Hi there again,
Now we have had gains in our portfolio for 3 months in a row. May 2020 we had a net gain of 6.05%, and in April 2020 we had a net gain of 7.66; and in March 2020 it was 39.80% for a total net gain for the portfolio at 61.14%. I do not expect this trend to continue. We could see terrific losses in our portfolio within the next 3 years and that will be a time to buy more to have a lower average cost. I have always asked you to keep 25% to 50% in cash but if you are over 50 years of age, you should have 90% in cash. Not in bonds! When interest rates are at 0 with a possibility of going negative, it is not good to be in bonds.
Imagine this is 10/31/20 at 1pm Pacific Time and the stock market just closed and the CNBC just announced, “I have good news and bad news; bad news is that we have an unemployment rate of 50% and 90% of the publicly traded companies are saying that they will operate at a loss for ten years. Don’t be sad as the good news is that the Dow Jones Industrial Average just closed for the day at the one million mark. From the low of 18,000 on 3/23/20 to 10/30/20, the market rose from 18,000 to one million in 7 months!”. Get the picture? There have been many times when the markets have lost touch with reality or the real economy but what is happening now is simply ridiculous. Wall Street keep making up terms Can you guess the latest “Maxim of Wall Street” which became very popular among the professionals in May 2020? FOMO!
What does that mean? “Fear of missing out”! Get it? When a market is overvalued, most prudent investors and traders stay out of the market but then the market keeps going up and up like the ever ready bunny that cannot stop so after a while all the prudent (or some) start getting back in to the market. Let us say that you are a professional money manager who saw that this is an overvalued market and stayed out and in one year the market was up 100% and then your customers are going to leave you as you will be remembered as a bad money manager. That is FOMO!
Any good technician would say that when these FOMO people get in to the market then the market is ready to take a nose dive. One of the best on Wall Street, David Tepper says that this is the 2nd most overvalued market in the history of mankind and the most overvalued market was the 1999 dot-com market. Prior to that crash someone asked me why is Warren Buffet’s Berkshire Hathaway doing so badly at that time while the market was soaring as there was no tomorrow; and I told him that Buffet is right and the market is wrong. After 20 years, Intel is still below its peak in 1999/2000! Yahoo had a PE of 1,000 around 1999. A technician that is an expert on cycles (Merriman) states that there is a possibility that the Dow could go down to the 2,000 to 6,000 range within the next 3 years. Elliot Wave expert Robert Prechter that I followed in the 1980s and who predicted the 1987 crash, states that a new super cycle started on 3/23/20 and when that ends the Dow Jones will be at 1,000. On this I agree with Prechter. I also believe that then it would take about 50 years to get back to 28,000 to 30,000 range. Unbelievable? Japan used to be the 2nd biggest global economy (just behind the US) from 1968 to 2010. Japanese stock market hit its highest point in 1990-30 years ago. Since then the Japanese market has been struggling to come up and it is up only 2/3 of the level it had in 1990. If you had $300,000 in the Japanese market index in 1990, now you will have only $200,000. Don’t forget that inflation has eroded most of that $200,000 over the past 30 years. I am quite sure that we are headed that way. Don’t get me wrong; I think our economy will be strong and our companies will be strong but since 2009, investors and traders have been overly optimistic and unrealistic with their investments and trades. The market is nothing but a reflection of “mass psychology” and it has nothing to do with politicians and business leaders. Buyer beware!!
I am following several good technicians for my trading purposes. Expect a lot of volatility-specially between now and October. Right now it is bullish but before July we could have huge correction.
Have a great month
Fernando