Market Update: A Titanic Disaster Ahead?

adam-taggart-2 · July 10, 2020, 10:55pm

At this point, as go the leading Tech stocks, so go the markets.

So much capital has crammed into the tech sector this year that it boggles the mind. Tech stocks now make up 40% of the market cap of the S&P 500.

And despite their huge size, they continue to race higher. Nearly. Every. Single. Day.

Here’s a chart of six of the biggest tech companies. Over just the past 7 trading days, they have increased a combined total of half a trillion dollars in market cap. That’s $500 billion, folks – in just a week!

(Source)

Looking at Amazon's (AMZN) stock price, up nearly 20%(!) since the start of July, we see a trajectory that we're familiar with -- a near-vertical blow-off top:

(Source)

This is the classic manic ending to an asset price bubble -- as seen when Bitcoin hit $19,000 in late 2017 and when silver hit $49/oz in 2011. For further affirmation, watch this short video chapter from Crash Course on Bubbles.

In a way, this is comforting to see because it gives us confidence this insane, mindless, unjustified market euphoria will end soon. We just need to be prepared for the predictable violent aftermath when it does.

As we do each week, we’ve once again asked the lead partners at New Harbor Financial, Peak Prosperity’s endorsed financial advisor, to share their latest insights on the end of Great Tech Bubble and what comes next.

We spend a fair amount of time in this week’s video asking New Harbor for actionable options to protect recent gains from a potential pull-back, as well as how to position for a larger market melt-down if indeed Tech soon reverses and we experience a crash greater in magnitude than what we suffered in February:

Anyone interested in scheduling a free consultation and portfolio review with Mike and John can do so by clicking here.

And if you’re one of the many readers brand new to Peak Prosperity over the past few months, we strongly urge you get your financial situation in order in parallel with your ongoing physical coronavirus preparations.

We recommend you do so in partnership with a professional financial advisor who understands the macro risks to the market that we discuss on this website. If you’ve already got one, great.

But if not, consider talking to the team at New Harbor. We’ve set up this ‘free consultation’ relationship with them to help folks exactly like you.

SCHEDULE YOUR FREE CONSULTATION

This is a companion discussion topic for the original entry at https://peakprosperity.com/market-update-a-titanic-disaster-ahead/

adam-taggart-2 · July 10, 2020, 7:51pm

dryam2000 · July 11, 2020, 1:39am

I’m curious on people’s thoughts about a potential purposeful USD devaluation. The reason I bring this up is because it seems the Fed may need to change course from their current actions which have been going on for 20 years. If the current influx of money into the “markets” were to ever stop there would be unbelievable deflation.

Random thoughts presented more as questions than statements as I’m very much a financial amateur........

During the height of the Great Depression in 1934, with the U.S being on the gold standard at the time, the USD was devalued to stem deflation and stabilize the money supply. This was done by devaluing gold. Today, there is no gold standard. The USD is on the USD standard.

Oil is (mostly) priced in USD. A huge problem for the U.S. is the oil industry (and by extension the banking industry). Oil prices appear to be sub-$40 for quite some time into the future given the lack of demand around the globe. Supply can only be cut so much. Devaluing the USD would increase the price of oil. Furthermore, the agriculture industry would also get a needed boost.

USD devaluation would prop up stocks and thus innumerable underfunded pensions.

Devaluing the USD would help decrease household, corporate, and public debt burdens. When debt can’t be paid back banks blowup. Thus, decreasing debt burdens would help the banks.

USD devaluation would help improve the trade deficit. Those deficits have been going on for 45 years, and have been rising at a sharp rate since CV-19 had its initial impact in February of this year. How much longer can these trade deficits go on? All of the supply chain disruptions have revealed a tremendous amount of vulnerabilities with the lack of manufacturing in the U.S. A devalued dollar would be an extra manufacturing incentive.

The more inflation, the more wealth is equalized for a vast majority of Americans and wealth inequality is a major problem as discussed on this site. Inflation is the most insidious tax, and society would move that much closer to socialism in the least direct fashion. A more direct move towards socialism would cause a sharper degree of public outcry. Elizabeth Warren has been rumored to be the front-runner for Treasury Secretary under Biden, and she’s previously advocated for dollar devaluation.

The government could raise taxes on the higher income earners, and on capital gains. Thus, many asset holders may initially benefit but most won’t be able to escape scot-free because of taxes on the backend.

tourguidedc · July 11, 2020, 3:04pm

Devaluing the USD would help decrease household, corporate, and public debt burdens.

Seems to me a devalued dollar helps some on the backs of others, no different from any other monetary theory that interferes in what is obviously not a free market. For households in credit card debt and upside down on their mortgages, perhaps this is good for them? For people who own their homes or land, they lose? Jobs might grow, especially in export industries with a cheap dollar. Meanwhile imports will cost more. Folks on fixed incomes would just be tossed off another cliff with a good luck? I wonder, would a devalued dollar bring manufacturing jobs back to the US, like N95 mask making, for example?

hladini · July 11, 2020, 5:27pm

Hey there Adam, you got a chuckle out of me recalling movie titles that describe our distorted and perverted markets. You can add ‘Outer Limits’ and ‘Twilight Zone’… or how about ‘Honey I Shrunk the Economy?’
Hahahahahahaaa.

asgordon123 · July 11, 2020, 5:29pm

uhg

mark_bc · July 11, 2020, 5:30pm

But if you look at AAPL over the last 3 months since the CoronaCrash™ it’s been just a steady straight ascending line, no blow-off evident. This seems to be a managed increase. Will it continue? Why not?
Is this really a bubble when the Fed continues to print and inject? Where else is the money going to go? All fundamentals have long since been thrown out the window. Last year when everyone was amazed that TSLA was at $700 I pointed out that if the company has never turned a profit, then what’s the difference between $700 and $1000? Well now we’re at $1500. Why not $2000?
Seems to me the parabolic increase in its stock price fairly mirrors the parabolic increase in the Fed’s money printing. The best performing stock market over the last 10 years was Venezuela’s, and if you could use options to lever that market you may have stayed ahead of the hyperinflation.
I can certainly see TSLA tanking soon back down below $1000 as it’s always too volatile which is why I don’t trade it (unless it tanks again then that may be a good entry point). But it’s an outlier while others like AAPL are more bread-and-butter money makers.
I do agree that the powers that be will have a deflationary crash at some point to clear out the markets so they can continue buying it all up with freshly printed money. The question is, when? I don’t think you can use fundamentals to time it.

adam-taggart-2 · July 11, 2020, 8:05pm

FANGMAN stocks chart

mysterymet · July 11, 2020, 8:35pm

I wonder what is going to happen when various big companies report earnings down the toilet bowl? Maybe some bubbles will be popping?

mki-2-2 · July 11, 2020, 8:37pm

Another way to look at this? Since 7 non-dividend, overvalued stocks match the GDP of 3 nations…the remaining meat-and-potatoes dividend-paying stocks are probably undervalued.
And we are probably looking at real inflation ahead when all that money has to go somewhere.

dryam2000 · July 11, 2020, 9:07pm

The velocity of money is low with the economy in free fall. I’m not sure if money in stocks/bonds necessarily has to go anywhere. The “markets” have become bastardized into being a golden savings vehicle where people can park their money and see it grow over time like magic. It’s the best of both worlds; saving & investing at the same time.

climber99 · July 11, 2020, 10:28pm

You can only devalue the USD relative to anonther curency. Since all the major economies are engaging in QE they stay stable relative to one another. One could argue that all curencies are being devalued equally relative to real assets, the real assets being stocks and bonds at the moment but will also include wages, goods and services some time in the future (called inflation). Not good for savers.

dryam2000 · July 12, 2020, 4:36pm

I just listened to Peter Schiff’s latest podcast. He talks a lot about Biden’s latest taxation agenda. The agenda includes raising corporate taxes and capital gains which is a double tax as dividends come from after-tax profits. Additionally, he wants social security taxes to be taken out of capital gains. All of which would be stock market negative. He also wants to establish new real estate taxes which by itself would greatly impair the (already impaired) residential real estate market.
Schiff starts talking more about taxes around the 36 minute mark. However, at the beginning of the podcast he talks about the U.S.-China trade mechanism of China giving the U.S. real goods with the U.S. giving China USDs in return (which props up the value of the USD). By all appearances it looks like the uncoupling of this dynamic is in full gear. The current Phase 1 trade deal was a farce and China isn’t coming close to complying with what was stated. Given the Hong Kong situation, all the spying allegations, etc., along with the multitude of other news stories it clearly looks like any type of friendly alliance between the U.S. and China is going by the wayside.
https://youtu.be/FmWiw3Nr6I0
So, whether it is an external event or internal event it seems there is a fair likelihood of USD devaluation. All the proposed taxes are very market (and economy) negatives, but a much lower (~30%) USD would would be positive for “market” prices (however would probably be negative in real terms as it chases out foreign investment). As stated above the lower USD would (artificially) inflate asset prices offsetting many of the tax increases.
So, all of this makes me think the there is a fair chance the financial future consists of marked inflation combined with marked taxation. History says extreme times oftentimes produces extreme measures. Personally, I’m an extremely cautious person and investor. I watch day to day prices way too often than I should. My emotional tendencies have been to buy high and sell low. Fortunately, these tendencies have improved quite a bit. Bottom line, I feel very confident in hedging for this high inflation/taxation dynamic. Our Roth IRAs (non-taxable) are the smaller portion of our retirement monies. We have maxed out those Roths with inflation hedging gold/silver mining companies along with so-called physical holdings such as PHYS (but I like the suggestion in this podcast on direct physical holdings in a retirement account). The monies in our other retirement accounts is in cash equivalents. I plan on keeping my precious metals investments for quite a while even if there would be a sizable short term drop.
Anyway, I think people should be very attuned to the political climate and probable tax increases that will be unprecedented in our lifetimes.

towef · July 13, 2020, 2:08pm

oh…

adam-taggart-2 · July 13, 2020, 2:36pm

OK, this is a movie we’ve seen many times before folks. Tesla stock has gone exponential in classic bubble top blow-off fashion.
The stock was $215 less than a year ago. This morning it nearly kissed $1,800:

And that’s with quarterly revenues AND shipments pretty much flat over the past year and a half:

Find more statistics at Statista
Oh, yeah, and there’s the global recession going on now – so that merits a 9x stock price increase, right?
Quite honestly I’m encouraged to see this. This is an extremely strong indicator that the mania is reaching its maximum, and history is clear on what happens next. A swift retracement of most of the gains.
TSLA has been the poster-child for the unrelenting and undeserved Big Tech rally that has pulled the rest of the market along with it. Those of us who have watched this unfair wealth transfer in frustration now likely have very little time left to wait until this rally gets it just desserts.

mark_bc · July 13, 2020, 2:57pm

Just made 50% in one day on AAPL…
Sure, let it crash. Since only a smallish portion of my assets are allocated at a given time, if I increase my portfolio by 20x before the crash, who cares if I lose 30% in a crash? And we’ll likely have inside information leaks before the crash anyways, so I’d likely get out unscathed. For the CoronaCrash, I ignored those inside info leaks.
Sure, the bubble has nothing real behind it. That doesn’t change the fact that you can play it and accumulate currency units which you can buy real things with, or pay off debt. The good thing about inflation is debt stays the same, whereas the currency units grow. As has always been the case, inflation punishes the savers and rewards the debtors.

thc0655 · July 13, 2020, 3:22pm

Climber said,

How can you devalue the USD?

You can only devalue the USD relative to anonther curency.

Not really. Jim Rickards has often said the Fed could devalue the dollar in 5 minutes by making an announcement like this: 1. The Fed hereby declares that the USD will be backed by gold holdings equal to 40% of dollars in circulation. 2. The Fed hereby declares that the price of gold is now $10,000/oz. If the price falls below $9,900/oz the Fed will enter the market and buy gold until the price reaches $10,000/oz. if the price rises above $10,100/oz the Fed will sell gold until the price drops back to $10,000/oz. This would be a radical action and Rickards says they would only do it in the worst crisis because they were forced to to prevent a total collapse of the USD and the world financial system. We would then have “sound money” backed by gold and the whole bogus system requiring steady inflation forever would be demolished. We can always hope. ?‍♂️

adam-taggart-2 · July 13, 2020, 10:31pm

Wow! Today was a BIG day.
Tesla stock (TSLA), as the Big Tech bubble poster child, rocketed up 16% to $1,794 this morning and then reversed to close down 3% to $1,497:

I predicted this morning that such a reversal was imminent – because we’ve seen the exponential curve that TSLA is following before. It’s a classic late stage blow-off top. Such meteoric vertical trajectories simply can’t be sustained.
And we know how they end. With sharp reversals that are extremely painful for all of the (often novice) investors who jumped in at the end of the mania.
This is EXACTLY the action we’ve been expecting/hoping to see to mark the end of the unjustified massive run-up in Big Tech.
All of the other FAANMG stocks experienced similar reversals today – though not as extreme as TSLA’s.
Today could very well have marked the top.

davefairtex · July 14, 2020, 1:27am

A very experienced trader friend of mine calls these stocks “the Millenial 10”; he got that from the following article:
https://markets.businessinsider.com/news/stocks/apple-tesla-berkshire-hathaway-rank-millennials-favorite-stocks-2020-1-1028851820?op=1#honorable-mentions11
AAPL AMZN TSLA FB MSFT BRKB DIS NFLX AMD BABA
“not once has a Financial Entertainment TV talking head told us that!”
Just FYI - only a mild bearish reversal on TSLA today (long black, 33% bearish reversal). I was a bit surprised, but maybe it will be a process rather than a one-day affair.
Another trader friend noted that there were a huge number of TSLA “weekly” (i.e. expires Friday) calls traded today. Presumption is, dumb money was loading up on them, right at the top. Max Pain option theory suggests this is the time for wall street to smash price lower, in order to collect on all that call option money.
Perhaps TSLA had a little bit of help both in the rally, and today’s possible reversal.
Of course if TSLA closes tomorrow below today’s low, that’s a swing high, and probably a very strong one at that.

dennisc · July 14, 2020, 1:30am

Long way to go. Three percent here, three percent there… I’m sure they can make it up on volume. With debt about 142 times equity and book value about 50, what could go wrong. Cue the next vaccine "“success” story for the A.M.
P.S. Had to add this for laughs.
Let’s light this candle (pun intended).
https://www.youtube.com/watch?v=e2LSyiYjbcg