During Covid, the markets ripped to new heights despite the seemingly gloomy shape of the economy for three reasons 1) Covid Stimulus 2) zero percent interest rates 3) lockdown creating a subset of new retail market traders.
The almost 900 point reversal of the market off the bottom felt just in October is almost unprecedented in history. The market has had its best 15 weeks EVER. This is all while breadth is deteriorating rapidly, geo-political conflicts are heating up and interest rates are still high. Jerome Powell promised the market rate cuts, but it defies logic as to how he will cut rates with markets at all time highs. He will likely be the first Fed chair to do so, if it happens. Remember, the market flying this high and this fast is a driver of inflation, something the Federal Reserve claims to dislike.
I tried a few times to catch the top, but any attempt to short has been met with pain. I would say I am perplexed at this market, but nothing surprises me anymore. In the last few months two top analysts with “bearish” viewpoints have been fired and famous short-seller Jim Chanos had to shut down his fund.
Are we really in a new paradigm with these government funded markets or is this a final blow-off top for the ages? Will AI stocks really usher in a new era of prosperity or will they go the way of the dot-com bust. My honest awnser is that I truly have no idea. In my opinion, this looks like a blow-off top and there is evidence that points to this fact. One of the most incredible statistics I have seen is the following from Milton W. Berg, “The current 70-day gain of +21.32% after a corrective decline of -10.28% most closely matches the November 28, 1980 peak when the S&P 500 gained +18.59% in 67 days to a final peak after a -10.25% decline. A -27% bear market followed.
Additionally the Russell 2000 has lagged behind both the Nasdaq and S&P 500. The entire stock market is being propped up by about 5 stocks. A news report flashed across the screen this morning by Bank of America stating that one stock, Nivdia, which has gone up the market cap of Tesla in just one month, is now larger than the entire Chinese Stock Market. Either AI will truly run the world forever or this is a melt-up the likes of which have been seen only a few times in history.
To put it in perspective, Nividia stock has gone up more than the entire market cap of Tesla in just one month…..
In my opinion if you are bearish here, it makes sense, however, bubbles can go on for a long time.
People get rich in bubbles, but few keep their wealth. I have no opinion on when or if this will fall, but I will say I am in shock as to what is happening. I wonder if we will look back on this time with a historical irony.
Remember what happened to Isaac Newton during the South Sea Stock Bubble.
Have a great weekend everyone and enjoy the Super Bowl.
Interesting article, Mr. Warren. What’s your take on the future price of oil and gas?