#trends 0012 : Market Bubble

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Hi All,

First off, welcome to the first #trends issue that is running on the new schedule. A quick reminder for those who are not aware of the new schedule:

  • #trends issue will run on the 1st of each month

  • #cryptobrew issue will run on the 15th of each month

  • #watchlist issue will continue weekly on Sunday nights

Now let’s talk about “The Market Bubble” and this is not an April Fools joke. There is no doubt in my mind that we are currently in a market bubble. Just look at how overextended the price of all the stocks are. Everything seems good until it suddenly isn’t anymore. What goes up, must come down and as a smart investor you need to always have an exit plan.

The truth is we are due for a major correction at some point. I’ve always been of the mindset that it is coming sometime this year, the problem is no one knows when. If it was that easy to predict, I think we would all be very wealthy. The best that you can do is to have a plan. Now, I am not saying that the market will correct itself tomorrow, next week or even next month. All I am saying is that you need to be on very high alert and watch out for possible indicators.

I am not a professional, but from the little things I’ve learned and continue to read about, I thought I’d share with you all the indicators I am keeping an eye on:

The S&P 500 Index

There is a professional analyst I follow on Twitter named David Hunter who has always made some pretty bold predictions over the years and most have come relatively close. He thinks the market is about to have a parabolic melt-up and predicts an S&P price target of $4600 before the market goes down. Now this is where I may differ slightly and think that’s a pretty high target. That being said, I’m not the expert, but personally, I’d probably start exiting the market at around $4200. As of this writing, the S&P closed today at $3,972.89.

Bitcoin

Bitcoin has been on an incredible bull run. But as we all know, this cannot last forever. But I have this weird feeling that when Bitcoin reaches its peak and starts to correct, the correction may align with the stock market correction. I have no evidence to support this, but just another indicator I’m personally using to get a better timing. It’s just a simple logic, when everything starts to fall, people sell everything to lock-in cash.

Stimulus

The only thing that has been keeping the economy going is the free money the government has been handing out via stimulus checks. I don’t see any more stimulus checks going out after the one that just went out a few weeks ago. People are going to start running out of money. Perhaps tax refunds might help keep things normal till May-June timeframe. After that, I feel cracks will start to arise.

Rent Forbearance

Ironically, rent forbearance also ends in June. So for all those millions of folks who have delayed their rent/mortgage payments this whole time, they will have to start paying up. Think about this for a second, do you really think people will be able to catch up payments that have been accumulating for months?

Hedge Funds going bust

Last week we heard about the bust of the Archegos Hedge Fund which caused the massive sell-off in the market, hence why everything was red. Do you really think Archegos is the only hedge fund that was over-leveraged. My answer would be heck NO. There are many more out there and when this is all said and done, this could potentially be worse than the 2008 financial crisis.


🗺 One More Thing…

There is no single indicator to give an accurate timing of when this will all come falling down like a house of cards. The idea here is to give you the opportunity to pay attention to a mirage of various indicators that may start to crack. There is an old saying “the markets can remain irrational longer than you can remain solvent”. You will never be able to time it right. But you can at least prepare by hedging at the right time and/or closing positions that could be at risk.


🔗 Links

  1. David Hunter Tweet - Twitter

  2. Fourth stimulus checks are unlikely. Here’s what federal aid could be coming next - CNBC

  3. Coronavirus Mortgage Forbearance Relief Has Been Extended: What To Do When It Ends - Forbes

  4. How many hedge funds are a margin call away from Archegos-style implosion? - Quartz


As always, this is not financial advice. I use this as a way to journal my thoughts and share with anyone else interested enough to want to read this, as well as for educational purposes only.