Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH!

Greetings Patrons,

I had planned on sending five more biotech stocks to invest and forget for a potential X10 as a continuation of my analysis of 25th May when I covered 5 small cap stocks (4 biotech) (Five More Small Cap Bio and Tech Stocks to Invest for 2021 and Beyond!) . However, instead for the past few weeks I have been focused on adding meat to my decision of 17th June 2021 to disinvest from my AI stocks portfolio by reducing it by about 38% to date, having sold 50% of my Google shares, 70% Facebook, 100% Amazon, 100% Nvidia, 100% IBM, and I am contemplating some further selling given that the stocks are over valued and many divergences are taking place in the markets which were giving me flash backs to 2007 (Financial Crisis), 2000 (Dot Com Bubble) and even 1989 (Japanification) as we appear to be in a mix of all 3 bubbles to varying degree, though this does not mean a market top is imminent, it's just that we won't know a top is in until after the fact, anyway I had to de-risk to be able to sleep more comfortably at night and also let my Patrons know what I was doing that this article now seeks to illustrate why as stocks are rising into a high risk environment where complacency and high stakes gambling rules for which we only need to look at the likes of the Cathy Woods funds, Gamestop and the crypto mania bubble that topped in April but still over leveraged vested interests cling onto Bitcoin having bottomed with highly convincing commentary spewed to the masses such as stock to flow, halving's, institutional interest as I covered in my in-depth analysis of 15th June (Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels). Which to me despite the 50% drop to date, the crypto's are still in a BUBBLE with much further downside to come given the amount of leverage and further exaggerated by the likes Tether the $62 billion ponzi scheme that provides daily liquidity to the crypto markets. 

Contents:

  • You Don't Know How Big of a Bubble Your in until AFTER it BURSTS
  • Stock Market Summer Correction
  • REPO Market Brewing Financial Crisis Black Swan Danger
  • Margin Debt Bubble
  • US Bond Market Long-term Trend
  • Michael "Big Short" Burry CRASH and HYPERINFLATION WARNING!
  • Michael Burry's Track Record
  • Michael Burry's Portfolio
  • Investing During Uncertainty
  • AI Stocks Portfolio Buying July Levels Update
  • HEDGING AI Stocks Portfolio 
  • Crypto Bear Market Acclimation Current State
  • Bitcoin Bull / Bear Indicator
  • Market Oracle AI Coin Thoughts
  • Biotech Brief

You Don't Know How Big of a Bubble Your in until AFTER it BURSTS

A handful of stocks are driving the indices higher, Apple worth $2.3 trillion, Microsoft $2 trillion, Amazon $1.8 trillion, Google 1.8 trillion, Facebook $1 trillion even that over priced pile of poop Tesla came close to being valued at $1 trillion, we are definitely in a bubble, you only need to go onto youtube and watch the to the moon videos of Cathy Wood, literally everything's going to go to the moon because her barely out of puberty Quants decree it to be so. This is clearly a major warning sign of a unsustainable trend when indices are ruled by such a small clique of tech stocks where the greatest similarity is with the dot come bubble in terms of the valuation of stocks that actually produce revenues unlike the largely worthless dot com's of that time. 

A good exercise to perform is to work out what would your portfolio be worth at 20 times earnings, then you get a hint of where stock prices could trade down to once we exit the bubble mania because 20 times earnings is still not exactly cheap, but in historic terms would be a fair price for large mature tech stocks.

So my thoughts have been focused on the the dot com bubble, then the bubble leading up to the financial crisis, and even further back to the 1989 Japan bubble, I bet most don't remember that bubble or are aware that it even existed! THAT was probably the mother of all bubbles when the market value of Tokyo was MORE than that of the whole of the United States! And hence in the lead up to which we got a string of movies appearing that painted a picture of the future belonging to Japan, much as today's movies paint an alternating picture between the future being owned by the Tech giants and CHINA!

We'll what happened to the mother of all bubbles? IT POPPED! Since which Japan ruling the economic world is just a mere footnote in dusty old economics books. 

So you have to realise that towards the end of each bubble there exists a near certainty of outcome i.e. that JAPAN has WON the economic WAR. It's Game Over, JAPAN has WON! Much like we are building up to game over for the United States and so the 21st century will belong to China. 

So I am sat here placing myself back into the 1980's when no one could see that rather than Japan wining and owning the future that this was it! The beginning of the end of Japan as an economic super power, no one could imagine Japan was about to enter into 4 DECADES of STAGNATION! If anyone suggested such at the time would ne seen as stupid! it was impossible for Japan to enter into 4 decades of stagnation and economic decline from there, but that is what happened! 

CHINA! CHINA! CHINA! Maybe on the brink of becoming the NEXT Japan, so rather than owning the future this may be as good as it gets for China! You can see signs of this in the stock prices that trade at deep discounts to western stocks, why? It's because that is the real value of the Chinese economy, chinese stocks are NOT cheap, it's that the perception of what China actually is, perhaps overvalued by several orders of magnitude which will only become apparent with the benefit of hindsight and why I suggest don't follow the Cathy investing fool Woods into making the mistake of buying chinese stocks.

Which brings us to our own elephant in the room, AI tech stocks, which yes are overvalued but nowhere near to the extent of the dot com bubble. BUT I get the impression that I am missing something important that will only become apparent with the benefit of hindsight. That the real value of AI tech stocks is not $2 trillion for Apple, or $2 trillion for Amazon, , much as the value of Tokyo was not equivalent to the whole of the United States in 1989. The future IS foggy especially in the midst of bubble manias but my sixth sense due to having participated in many bubble manias over the past 30 - 40 years is telling me it that the value of AI tech stocks could reset to perhaps half where they typically trade today.

What pricked the Japanese bubble was rising interest rates which is what will probably prick today's bubble. The thing is that once the ball starts rolling it does not stop i.e. has unintended consequences, so whilst at the beginning mild rate hikes seem like the sensible thing to do it has unintended and unexpected effects that most are totally blind to until like the financial crisis had CDS and MBS start to blow up the whole banking sector. 

And it appears that is the Achilles heel for this bubble, the banking sector as I will elaborate on shortly why we could be on the precipice of Financial Crisis 2.0, that at the least looks set to produce a reset in stock valuations which could go from a state of overvaluation to a state of under valuation i.e. all the AI stocks are good, but is Microsoft really worth 38 times earnings, or Amazon near 70 times? That's a lot of years of earnings growth priced in.

Stock Market Summer Correction 

I'll take a more in-depth look at the stock market trend in a forthcoming analysis. However as things stand the stock market is starting to move out of my original forecast window for a summer correction (9th Feb 2021 Dow Stock Market Trend Forecast 2021).

(Charts courtesy of stockcharts.com)

The trend to date has been pretty mild, too mild for my liking that and various things bubbling under the surface such as the repo market that I will explain shortly, all of which culminated in spooking me into reducing the size of my exposure to AI stocks by 1/3rd, the last time the markets spooked me into selling was in December 2016 on the eve of Trump taking office, as I rightly assumed that he would literally go to war with the established order and China.

However, what I did not bank on was how inept and incompetent he would turn out to be, basically he is a con man out for himself who had the good fortune to be up against someone even less worthy of the presidency then himself, Hillary Clinton as though she had a god given right to succeed her husband to the iron throne. Anyway that is all in the past and my fears of Trump starting an nuclear war with China soon evaporated when he showed that all he was interested in were TV ratings, and so bull market blue sky's ahead ensued as along as a black swan did not derail the markets such as an inept Chinese bio lab leaking an engineered version of a BAT virus, which even if such an unexpected event occurred the ensuring market panic should result in the mother of all tech stock buying opportunities!

What's spooking me right now is similar to what spooked me going into the financial crisis, a good year before Lehman's went bust. Detachment from reality i.e. housing and stocks going up whilst liquidity was being sucked out oft he financial system, of course at the time I did not understand the true nature of the derivatives bets placed upon bets placed upon bets placed upon even more bets all magnifying negative housing market exposure manifold, but I understood that the banks were in trouble and that house prices were going to fall which they did. 

And I watched as the mass of the establishment including the mainstream media peddled relentless economic propaganda that the UK housing market was only going to experience a soft landing, when instead it was obvious to me as early as August 2007 that the UK housing market was going to CRASH! The only question mark at that time was the magnitude of the then imminent crash.

So what's spooking me now and will it turn into a December 2016 false signal or be more like going into Mid 2007 when my radar was going berserk and I started pumping out articles warning of doom and gloom all in the face of a deaf, dumb and blind mainstream press, I even alluded to the fact that banks could go bust though at that time could not mention any particular bank due to the risk of being sued for libel as before the Financial crisis one could NOT refer to any bank as being engaged in criminal activity, being party to a banking crime syndicate without being on the receiving end of legal correspondence threatening court action if x,y,z was not done with immediate effect.

Which brings us to one of the primary flashing red lights prompting me to de-risk a few weeks ago.

REPO Market Brewing Financial Crisis Black Swan Danger

The REPO market, where banks are buying short-term treasuries on an epic scale, on face value this can be explained that the banks are reluctant to lend and so Banks awash with cash are parking their excess deposits with the central banks so that they do not have to increase their capital reserves to cover the excess deposits as the following graph illustrates which is the opposite to the financial crisis when the banks were short on liquidity due to a run on the banks that were seeing liquidity / deposits withdrawn on an epic scale.

Where the mainstream press is concerned this is nothing to worry about and in fact they see it as the banks being an in healthy position, excess cash unlike the financial crisis when there was a run on the banks

Which to me reeks a lot like the mantra going into the financial crisis of a housing market soft landings etc.

So what's the problem if the banks have too much cash, why could it trigger a black swan crash event?

Because just like the financial crisis it is sucking liquidity OUT of the financial system that fractional reserve banking and then the shadow banking system magnify mani-fold. Maybe somewhere between X20 to X40 the reversed REPO amount.

You can see the hidden impact in the financial system as we see a sharp drop off in the commercial loans, as businesses are not borrowing ahead of what? A recession?

Its akin to a run on the banks underway that is sucking money out of the banks for reasons that won't become apparent until after the fact. I could guess at reasons by looking back at what the bankster's did last time i.e. sliced and diced mortgage backed securities and selling CDO's that they could not honour, which they likely have been upto similar tricks of the trade since, hence the demand T-Bills as collateral in what is happening in the the reverse repo market we are probably seeing the early warning signs of Financial Crisis 2.0. A panic rush to hold T-Bills for what ? Not for the 0.05% interest rate! It could be to slice and dice collaterised debt obligations with the Tbills required to give junk bonds a Triple BBB rating.

Anyway sucking money out of the banking system is not good for ASSET PRICES. It is DEFELATIONARY i.e. every asset that has responded to rampant money printing since covid began could now see itself undone in a far shorter period of CRASH time. For at a time of lack of liquidity then which assets do you think will be first to be sold? That's right the most liquid assets, that's your Apples, Google's, Facebook's, and Amazon's.

Stocks, crypto's, bonds, housing, and maybe even gold , everything that has been inflated and leveraged could now quickly deflate in a market panic event when the cookie finally starts to crumble, perhaps when the CDO's and other derivatives markets start to seize up demanding liquidity to be raised from elsewhere..

So whilst currently everything is relatively calm with stocks trading near all time highs, the reality maybe that we are at precipice of a tipping point that could soon snowball into a full blown market panic event with likely economic consequences, of which the reverse repo markets could be the canary in the coal mine because we won't know exactly the hell the banking crime syndicate has upto behind the scenes until AFTER the event! But I can guess that just as the Financial crisis of 2008 was built on bets on top of bets on top of bets then so will it be so this time. 

Margin Debt Bubble

One of the mechanisms for this deflation will be the unwinding of the margin debt bubble where there does exist some correlation between market peaks and troughs i.e. buy deviations from the high. Though has been a poorer indicator for market tops for the past decade, nevertheless is flashing a warning that the current level of leverage could result in a sizeable stock market drop on par with that of March 2020, so the stock market is trading on borrowed time.

Even worse is that the surge in mortgage debt is in large part to do with investors who should NOT be investing on margin such as Robinhood allowing anyone to sign up to a margin account i.e. very weak hands.

Also I suspect the banks will be bailed out again so as to prevent debt deflation and so expect to see much higher QE than what we have seen so far.

Hence why I DE-RISKED over valued AI stocks at the HIGHS!

On a side note it's much worse for crypto markets because the exchanges allow use of other crypto's as collateral, however all crypto's fall together which means margin calls are going to happen far earlier than with stocks which results in far greater price falls due to forced sellers which actually happened on 20th May when Bitcoin had a flash crash which resulted in forced closure of leveraged positions and further selling of Alt Coins. And if that were not bad enough then we have Tether USDT! A ticking bomb! Imagine the amount of forced selling that will create when it implodes! Easily drop crypto prices by 70%!

US Bond Market Long-term Trend

The screeching that one hears from the likes of Michael "Big Short" Burry is that the US Bond market is about to collapse. We'll all I can see when looking at the long-term chart is that since the pandemic panic bond market spike of March 2020, bonds have been in a correction against it's primary bull trend, and that correction appears to have ENDED.

So just as the shrill calls of bond market doom reached their most vocal the bond market bottomed and started trending higher. So unless the likes of Michael Burry are right once more than clearly the bond market has resumed it's bull market aided by infinite Fed quantitative easing. Looking at this chart one can clearly see that late 2018 was a GREAT time to buy bonds and why April 2020 was a great time to SELL bonds, but right now, we are pretty much in the middle of the bond market trading range which favours upwards price pressure rather than downwards regardless of what Michael Burry tweets should happen.

Michael "Big Short" Burry CRASH, HYPERINFLATION Bond Market COLLAPSE WARNING!

Michael Burry the guy who was apparently one of the first to state that the mortgage backed securities would CRASH the US housing market then popularised by the movie "the Big Short" latest calls and heavy bets have been placed against stocks and bonds in advance of the next big market collapse triggered by interest rate hikes and hyperinflation which has gained much media attention and many traders to follow suite by trying to replicate his short positions.

Personally I don't see any connection between meme stocks, crypto's and the general stock market. Though indirectly it does involve the big elephant in the room that has fed the crypto and meme stocks, namely leverage. So a mechanism rather than the actual assets is what could drive a crash i.e. a general unwinding of leverage, where the most liquid of assets would be hit the hardest.

Michael Burry's Track Record

But what about his track record, after all he made it big some 12 years ago so the hedge fund that he manages must be worth tens of billions by now? So here is his hedge fund Scion Asset Managements reported portfolio values overplayed with the Dow.

Where are all of the billions?

Michael Burry's performance to date suggests that he GOT LUCKY in 2007-2008 since which time up until December 2018 consistently LOST MONEY, probably betting against the greatest stocks bull market in history and Treasury Bonds! Furthermore his fund was going nowhere until he GOT LUCKY with GAMESTOP, which was only because the sub-redit Wall street bets brigade jumped on the bandwagon without which his fund's performance sucks.

Ask yourselves would you invest in a fund that had lost money for a decade during the greatest bull market in history only to turn a profit due to a sheer luck on a penny stock?

The Michael Burry you see on MSM is a myth! Not some autistic quant who has an edge but a gambler who perhaps gets lucky once per DECADE! What's more gamblers tend to GIVE BACK everything they win!

Michael Burry's Portfolio

According to his recent 13F filing (31st March) here is a actual breakdown of his economic collapse is coming portfolio. 

SHORT TESLA

40% of his portfolio comprises Tesla shorts, that's a BIG GAMBLE. that does not look like it's paying off given that Tesla currently trades at $680. Whilst I too am bearish on Tesla, however I would consider myself as being insane if I BET 40% of my portfolio on a Tesla short! Which speaks volumes about Burry's gambler mindset.

SHORT T Bonds

Next Burry is short US treasury bonds to the tune of 17% of his portfolio, including leveraged inverse ETF's. Which if the long-term trend continues than that's going to soon become a losing trade.

LONG Google and Facebook

He is long two of my primary AI stocks to the tune of 25%! Maybe that's a good sign that I was correct to reduce my exposure to both of these stocks by 50% and 70% respectably i.e. do the opposite of Burry..

That's 82% of Michael Burry's portfolio, 57% short hedged by 25% long. With the rest mostly long. So the portfolio is mainly a bet against Tesla, an over leveraged over hyped auto tech stocks the likes of which Cathy Wood is obsessed by and short T-bonds, whilst long a couple of AI tech stocks, so to me apart from the bet against Treasuries it does not seem THAT much of an end of the world economic collapse portfolio at work, i.e. the likes of the Dow could barely budge from where it is trading today and Michael Burry could still win big. Just goes to show how clueless mainstream media and blogosfear are, they don't have a clue what they are talking about. Now if he had shorted Google and Facebook THEN you could make a case he was betting on economic COLLAPSE. This portfolio is quite sensible for a HEDGE FUND. The stock to short IS TESLA, whilst I am not so sure it's wise to be betting on leveraged ETF's that could probably be a loser for Burry, still if he is wrong Facebook and Google will cover the Treasury Bond position.

At the end of the day the guy is a gambler who tends to lose far more often then he wins as illustrated by the fact that his funds value was virtually wiped out by Mid 2018. Therefore anything he makes is likely to be short lived before he gambles it away! Instead we have all these clowns on the MSM and youtube hanging on his every word when in reality he should be used as a contrarian indicator, do the opposite and you will win far more often than not, which in this case implies to Buy Tesla, Buy Bonds and Sell Google and Facebook! 

So put a Short on Michael Burry to eventually LOSE it ALL ONCE MORE!

Investing During Uncertainty.

We are in a stock market bubble, but how close are we to the bubble popping? What happened to the high risk tech stocks that Cathy Wood so loves was a warning that the bubble is starting to pop. But bubble mania peaks tend to have a lot of uncertainty associated with them is the peak now or is it 10%, even 20% from here?

And then what? Do we get a crash or a bear market of sorts? 20%, 30% even a 50% drop? So how should one invest when the outlook is so uncertain?

The first step is to ask oneself how would I react to a 30% drop in the value of my portfolio?

Will I great such a drop as a buying opportunity or lament at failing to have sold x,y,z when the prices were trading much high.

So my decision of 17th June 2021 was to position myself to great a potential drop in the market of say 30% enthusiastically as a great buying opportunity. I am now comfortable with whatever happens going forward even a blow off top that takes valuations to a whole new level in a final mania driven spike.

In terms of investing, during times of certainty one is fully invested. During times of uncertainty then one dollar cost averages, so if one wants exposure to a particular stock in an uncertain climate then buy once every couple of months or so. So set a date and then buy on that date.

In which respect I will eventually be buying back positions in Google and Facebook probably starting late October. In addition to having market orders under the market in case the stock market decides to take a tumble to my buying levels. 

For where we stand look for warnings signs, look for deviations such as Tech stocks falling but the general indices such as the S&P and Dow trading to new all time highs. That's a deviation to take note of for what the Nasdaq does today the Dow will do tomorrow. Deviations are not a sign of health, they are a sign of market confusion, the market is in mania mode, and so panic selling from one sector sees the money flood into other sectors thus resulting general indices that still rise whilst the market is weakening, anyway that is how I see the market right now. 

So I expect the market to correct hard, maybe experience a mini bear market, which should bring the value of all stocks down with it towards at least my buying levels.

However, it is entirely possible the the drops in the market will see even the good stocks trade down to become undervalued, which for the likes of Google, Amazon and Apple could translate into a 30% drop in their stock prices. But it is not certain, hence why better to de-risk now and wait and see what happens with mechanisms to invest.

AI Stocks Portfolio Buying July Levels Update

The buying levels for my stocks portfolio largely remain unchanged from my last update of 25th of May 2021. A reminder that the Buy % rating is how good of a buy I rate the stocks right now i.e. when a stock is at 100% then I rate it as a great buy in terms of trend and valuation. Whilst 0% rates as a bad buy right now. 

As you can see I am not seeing much value in buying anything right now. Typically the AI stocks would need to fall by between 15% and 20% to perk my interest into buying, and a lot more for the likes of Nvidia (-40%). Also I am completely disinvest ed form Nvidia, Amazon, PCT and IBM, and I have reduced holdings in Google, Microsoft and Facebook. Whilst the rest remain untouched. So I am cash rich at the moment and we will see what happens..

HEDGING AI Stocks Portfolio 

I am regularly asked how I am hedging my stocks portfolio, so here is a brief overview. Bit firstly understand this HEDGING is betting AGAINST the primary trend, so it is far, far higher risk than just investing, and so has to be time limited which requires a hands on approach and so is nowhere near as easy as just buying good stocks on the dips and to invest and forget as you cannot lose more than what one invests but hedging done badly can, for that we only need to look at the so called Hedge funds going bust, in fact it was a couple of hedge funds that started the ball rolling on the financial crisis in July 2007 when 2 Bear Stearns Hedge funds went POP! as I wrote at the time (Jul 31, 2007 - 12:50 AM GMT Hedge Fund Subprime Credit Crunch to Impact Interest Rates)

LOCKED AND LOADED

Understand that my primary objective is to focus on what I am going to buy when the stock market falls, so I need to ensure I have my shopping list of stocks with the rough prices I will be willing to buy the stocks at with funds ready on account, locked loaded to enable me to buy. Being locked and loaded primed to buy IS PRIMARY!

So understand hedging is not something most investors should even consider or engage in because it is HIGH RISK, hedging is NOT investing, Hedging is TRADING that demands experience to a greater extent why I instead encourage buying the dips rather then trying to short the dips as buying the dips has a very high probability of success whereas shorting the dips is at best going to be a 50/50 proposition!

OPTIONS

Are very seductive, i.e. buy a put option at a particular strike price and imagine all of the money one will make when they expire deep in the money. Unfortunately most options expire worthless. I consider options as the HIGHEST of high risk activities to engage in as they are designed to extract money from Option buyers which is why I DO NOT TRADE OPTIONS.

FUTURES

To hedge against a drop in my portfolio then I trade the downside in a stock index future, usually the Dow with tight stops and limits. The thing about futures is that one needs to monitor the index so as to amend stops, and the risk is that a. the decline is temporary so one is betting against the trend, and that even if one is right on direction one can still get stopped out with a loss. 

STOCK FUTURES

The next tool is shorting stock futures. What one does here is to pick the weakest stocks and then short them so that if the portfolio takes a tumble in value then at least some of that reduction in value will be offset by the gains on the stock that has fallen to a greater degree.

The problem is that one one is picking the weakest stock to short, then it cannot be a stock that one is invested in for the fundamental fact that I consider all the stocks I am invested in as being good stocks with good upside potential. For instance if I was pretty sure that Apple was seriously over valued to the extent it's stock price could crash by 20% or more then I would not be wasting my time trying to short Apple stock but instead I would SELL my Apple stock (which I have).

Shorting the likes of Apple carries a huge amount of risk that there is a good chance that ones bearish view is WRONG, so much better to EXIT and buy back after any decline then to SHORT the stock.

So to find a stock to short, one looks for that stock that is heavily overvalued to ridiculous levels, and which has already shown clear sign that it has already started to weaken, deviate from other stocks such as TESLA.

So if the tech stocks do take tumble then whilst Google may fall 10%, Tesla would be expected to fall by 40% or more. However one is betting against the trend so one needs to use and move stops and set limits at achievable levels, which in Tesla's current case would be at $520 and at $430, with a view to moving stops behind the price as it falls so as to first move to break even and then to lock in a profit.

MECHANISM

My primary hedging mechanisms are DFT's and Futures, as using the likes of City Index and IG Index any profits are TAX FREE

Key Points

1. Short futures with tight stops and limits.

2. Short weak stocks with wide stops and limits.

3. Review positions and amend stops and limits, I usually review and update once per day, including deciding to exit early.

4. It is usually much better to reduce holdings of any stocks one is worried about than to go down the shorting the futures route.

5. I DO NOT TRADE OPTIONS

A reminder of what hedging is, one is hedging against a DROP in the value of ones portfolio. If the market does not drop or goes up then the HEDGE will result in a loss, which is the whole point of the hedge. Of course we can get lucky with a Wily Wonkas golden ticket where the portfolios value goes up and the HEDGE profits at the same time! I.e. AI stocks go up Tesla goes down. which is why one needs to keep moving those stops else one can quickly end up losing any paper profit on the hedge.

The bottom line is that hedging is not for most investors as it is BETTING against the TREND, so there is a high risk that the hedge will not pay off. In fact most of the time hedges generate very little extra profit for all the time and effort one puts in, because it is time consuming to trade futures and events such as March 2020 are unpredictable, no one could have seen that the Dow would spike to below 20k. Personally if memory serves me correctly early on in the decline I imagined that the Dow would bottom out at around 25k so there are times when one can get lucky on hedges's but they are rare.

Thus my primary strategy where stock market corrections are concerned is to be locked and loaded to BUY stocks, where any hedging is a side salad i.e. I am never going to hedge more than about 1% my portfolios value so it's not that big of an exercise due to the fact it is far higher risk than just buying the dip and I would probably be better served by not wasting my time hedging and instead reduce my exposure to the market.

Also I'm not going to mention my hedges on a regular basis because they are high risk, short-term and likely to confuse more than help i.e. the durations of my Dow short futures trades are usually measured in the days rather than weeks as they are that temporary. That and I don't have the time to be sat there watching the price movements in real time.

Neither will I start making a list of stocks to short because again IT IS TOO HIGH RISK where no matter how good the risk vs reward looks in terms of stops and limits, it's still a 50/50 bet because one does not know everything about the stock and what's going on and one is betting against the trend. For all we know loony toon Cathy Wood could hit the buy button on Tesla and send the stock soaring despite its current overvalued state, that is the risk of shorting stocks you don't know and at best you've got a 50/50 chance.

Hedging Conclusion

Head my warning - Shorting stocks is VERY HIGH RISK, it is NOT Investing, I do it sparingly and usually limited to just trading the Dow or FTSE short-term, beyond which from time to time if I see an opportunity I will short position trade a stock such as Tesla with stops and limits and amend accordingly. There is no free lunch / easy money to be made, shorting stocks IS VERY HIGH RISK which can financially wipe you out if you are not careful! For example there are dozens of Fund Managers such as James Clunie of Jupiter Absolute Return Fund who got burned shorting Tesla over a 3 year period in the run up to Tesla's end 2020 high which wiped out much of the the funds value and eventually being shown the door early December 2020. 

And here's another example - Hedge Fund manager Mark Spiegel and his lunatic shorting of Tesla stock from $26, periodically spreading disinformation on Tesla in desperate attempts to drive the stock price lower so that he can cover his huge short losses.

https://youtu.be/YZp6G77GDzw

I think the problem with those who get carried away shorting is that they forget going short is infinitely more risky then going long i.e. when long ones max loss is 100% (unless one makes the mistake of investing on margin), whilst when short ones max loss is when one goes broke!

Whilst this also acts as a lesson to all those who invest in managed funds, they are NOT lower risk than investing directly in stocks.

Crypto Bear Market Acclimation Current State

Current state of my accumulating during the great crypto bear market of 2021 (Bitcoin Bear Market Trend Forecast 2021 and Model Crypto Portfolio Buying Levels) for buying levels check out the preceding in-depth analysis. Basically I am about 2% invested of the target portfolio as I await the crypto's to fall to anywhere near levels I would be willing to buy significant exposure. Still in case I turn out to be wrong, I have been buying at least some exposure to the Alt Coins such as Ravencoin, Cardano and Chainlink, whilst my position in Lite coin is courtesy of GPU mining with Nicehash.

And remember folks investing in crypto's is VERY HIGH RISK for the fundamental fact that despite the hype in reality they have NO REAL VALUE, PURE SPECULATION! I.e. there is always the risk that the party is over i.e. that we never see the likes of Bitcoin $65k ever again, so I am in no rush to buy unless I see the crypto's fall to my buying levels either that are I will hold NO Bitcoin or Ethereum!

Bitcoin Bull / Bear Indicator

This is a leading indicator that I am working on to flag if there is a high probability of BTC rolling over into a bear market or about to begin a bull market. This indicator has been wan ring of a BTC bear market since Mid March, with the 13th April all time high coinciding with a 96% SELL rating. The signal is designed to act like a switch i.e. to only trigger when bitcoin changes major trend. To further reinforce the switch each subsequent trading day after the initial TREND changing requires, 2nd and 3rd day reversal signals to confirm the original signal. Though it should be noted that I am skeptical of the indicator in that it may turn out to be only good for signaling the beginning of this bear market, and fail to signal the start of the next bull market, so I am using it with a skeptical eye, as long as it confirms the rest of my analysis which expects much lower prices for crypto's. We are nowhere near a bottom that could be a good 4 or 5 months away!

Current signal is a 96% SELL and Bitcoin has been on a SELL rating since Mid March so everything remains on track for MUCH lower crypto prices, typically at least another 50% drop from where they trade today!

Market Oracle AI Coin Thoughts

I still want to give this ago but am mindful of the regulatory environment. The objective of the coin would be one that it is leveraged to an AI stocks portfolio.

Current state of play - 

1. Supply limited to 1 million coins where supply is backed by liquidity to put a floor under the price that initially would be $1 per coin. 

2. Investment (from me) and coin sales (limited in the early years) to finance purchases of AI stocks. but these cannot be seen to be connected to the crypto token else fall into the securitization trap.

3. Annual upwards pressure on the coin market via 'dividend' investment buying (from me) at 10% of the value of the AI stocks portfolio i.e. BUYING of coins from the market each year thus reducing the supply and pushing the price higher.

4. Eventually the financing of the purchases will be via sales of the AI stocks portfolio, i.e. annually sell 10% of the AI portfolio, or equivalent from reserves to buy coins from the market and thus put upwards pressure on the price.

5. That there will be a web page that keeps track of the portfolio value, and 'dividend' buying of coins.

So basically the link between the coin and the AI portfolio would be via purchases of the coins from the market based on the value of the AI stocks portfolio thus reducing supply and pushing the price higher.

My next analysis will be the next 5 biotech stocks, likely soon followed by stock index (Dow) trend analysis, and then the UK housing market to also include a brief update on the current state of the US housing market.

In fact without further ado here are 2 of the 5 biotech stocks that I will be covering in terms prospects and risk profiles.

Aptorum Group

Cara Therapeutics

Bl********************

Ta********************

Bi********************

Here's a reminder of the High Risk small cap stocks portfolio where all 4 of the biotech stocks are up to date with CRISPR leading the way with a 40% rise.

Your partially switching from mega AI tech stocks to small cap biotech stocks analyst.

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2021 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.



Nadeem Walayat released this post 62 days early for patrons. Become a patron
By becoming a patron, you'll instantly unlock access to 59 exclusive posts
2
Polls
56
Writings
1
Video
By becoming a patron, you'll instantly unlock access to 59 exclusive posts
2
Polls
56
Writings
1
Video