Its Over

Some points to reflect on:

1) As US markets hit new records, this was the best August surge since 1986 and we now have had 5 straight consecutive monthly gains , can the good times continue to roll perpetually?

2) The S&P500 has put on 56.8% gain since its March 23 low while over the corresponding period, our XJO gained 33.6% or just 60% correlation in line with my "We Are Not America" thesis

3) With reporting season over, only two sectors had positive EPS growth, i.e healthcare (+16%) and metals and mining (+11.3%) , energy and financials were the worst at -39.8% and -27%, in line with "the need to be sectoral focus" thesis, even FY21 earnings outlook are in single digit decline

4) As reported last night, despite Gold making new highs over the past month then dropped, gold producers were on the retreat, the XGD actually declined 9.3% since July 21 when gold started its climb towards all time highs and beyond.

5) Are companies actually that great to warrant an unimaginable burst of excessive and irrational exuberance ? Apple for example is now almost worth all of Russell 2000 company valuation, Afterpay (APT) is now trading at 10x its value at the March 23 lows , even YOJ a company with no business traction gained 13 fold from its March 23 lows. No it is merely an indication of rife speculation at its core , it is reminiscent of the tech boom of H2 2017 to Feb 2017 that saw many "tech"microcaps being bid up to stratosphere on a promise or promising development and market participants just buy on such news. We know how it all ended after Feb 2018, and it will end the same way as well soon.

6) We have seen 140k new online brokering account applications between 24 Feb and 3 April, about close to 5k new accounts a day , 3.4x higher than previous six months and of these 21% were brand new investors. I am guessing most of these new investors are millenials, and they would be buying the APT and tech stocks not the BHP or banks, hence contributing greatly to the "higher gets higher" momentum driven stock plays that has defined this rally more than anything else.

7) The US market rally has been unstoppable and market participants have grown to become highly complacent , just because it has not fallen does not mean it won't as people have begun in their earnest faith in Dont Fight the Fed to forget how to worry.
Does this chart below even matter anymore?

Source: Bloomberg

8. In a market where market participants have not seen even the mildest of correction in recent times (in the US), once a fall sets in , market participants may well be jolted out of their seats and start thinking to take profits. The rush to exit may not be as orderly as we all hope to be the case, especially in the case of stocks that have been bid up to crazy heights, because holders know their valuation is lofty and more pertinently highly susceptible. Selling when the exodus begins is not in line with Be Ahead of the Curve, when the buck stops, the retreat can be swift and brutal and especially unkind for those who choose to be in denial .

9. Finally as I mentioned numerous times, this market rally IMO has an expiry date of Nov 3. Even if Trump wins, it is not as big an interest for him to see the market continuing its rally. In fact, he may be well be in favour of ensuring that there is no market collapse rather than markets breaking new records after records in bubble-state formation. The higher and faster the rally goes, the greater the prospect of a bigger market meltdown. And that would not be a good development for Trump after winning re-election, would it? If Biden wins, it is Main St focus and the Trump put is gone. The craziness of this market has its roots in the action of Trump's team, the Fed's policy to continue to widen wealth inequality and the ISO state that we're in. Then there is good news is bad news and let me explain. Good news may be that US economic recovery is finally getting traction and COVID cases start falling (note that Spain and France now experiencing second wave on a 3 month high) and given this, Fed balance sheet expansion may actually not be needed as much, which is less money for Wall St. Then if we have the vaccine, i.e good news the market starts to wake up to the reality that it is not what everyone thought - i.e we have vaccine issues (see my previous post on vaccine) and challenges the market never thought of. With vaccine, more people start to get back to normal lives and ISO starts to wane and with that speculative activity may well drop off their peak, more so if we have a correction that wipes out the recent market newbies.

They are not permanent features that determines a company's prospect - they merely fuel excessive bubble speculative activity- in the end it is the company's future cashflow outlook that speaks for itself. Market participants who are late entrants into these numerous speculative plays must know if they are truly investors believing the hype they represent or merely riding on the wave for quick success.

10. In this market rally, we should not be losing money, it would be a tragedy but some would be and could be in a big loss if no risk management is undertaken, since Doing Nothing is Doing Something. On that note, in the past week, I have been shifting gear down and lightening my positions, we could never make all the money we want but it is better to be in the black when the buck stops rather than scramble to stay there when the proverbial eventually hits the fan.

Take care!