Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Former Lehman Brothers Trader: I Bet My Reputation That Stocks Bubble Will Pop In A Year

Stock-Markets / Stock Market 2017 Jun 27, 2017 - 01:05 PM GMT

By: John_Mauldin

Stock-Markets

BY JARED DILLIAN : It wasn’t always this way. We never used to get a giant, speculative bubble every 7–8 years. We really didn’t.

In 2000, we had the dot-com bubble.

In 2007, we had the housing bubble.

In 2017, we have the everything bubble.


Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously, like:

  1. Real estate in Canada, Australia, and Sweden
  1. Real estate in California
  1. Cryptocurrencies
  1. FANG, plus Tesla, and a few others
  1. Corporate credit
  1. EM sovereign credit
  1. Autos
  1. Indexing
  1. Dramatic television series
  1. Sports
  1. Animated movies

For the last few, I am just screwing around… though they are also bubbles.

I don’t like going around and calling things bubbles. It’s a good way to lose credibility (especially if you started in 2013).

I haven’t been exactly bullish over the last year. But I have refrained from calling it stupid, because it could always get stupider.

But now, I’m not sure how much more stupid things will get.

Bitcoin Pushed Me Over the Edge

First, let’s define what a bubble is. A bubble is not simply a matter of overvaluation. It has to be accompanied by an obsession or preoccupation with an asset class.

When you see people making haystacks of cash all out of proportion to their intelligence or work ethic?

Bubble!

That is kind of what is happening right now in cryptocurrencies.

Am I some kind of Luddite? No.

Do I see the potential of blockchain? Yes.

But when I see people behaving this way—literally throwing money at each other—you’re probably closer to the end than the beginning.

People are comparing Bitcoin to tulip bulbs. I think those comparisons are apt. But at least with tulips, you had something tangible—a plant.

Someone asked me last week how I thought Bitcoin and the others would perform in a bear market. Would they go up like gold?

I think the opposite would happen. Regardless of Bitcoin’s supposedly safe-haven status, right now it’s acting like a risk asset—a risk asset with a lot more beta.

If we get a bear market in stocks, we get a bear market in Bitcoin (or vice versa).

And if we get a bear market in stocks or Bitcoin, we are probably getting a bear market in credit.

And if we get a bear market in credit, we are probably getting a bear market in real estate.

It is all connected.

Basically, in the age of peak indexing, the only thing left is systematic risk.

Today’s Market Is Non-Diversifiable

A market that is just systematic (non-diversifiable) risk is impossible to trade. You can be risk-on (long stocks), or risk-off (short stocks), but there are virtually no benefits to diversification.

Look at S&P 500 index funds. In the old days, you would say you were diversified if you owned one—you owned 500 stocks! 

Does anybody really think that they are diversified by owning an index fund today?

No. You own the same 500 stocks that everyone else owns. Again, there is nothing left but systematic risk.

And this is borne out by experience—professional stock-pickers are getting schooled. You are either long FANG, or you aren’t. This has compelled a lot of people to say that active managers are stupid.

But do you think it’s more likely that:

a) a bunch of smart people became stupid, or

b) that the environment suddenly changed?

If you’re one of those smart people, do you completely abandon your process and just buy FANG?

Or do you stick with what has worked your entire career in the likelihood that it will one day work again?

This time is (probably) not different.

Everybody Loses in Bear Markets

A lot of bears get sweaty palms about the possibility of a bear market. Hey, you can’t have capitalism without downturns. You have to purge the speculative excesses. The longer you go without a purge, the bigger it is going to be.

As much as I think a bear market would be fun to trade, I do not wish it on anyone. Most people are no good at trading a bear market.

A wise man once told me that bear markets don’t just destroy the bulls’ capital… they don’t just destroy the bears’ capital… they destroy everyone’s capital.

I have been through this a couple of times. Even when I think I am perfectly positioned for it, I still seem to find a way to lose money.

Also, nowadays, we have no idea what kind of malignant political forces will be unleashed if we have a real, hard-landing recession…

Does it all get pinned on Trump? Probably.

Does it push the left further left? Probably.

Does it increase the chance of real instability in 2020? Yup.

And people underestimate the ferocity of bear markets. Because they can’t see second- and third-order effects. The stock market doesn’t go down 20% in a vacuum. We have no idea what is going to happen when stocks go down 20%. Nothing good, I imagine.

So you should not be wishing for a bear market. You should be wishing that this goes on forever.

I have been making bearish noises for a while, but I haven’t been willing to stake my reputation on it.

I am now willing to stake my reputation on it.

I think we’re very close to a downturn. I will be surprised if this doesn’t come to pass within 6–12 months. If it doesn’t, I suppose you can call me out, if you like doing that sort of thing.

One more comment: it will probably be the fastest downturn in history—owing to the degree of leverage and speculation. Proper preparation prevents poor performance.

Get Thought-Provoking Contrarian Insights from Jared Dillian

Meet Jared Dillian, former Wall Street trader, fearless contrarian, and maybe the most original investment analyst and writer today. His weekly newsletter, The 10th Man, will not just make you a better investor—it’s also truly addictive. Get it free in your inbox every Thursday.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules