BUBBLES, THE REVERSE WEALTH EFFECT, THE DOLTS AT THE FED AND EVERYTHING ELSE

First off, if nothing changes into the open, the DOW would have dropped over 2,000 points in just over 11 days. You never know when counter-trend moves occur. They do occur often from big down openings like today. We are never surprised these days by near-term reversals but can never predict one. Just stating facts. As we have stated since the top, random counter-trend bounces/rallies will not and do not change the main trend at this juncture but they can come out of nowhere. Rallies in bear markets are usually quite strong but fail quickly.
We have been warning for more than 2 years. We warned about:
The biggest bubble in history and that being the bond market. Between Mr. Bubble and the lemmings around the globe, depending on which rusty abacus you are using, $30 trillion+ was printed to interfere with interest rates creating massive bubbles but screwing savers. Global bond markets are now down by $8 trillion from the highs. The days of junk bonds yielding 4% that should have been yielding 9% are over.
SPACs…a gigantic money grab in which almost every SPAC announced another start-up electric vehicle or battery company. Quite a few that came out at $10 are trading at $1. Quite a few turned out to be fraudulent.
The short squeezed, chat room movers…all have been crushed. You know the names. We still remember a call to our offices by a person in their 70s asking to buy Gamestop. The stock was parabolic and was just hitting $350. “Do you think I should buy?” We simply answered with the statement “You do know it was $20 just a few days ago?” Their answer: “But what if it goes to $1,000?” We are not making this up. We cannot repeat some of the emails and phone calls we have received for being negative on this bubbled up area.
What we affectionately call our “hunks of junk” screen. This screen contains a ton of no sales, low sales but losing a ton stocks that came out of nowhere going up as much as 500%+ in days before sinking right back down.
THE COINS…We will just repeat what we told the great Neil Cavuto quite a while back and keep repeating…”90% of the coins will drop 90% or more.” Frankly, we think those words are now generous. Did you see what happened to the Miami coin? How’s that Dogecoin doing?
MARIJUANA stocks. We warned of valuation but we also warned of the business model. TILRAY (TLRY) has gone from $300 to less than $5.
How about them gambling names? Draftkings down 80%. Just remember, they do not pay out the bucks. The losers pay out the bucks.
Unprofitable and ridiculous valuation 3D stocks.
Ridiculously priced IPOs…Robinhood, Coinbase  and how about that Rivian which had a market cap almost the size of GM and Ford put together even though the two had $260 billion of sales while Rivian had not sold a car yet. The three are down 88, 72 and 84%.
Chinese ADRs. Yikes.
Money losing anything. One of our main rules is that in bear markets, the curtains come down on anything that loses money. A non-profitable tech basket tracked by Goldman is down 68% from the highs.
The 70% rule. Studies have shown that in bear markets, past leaders of the prior bull become so over-owned, over-loved and over-leveraged, that the average drop in the bear market will be about 70%. Currently, about 50% of the NASDAQ is down over 50% and amazingly, 22% are down over 75%.
NFTs…sales volume down 92% since the September peak, wallets are down 88% since the November peak and Google searches for NFTs are down 80% since January peak. By the way…what the heck is an NFT?
The megacap stalwarts…it started with ADOBE but then NETFLIX and then FACEBOOK and then…and so on.
And the rest. Under the weakness of so many areas and so many names, our canned line: “eventually they get most all!” They have been getting most all.
Defense is the best offense! When the market goes defensive, it buys defensive. Consumer staples are outperforming consumer discretionary this year by a whopping 23.1%.
We have warned about the unimaginable amounts of stupid money printing by Powell and the rest of the lemmings. We warned that they became the market. We warned that every time markets dropped, they played God with markets with more and more conjured up out of thin air money. We warned that eventually there would be an unwind as there is only so much and so long the markets would obey. Eventually there would come a day where creating another credit card with a higher credit limit to pay for the last credit card you created ends in trouble. Eventually there would come a day where markets fight back and start returning to the norm. We are sick that the same people that caused the problems you are now seeing are still in charge. We are less than thrilled whenever they open their mouths which seems every hour on the hour. We loathe when they say they are not behind the curve when rates are now in the 3s and they sit under 1%. We weep that the guy in the White House has not a clue what is going on and does nothing but blame. We are stunned when he says a $5.8 trillion spending bill will lower deficits and when a guy named Schumer says higher taxes will cure the inflation.
And now, consumer credit is skyrocketing. Consumer savings is dropping. The 1-2 punch of much higher mortgage rates and bubbled up housing prices cannot be good news for that business. The wealth effect in reverse has been at hand. The almost 230 million licensed drivers in this country must cringe every time they pass or go into a gas station to fill up. Many are calling for a contraction in 2023. We believe we could now be in its midst and instead of the normal easing by the easy money dolts at a juncture like this, they have to fight the inflation they caused first.
We take no joy in any of this. But we deal in the reality game. Shorter term, markets remain very oversold with a big dose of bearishness as we are now seeing many converted bulls just now calling for lower prices with some even calling for crashes.  We do not doubt that this could be good news near-term but let’s jut get a little bit of evidence that the big money, institutional crowd is finally accumulating instead of distributing stock. So far, nothing doing.
But the Mets are 20-10.
1 reply
  1. Barbara
    Barbara says:

    Hello,
    I appreciate your insight. Can you speculate as to the timeframe of the impending recession? I know that’s a big ask.
    Also, how do you see the market rebounding and under what specific scenarios.
    Surely, this cannot last forever. I am a retired teacher and am stressed, like everyone else.
    Thank you,
    B

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