Hi Again,
It is uncanny! On Wednesday evening Merriman (astrologer/analyst) stated that due to the upcoming full moon, on Friday (10/2), the market could fall and with Trump’s surprising news that is what happened! Reading Trump’s astrological chart, Merriman (a Republican and Trump supporter but very open minded) says that Trump might get much sicker in the future driving the market down but he also cautions but we will not hear the truth. Surprise! Surprise!
I wrote the last newsletter on 9/1/20 (being bearish), and on 9/3/20, all markets declined sharply! That happened after the market went up straight for 3 months!. CNBC show Mad Money with Jim Cramer features a technical analyst once a week in the segment Jim calls, “Off the charts”. On 9/9/20, Jim was talking about a well-known technician called Carly Garner. Carley Garner is an American commodity market strategist and futures and options broker and the author of "Higher Probability Commodity Trading". What does Carly think of the near future? She is not happy with the market. She is expecting a bumpy ride till 1/1/21. Higher the S&P goes, more worried she gets. 75% for the S&P make an all-time high but it is expected decline sharply thereafter- fast and furious back to 3185 or 2750. Her advice : “Be cautious”
Technical analysis is more important than fundamental analysis but we cannot ignore the fundamentals. Technically the market was ready to decline but there were fundamental reasons for the fall too. For weeks many experts coming on CNBC have been warning of all the IPOs that were expected to hit the market and most hedge funds will have to sell their most profitable tech stocks to buy these IPOs. That is exactly what happened when software company “snowflake” came to market on 9/16/20. It almost tripled on the first day. When it comes to IPOs only the insiders who get to buy prior to the IPO coming to the market make money. Even before Snowflake came to market, it was way overvalued at 100 time’s sales. If I have a company with an annual sales level of $1 million, would you buy my company for $100 million? This is like 1999/2000 period. As Jim Cramer said, “If it is 30 times sales, maybe; if it is 50 times sales, walkaway; if it is 100 times sales, run for your life”! Apple is around 30 time’s sales. A very few stocks are driving the market. When those stock rise in price, so does the market; and vice versa. When Apple peaked a few weeks, the market cap of apple was more than all the Russell 200 stocks! In the past, investment gurus rarely changed but that is not true anymore. Warren Buffet is the God Father of value investing but he bought a 15% stake in Snowflake!
Another 2 sectors we have to look at for fundamentals are Oils and Banks. For years Jim Cramer has been asking people to stay away from oil companies and I disregarded that advice and paid a big price many months ago. As Jim says it, Oil for today is like what Tobacco stocks for 1999/2000- “a leper sector”. Several years ago big college endowment funds got hedge funds to move out of oil due to global warming. According to the IMF, it would take many years for the global economy to get back to the pre-covd19 state. Also the global economy is less dependent on “oils’ than it used to 30 years ago. China has enough oil in storage to last many years. Now out of all oil companies in the US, only Chevron has a solid balance sheet. Not even Exxon can say that anymore! Even during the oil spill crisis BP did not decrease their dividend due to pressure from pensioners in the UK but they did that in 2020. US fracking industry has so much debt, they have no choice but declare bankruptcy. Haliburton got out of US fracking recently. Chesapeake Energy declared bankruptcy 3 months ago. As for banks, how can they make money when interest rates are close to zero? It will be worse if interest rates go negative. Look at Europe and Japan! I am talking about the yield curve. Also with this depression that we are in, loan losses will skyrocket over the next 2 to 3 years. Banks are getting a lot of competition from non-banks. Jamie Dimon of JP Morgan is like the Pope CEO of banks but now JP Morgan’s market cap is at $284B, while Paypal market cap is at $219B! Did anyone imagine that this was possible 5 years ago!
One day Jim Cramer, as many have done before him, was comparing 2020 to 2019/2020. Some have been noting the differences between now and then; for example most “fathom” NASDAQ companies did not have any earnings then. According to Jim, what was responsible for the 2019/2020 crash is very much alive now; and in big letters he wrote, “GREED”. I will go a step further and I will say that all big crashes that ever happened in the world came as a result of utter greed of investors and traders. Last month I talked about the biggest crash that ever happened – the tulip crash many centuries ago. Recently on PBS show called “Civilization”, they stated that around 1600, Amsterdam, Holland was the Wall Street of the world where everything was bought and sold. Once again turning back to Merriman, he states that due to Astrology (especially with Uranus which rules NASDAQ), early part of 2021 could be very bad for tech stocks. Using fundamental analysis that could be correct too. By then we would be getting close to a vaccine and more therapies for Covid19 and then it would make sense for people to sell tach stocks that created so much wealth in 2020 to buy “value”, “cyclical”, or whatever name you want call stocks. Boeing, airlines, cruises, hotel chains all could benefit from such a move. Financials might move up if people expect the Federal Reserve to “raise” or “normalize” rates in the future. Oil stocks might get a temporary lift too. In the market it is quite normal to see people who hated a stock or the market making a U-turn all of a sudden,
Keep that in mind!