My Dot-com Cap

MARKETCYCLE WEALTH MANAGEMENT

 

I expect the next eight years to be very similar to a combination of the 1960’s and the 1990’s decades, building the conditions for a truly massive inflationary period in the 2030’s.  I further expect innovative & disruptive companies (and their corresponding “dot-com IPOs”) to go gangbusters this decade, similar to the 1990’s, and then to blow up at the end, again, similar to the 1990’s.

In very late 1999, one of my patients gave me a cap that I still sometimes wear.  I had it on this very morning as I was working in the yard.  It had the name of what may have been the very last dot-com company formed before the two year long “dot-com” crash that began in the year 2000.  Investors were horribly damaged in that recessionary bear market.  I cannot state the name of this particular dot-com because the domain name has since been picked up by another company.  This original 1999 company formed with no offices, no warehouses, no furniture, no inventory, no employees; in its entirety it consisted of a name printed on baseball caps and it had put out the word that it would soon be hiring because literally all newly offered dot-com companies went into a booming & euphoric IPO offering state (an IPO is an Initial Public Offering of stock).  Stock shares of these bare bones IPOs were instantly moving into the price range of $-Way-too-much.  Best game in town, until it wasn’t.  The excited woman gave me the cap and told me that she was going to quit her real job to work for this “can’t lose” new company; the same company that went bust about a month later.  Well, the company itself wasn’t harmed because it only consisted of baseball caps and it had nothing to lose, but the investors lost 100% of their investment money.  I made out okay because I didn’t invest in the IPO, but I got a nice baseball cap out of the deal.

Some of the greatest traders/investors of all time saw the bubble that was forming and they began to ‘short’ the market during the second half of 1999.  A ‘short’ means that you are betting that the market will drop.  These same great traders/investors lost half of their money during this six month period.  “Half of their money” may have been upward of a $250-million individual loss in a mere 6 months (one of the most famous investors of the time lost exactly that much).  During the second half of that final year of the bull run, the dot-com (tech mostly) companies went straight up so anyone shorting the market lost money rapidly.  YOU NEVER BET AGAINST THE PRIMARY TREND DIRECTION OF THE MARKET.  So, they not only lost huge amounts of money betting against the bullish run, but they also lost the opportunity to literally make a fortune during the last 6 months of 1999 simply by being bullish in a bull market.  Double whammy.

The great trend trader, Ed Seykota, once said:  “It is not logical to bet against the primary trend direction of the market.”  He was right.  A bull market is a bull market and those people that think that a bull market is actually a bear market are simply and obviously incorrect.

  

 

MARKET UPDATE written on Saturday, April 24, 2021:  MarketCycle’s mathematically calculated recession probabilities is at a 4% chance within the next six months and this is a very low number.  To put it another way, there is a 96% probability of NO recession within the next six months.  So, no recession on the horizon.  Market internals are still extremely strong.  A few of our indicators started showing weakness a week before the very recent volatility and then cleared up almost instantly after the market quickly fell a few percentage points; I used the opportunity to put new client capital to work since it doesn’t look like a deeper pullback is anywhere near occuring.  Slight weakness within general strength usually means that all pullbacks are buyable.  All assets are strong, however I expect that Bitcoin might drop around 40% to $40,000.  I also expect IPOs (Initial Public stock Offering of a company) and SPACs (Special Purpose Acquisition Companies that buy bundles of IPO-like non-public companies) to both have difficulty in the near term and to not really pick up strength for another couple of years.

The market naturally wants to pull itself up to somewhere around S&P-500 @ 4500, more or less, depending on how long it takes to reach the upper sloping trend channel line.  We are in an interesting intermediate-term period where stocks, bonds, gold and commodities may all be beneficial portfolio holdings.  Although it can change, as of posting this blog, MarketCycle Wealth Management holds all four in client accounts (plus it still holds some leveraged alternative assets like high interest paying preferreds and convertibles and non-commercial REITs which we bought at the bottom of the Covid-crash at a tremendous discount to net-asset-value).

So, my longer-term advice is to take full advantage of this bull market without getting spooked by the words “record” and “excessive” and although investors should protect accounts during true higher risk periods, we should only become fully bearish when the primary trend changes, and not before.  That’s only logical.  

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An additional tidbit on INFLATION:  Four months ago I purchased a nice (ethically harvested) mahogany porch swing for my house.  It cost $180 which seemed very reasonable considering the high quality of the item.  I looked for a second of these same porch swings two weeks ago and saw that the price was $310.  That was too much so I decided to wait another week to see what happened.  The price went up to $425.  Out of curiosity I checked again this morning and yes, you guessed correctly, the price went up.  The price is now $545.  This is what inflation is; mostly because of government debt & ‘money-printing’ coupled with commodity scarcity, everything costs more and it can get scary, although for some reason it does not stop people from spending money.  This price increase is a prelude to the high inflation that I expect us to see during the 2030’s.

As I type, South America is suffering from extreme inflation.  Right now, Venezuela’s inflation rate is over 2500% and Brazil is attempting to play catch-up.  By comparison, the U.S. right now is around 2-5%, depending on what you look at.  MarketCycle’s client accounts are already holding some inflation assets.  We were the first (that I know of) that picked up on what was happening.  In early April of 2020, immediately after the March Covid-crash, I wrote in this blog that inflation had just started heading higher and I then re-confirmed this in later blogs.  As a current example, the price of lumber has gone up 275% in only 12 months.

 

Bank of America, who does very good research, just released a list of their worries going forward.  Inflation (and its corresponding bond losses) leads the list:

 

And on a lighter note:

 

A few readers have asked about our adopted but once feral cat, “The Boss.”  She looks like the cat in the cartoon above.  As I wrote some months back, she spent the first 3 years of her life living in a literal (human created) hell; now she lives a life of luxury.  I’ve never seen a cat that is so kind and forgiving and appreciative.  I recently trimmed some pine tree branches and pine sap began leaking out.  She took a run up one of the newly opened up tree trunks and instantly became covered with sticky pine sap on her belly.  I had to take a comb and literally pull the fur out in order to get the sap off of her.  Her only reaction was to look directly into my eyes and purr.  She knows a good situation when she sees one.  And thank you for asking.

 

Fox Mountain Retreat:  The guest house, where clients can come to visit (for free) for a few days and yet still have privacy, will likely be completed by the end of April (otherwise, the house will act as an AirBnB where anyone can visit and whoever rents it would get the entire house).  All that clients have to do is to pick a date and let me know.  It is actually pretty nice and it has been completely renovated throughout and it is nicely and eclectically furnished and has all of the conveniences.  The three bedroom house was originally built over 100 years ago, it sits at the base of Fox Mountain in a nice area and on 35 acres of meadows (very heavily seeded wildflowers will start to appear in 2022).  Before posting, I removed a list of amenities from this paragraph such as house air-purifiers, toilet bidets, bedroom wall-safes and bedroom meditation chairs** because it started to sound a bit hoity-toity for a lodging that is not, in fact, the Beverly Hills Hotel.

**    People sometimes ask me what meditation actually is since I’ve meditated for extended periods almost every single day of my life for the past 5 decades (and amongst other things, it makes me a better & calmer & clearer investor/trader).  My answer as to what meditation is has always remained the same:  Prayer is when you talk; meditation is when you listen.”  

Free Union (Virginia) is a great bicycle riding area with large tracts of land and horse farms everywhere.  Bikes are a common site.  Fox Mountain Retreat almost abuts Shenandoah National Park; only the sprawling Fox Mountain and several large horse farms sit between this house and the park.  In the distance, from north to south one can see, in this order, Dolly’s Knob, High Top, Round Top, Flat Top, Gibson’s Peak, the beautiful Pasture Mountain and finally Pigeon Top.  It is only a scenic 13 minute drive to the exciting and historical and fun university town of Charlottesville, Virginia.  This might be a good place to renew and restore and a quiet place to meditate and think.  Well, enough about that…

 

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From Hedgeye:

 

MARKET CYCLE  —  TREND FOLLOWING  —  DUAL MOMENTUM  —  LOW VOLATILITY  —  HEDGE FUND

Brief Market Update

MARKETCYCLE WEALTH MANAGEMENT

 

Published on March 20, 2021 and our near-term predictions (below) proved to be 100% correct.

I will attempt to make this month’s blog brief.  As I never tire of repeating, a bull market always zig-zags on its way up.  Market participants are naturally close to 50% bulls and 50% bears.  Everything, even politics, is divided roughly 50%/50%.  When the investor numbers skew to 51% bulls and 49% bears, then the market moves higher.  A bull market is a continued period where the bulls slightly outnumber the bears so the market goes up on most days, but not all… on some days, the bears win.  But over a long period of time, one would see a price chart moving from the lower left to the upper right.

We are currently in a brand new 7-8 year long Cyclical stock bull market within the confines of an ongoing 18 year long Secular bull market.  The market can’t help itself, it wants to grow when bullish conditions exist.

 

Stocks have now broken above their 12 year long bullish trend channel.  This is especially bullish as the stock bull market attempts to form an even higher trend channel.  The old top trendline has been turned into support and has been tested twice and it held both times.  IMO, this thing is going much higher despite the naysayers.  This is a very strong bull market.  People worry that we keep hitting new record highs, but we better get used to it since new record highs will be hit continually between now and when this thing ends.  The end is likely still many years away.

Every day of my life I do an extensive market review.  I try to let go of my opinions and predictions and just look at everything with fresh eyes.  This is what I saw this morning, in no particular order:

  1. Growth stocks still lead value stocks, although value will be slowly strengthening over the next decade.  Momentum is a good way to play this as it will pick up the strongest of both categories.
  2. The U.S. still leads in relative strength, although global stocks are perking up and especially emerging markets.  Emerging market stocks may have some short-lived and near-term weakness.
  3. Breadth of momentum is very strong (but still weakest in small-cap stocks).
  4. Breadth of technology stocks has now shifted again to strongly bullish.
  5. Breadth of the stock indexes is very strong.
  6. Divergences are pointing to very bullish.
  7. Sentiment has now shifted to “not excessively bullish”… which is bullish.
  8. The consumer is strengthening… which is bullish
  9. Inflation remains at low levels but continues to strengthen… which is bullish.
  10. MarketCycle’s indicators suggest the the Federal Reserve will remain on hold through all of 2021… which is bullish.
  11. Bonds are oversold and near very strong support and MarketCycle’s proprietary “Bond-buy Indicator” has just triggered.
  12. The USDollar is holding above its secondary level of support.  It does not have much of a reason to go either up or down; the temporary near-term direction may be up.
  13. Gold remains above both its 3 & 5 year support lines and it is no longer overbought.
  14. Commodities may show temporary and fairly shallow weakness in the near-term.

SUMMARY:  Likely near-term directions = stocks strong and up, bonds bounce up (and rates down), USD and gold gyrate sideways, commodities temporarily weaken (but not a lot).  We are about to go into a corporate earnings boom which may last another year.  There is money sloshing around everywhere and this will stimulate the economy and stock market over the next year.  In my opinion, we are in the multi-year stock bull market of our lifetimes  (although any downturns will still need to be avoided in order for portfolios to excel).

 

 

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MARKET CYCLE  —  TREND FOLLOWING  —  DUAL MOMENTUM  —  LOW VOLATILITY  —  HEDGE FUND

 

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MarketCycle Wealth Management | Stephen Aust
MarketCycle Wealth Management, LLC is a Registered Investment Advisor. Information presented is for educational purposes only, is not considered an individualized recommendation or personalized investment advice, may not be suitable for everyone and does not intend to make an offer or solicitation for the sale or purchase of any securities. All investments involve risk and unless otherwise stated, are not guaranteed. Past performance or performance charts are not a guarantee of future performance. Portfolio performance charts are shown net of fees so the management fee, brokerage fees, trading fees and ETF fees have already been subtracted. Current performance may be higher or lower than that shown and differing accounts may show different results. Investment returns and principal value in client accounts will fluctuate. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Be sure to consult with a tax professional before implementing any investment strategy.