though I may be very bearish on the market at the same time. 

Need an example? Here is an easy one: you may recall that I called  Rotation has started! back in Nov last year while the overall market was red hot back then, especially for tech stocks. The two sectors I highlighted then were financials and energy, which I believed would outperformed techs in the months ahead. Where here is the current situation for the two vs the techs. I hope you agree with me that it was a spot-on call as both lagged sectors have been doing quite well in the past 3 months or so, especially the financials. So even thought I have been warned about the overall market euphoria, you don't need to just hold cash and hide somewhere but you can make some good money from the financial and energy stocks. 

Another one I like right now is the precious metals while I'm in general very concerned about the overall market. Although gold and silver are still a bit struggling for now, which may continue for a while, one can still make some good money from it as long as you know how to play with it. Here is an example of an income option trade I'm still holding for AGQ, which will expire next week. It is already showing some good money while AGQ is still quite volatile with wide gyrations. I'm pretty confident this trade will give me a full profit (about $22K) in a week from now. 

  So here is my general guidance how to read my bearish view on the market: I basically just advise not to blindly chase highs. If you have already heavily invested or are going to buy aggressively when the market is shaky, just be prepared to handle a sudden trend change or panic selloff. As long as you are comfortable with your own risk management for a potential market plunge, you should not be afraid of buying stocks regardless of the market condition. Hope I have made myself very clear now😏    

Escape America

For a vast amount of people, the election result is a huge disappointment for sure. I have seen many expressing a kind of depressed mood for it. I certainly understand but don't be so! Not because I don't care about the result but largely because I have never really put too much hope or expectation for the long term trend of this country. To be very honest, I have been very pessimistic about it for many many years and in my opinion, it is spiraling downward and has already passed the turning point, i.e. there is no return for America to become a conservative ideology driven capitalism country again. This is not something that has just happened in the past few years. Actually it had started 50 or more years ago. So it is a gigantic left-turning long term trend in the making for half a century at least and both parties are the culprits for it. And the ultimate ending for the US will be Venezuelalized society sort of speaking. Politicians, regardless of right or left, are just a bunch of  son of a bitchs （狗娘养的) and for them there is no right or wrong but just interest. So they are never really working for people who elect them but for their own selfish interest after all. That's why I have never really had any interest in politics and believe it or not, 2020 was the first time ever for me to take part in a national election for any country (I have lived in many different countries)! And it is likely my last one as well!!

What I really want to tell you is that I haven't really got any high expectation or passion for the long term trend of this country at all and therefore my disappointment is also proportionally less than many others'! Back in 2016, while I was also very passionate about supporting Trump for his campaign, I was not yet a citizen and was not even able to vote. After 3 years of closely watching, I really enjoy Trump's non-politician management style which fits well into my own belief that a country should be managed like a company. As such, I finally decided to become a citizen to make myself eligible to vote for Trump. Having said that, I told my wife even back in 2016 that I had never believed Trump could really turn the country around single-handedly. The best he could do was to just slow down the downward spiraling trend for America. So even if Trump won this election (he did but being stolen of course), it would be just another 4 more years of good time for the country but ultimately the long term trend will be resuming again and accelerate further when the radical Left takes over (just a matter of time). With this kind of thinking, I don't feel depressed at all as it is just becoming another old-time days! What for me is most important is to think hard about what to do in this kind of inevitable terrible trend that is accelerating. Fortunately we have put into serious thinking about this and have started to prepare for it for a few years now. And I will share later our plan to Escape America!. This is definitely not the country we want to spend our golden years to enjoy our retirement!! Instead of working hard to contribute to the wealth redistribution scheme, I'd like the left government to support my retirement as much as possible and pay as little tax as possible. Since those supporting the radical Left must love to pay higher tax and redistribute their wealth, why not let them pay me for my retirement? I cannot care less about the future of this country anymore under the siege of the radical left.  After all, this country has already bankrupted and there is no way to turn it around with all the left-dominated policies that will only worsen the situation fast. Honest and hard-working people will be exploited and taxed to death in order to support lazy people as well as illegal residents in the beautiful name of equality and fairness. In my mind, encouraging laziness/working less via wealth redistribution is the worst fairness for a healthy country! So stay tuned for my plan😇        

Smart money vs dumb money sentiment

By Lance Roberts

If you don't believe me, here is the evidence.

The stock market has returned more than 164% since the 2007 peak, which is more than 3.8x the growth in corporate sales, and 7.5x more than GDP.

But, for the 10% of the population that owns 90% of the stock market, the sentiment is now getting extreme.

Sentiment Is Getting A Bit Extreme

While the video discusses some of the extremes currently developing in the market, none better shows this than our investor sentiment gauge. As explained previously, this gauge compiles several measures of investor "positioning" in the markets in terms of actual equity exposure. As shown, we are at levels that have historically had poor outcomes.

Of course, seeing that, you shouldn't be surprised to see that retail investor confidence (dumb money) is near its highest levels on record.

However, with "euphoria" now at mania levels, the only question is just how disappointed they will be?

As noted above, it is quite clear everyone is "now in the pool." Such raises the question of:

"Who is left to buy?"

Pure schizophrenic!

Today, the fake president has inaugurated into his presidency, a perfect completion of the stealing of the election!

And the political drama for the next 4 years is officially started. What I can tell you is the pure schizophrenic play by the fake president 败蹬 and his gang.

First this photo of over 30,000 more National Guard troops deployed in D.C., which is more than both the Iraq and Afghanistan theaters of war. Why he is so afraid of American people if he was indeed legally elected by the majority of Americans? Of course you should not expect normal rationale from a schizophrenic patient!  😵 

Then the following bipolar policies that are coming:

- COVID infection check for anyone coming into US legally but no COVID concerns at all for illegal immigrants storming into the US soon

- National unity as the main them at his inauguration speech but dividing the country further by continuing the notorious hoax on the impeachment farce for the great President loved by half of the Americans

- Will stop building the border walls and even demolish the already built walls to allow illegal immigrants to come into US easily but will build up a wall around the Capitol Hill to alienate themselves from  their boss: American people 

While I'm not a psychiatrist, I'm pretty sure these kinds of actions are purely schizophrenic, nothing else! Wait to see more such schizophrenic actions in the next four years!!👎💀

 

Will Bitcoin collapse soon?

As I have said recently, I think Bitcoin is a bit bubbly and may be vulnerable for a sharp correction, even simply from the technical perspective. It is actually healthy this way but can be very painful for those late comers who are just recently chasing it. Now I just saw another "warning" not directly related to Bitcoin but indirectly via a stablecoin, Tether as Tether is being widely used for many people to trade Bitcoin (about 70%). Per this author (anonymous), if Tether collapses due to the fraud charge, Bitcoin will suddenly lose about 70% of the daily trading volume, which will cause a huge run for Bitcoin as well.  Do I know for sure this must happen if Tether is indeed a fraud? Surely not as no one has any clear idea about how this may impact on the Bitcoin market but it sounds logical. In any case, it is better to be prepared for the worse while hoping for the better for anything including Bitcoin.  

Here is the excerpt:  The Bit Short: Inside Crypto's Doomsday Machine

Because Tether sounds exactly like a currency fraud, it may not surprise you to learn that Tether Ltd. is currently under investigation by the Office of the Attorney General for the Southern District of New York. That investigation was announced to the public on April 25th, 2019...

Beginning in September, Tether Ltd. begins to issue multiple large blocks of Tethers per day. The pace accelerates, with $2.3 billion worth of Tether issued in the first week of 2021 alone.

This was consistent with the possibility that, as Tether Ltd.'s various legal challenges failed one after another in the New York courts, Tether Ltd. was choosing to issue Tethers faster and faster to maximize the amount of value it could extract from the crypto ecosystem before being shut down. The pace accelerates closer to Tether Ltd.'s final disclosure deadline – January 15th, 2021...

The last nail in the coffin was when I found out about the lack of visible reserves. If Tether Ltd. really was taking in 1 USD for each Tether it issued, then it should have as many dollars in its bank account as there are issued Tethers. And it turns out we can check if that's true! Tether Ltd.'s bank is Deltec bank in the Bahamas, and the Bahamas discloses how much foreign currency its domestic banks hold each month.

The answer was – at least up to the end of September 2020 – not nearly enough...

From January 2020 to September 2020, the amount of all foreign currencies held by all the domestic banks in the Bahamas increases by only $600 million – going from $4.7B to $5.3B...

But during the same period, total issued Tethers increased by almost $5.4 billion – going from $4.6B to $10B!

The implication was shocking: there weren't nearly enough dollars in all the domestic banks in the Bahamas to back the Tethers that were floating around in the crypto market.

So this was crypto's big short: Tether Ltd. was short of U.S. dollars – to the tune of about $25 billion.

Deep red everywhere: A Heat Map of Valuations

A Heat Map Of Valuations

By Michael Lebowitz, CFA

We talk a lot about valuations and their importance, but such discussions can be hard to put into context. Therefore, I have produced a series of charts that visualize various valuations of the S&P 500 companies. Not surprisingly, such also corresponds to the current behavior of Wall Street analysts and investors. Instead of cluttering up the commentary space on RIAPro.Net (30-day Risk-Free Trial), we thought you would better appreciate the charts and can share them more easily in an article format.

The charts below are called heat maps. What we like about heat maps is their ability to show two data points in one easy to read format. The following maps show the S&P 500 components market cap and along with a second factor. The larger the company's market cap is in relation to other companies in the sector, the larger the square. Each graph has a scale on the bottom right relating to the second factor. In the first graph (Price to Earnings), the brighter the red, the more overvalued a company is. Conversely, green is relatively cheaper. Companies are sorted by their sectors and sub-sectors.

The first three graphs are popular measures of valuation. The fourth graph shows that analyst recommendations, despite valuations, are pretty bullish. As shown in the fifth graph, investors are also overly bullish as there is a very low percentage of short positions in general. Lastly, the sixth graph shows this is not just domestic, but high valuations are occurring in many other countries.

1. Price to Earnings:

You have to look pretty hard to find stocks that are not wildly overvalued.

2. Price to Sales:

A ratio between 2-3 is considered somewhat normal, especially for well established mature companies.

3. Price to Book:

P/B is also typically in the lower single digits for mature companies.

4. Analyst Recommendations

You have to look pretty closely to find stocks that do not have buy recommendations.

No matter how you look at the markets, either from a technical or fundamental point of view, the long-term risk/reward is not favorable.

What eventually derails the bullish bias is unknown. However, what is certain is that when it occurs, given the more extreme levels of leverage combined with a lack of liquidity, the reversion will be swift.

During a bull market advance, investors always take on substantially more risk than they realize. Unfortunately, it is a painful lesson taught quickly and repeatedly throughout history.

Shortsighted Big Tech

by Matt Benjamin

Well, Democrats will soon control the White House, the House of Representatives and the Senate, and they're by and large cheering on the actions of Big Tech with regard to President Trump.

So Big Tech companies may be trying to please the incoming regime. But that may turn out to be a shortsighted strategy.

Democratic control of the federal government won't last forever. Republicans will eventually - and very possibly as soon as the 2022 midterm elections - regain control of one or both chambers of Congress. When they do, taking major social media platforms like Twitter and Facebook down a notch will be at the top of their agenda. Republican Sen. Lindsey Graham of South Carolina is already vowing to strip tech companies of certain legal protections they now enjoy.

In addition, by banning Trump, these companies risk angering a substantial portion of their users. Vast networks of users are what make these platforms so valuable - i.e., people choose to use Twitter and Facebook because everyone else uses them. Driving a substantial number of their users away means these companies could lose a lot of that value.

And the fact that Amazon, Apple and Google can basically make a platform like Parler go completely dark illustrates the sheer power of these companies and the fact that many other companies are overly dependent on them.

As a result, "Many CEOs will likely conclude that they have to reduce their dependence on single service providers," says Louis Gave of Gavekal Research. So Amazon's decision to block Parler may unwittingly give a boost to Amazon's competitors, "potentially undermining the dominance in web services that has largely driven Amazon's share price outperformance in recent years."

In a nutshell, these dramatic decisions by Big Tech should give investors - regardless of their politics - pause about the future revenue and earnings growth of these companies.

Sure, the mega-tech firms will still be around for the long term. But they may have just offered competitors a sturdy bridge over the moats - the sustainable competitive advantages - that have protected them from the ravages of competition for so long.

***************************************

By the way, if you don't know yet, there is another brand new social media, SafeChat, available now. Per SafeChat,  it is a secure & safe social platform run to a high moral standard—they put people first. Secure Chat - They have end-to-end encrypted conversations to protect users. - One to one video and audio call with end-to-end encryption. - Password protection available for every group conversation. It basically combines all the major functionalities of social media into one powerful platform and most importantly it is much safer than the junky social media like WC, FB or Twitter that are deteriorating morally faster and faster.

I have registered as 深山老林 at SafeChat and I will set up a new chat group and gradually shift our major social media interactions to SC instead of WC. If you'd like to join my group, sign up a free SC account easily and search for me and connect me as friends.  For friends sharing  similar conservatism views, let's come together to form a better chatting group that won't be constantly disturbed and harassed by radical censorship!