It has been 18 months since I closed Best Minds Inc. Today I am teaching math. I love math because even when opinions appear totally wrong, math is still based on proofs.
So let’s prove that we are in a massive financial bubble that today, may have finally popped, even with all the “help” from central planners of market manipulation.
Exhibit 1 – The faster a stock or market rises, the more it produces a parabola. Parabolic spikes have been warning signs repeatedly. History has been here before, and the outcome was not “more sunny skies ahead”.
Exhibit 2 – For every action there is an equal and opposite reaction – 3rd law of thermodynamics
We can see from the two charts below that there has been a resistance level for 10 years in the NASDAQ 100. We have arrived at this level several times since 2010. Every time we slowed or stalled. However, the NASDAQ 100 burst through this line last week. Was this a sign of extreme exuberance and market “assistance”, or merely savvy investors who understand that economic news since March is not important anymore?
Beyond these two exhibits, I would like to share some other warning signs.
We can see from the chart below that the NASDAQ is the only one of these major equity markets that is in double digits this year. Shanghai is too, but only because of July. I am leaving this chart in that I developed this weekend since today’s closing numbers were below these from Friday.
The Shanghai Stock Index was below its 3,000 mark at the close of June, so all its annual gain came in the last 2 weeks! Ready to dive in?
Next is the problem with extreme crowding as the top holdings in the NASDAQ 100 and S&P 500 reveal.
Millions of investors in index funds based on the performance of the S&P 500 and the NASDAQ 100 are heavily dependent on these same 5 companies. For S&P 500 investors this is almost one fourth of their money. For NDX 100 investors this is close to one half of their money. Since these are two of the most traded indices in the world, it appears that global financial markets are heavily dependent on their recent performance continuing into the indefinite future.
500 years of market history reveal that every cheap money bull market has been followed by a serious bear market. Every major US market will be 2 years longer than any of their past bull markets in American history if they make it until September.
However, one thing is for sure. We are depending on a few global tech giants to keep up the illusion that economic pain for main street does not need to impact investors.
But is that smart for investors as we come through so many painful headlines this year?
Can the millions of investors who have come to spout the religious mantra, “It always comes back”, continue depending on even more debt from central banks to push their statement values higher? Not if gravity still exist and history is still relevant.
Three recent articles from individuals who have impacted my thinking for years:
· QE Unwind Speeds Up: Fed’s Assets Drop $85 Billion. Four-Week Total - $248 Billion, Wolf Richter, Wolf Report, July 9
· You are Now Leaving FantasyLand: The Losses Will Be Taken By Somebody, Charles Hugh Smith, Off Two Minds.com, July 9
Doug Wakefield
Former Owner of Best Minds Inc, Math Teacher, American, Curious Mind
Slangpdx. The math is in certain places that have repeated themselves over and over and over again since 2009. With the public accepting "just do anything to save the bubble", the real information comes not down to the day, but what are the patterns the algos are creating across many markets that is being duplicated. This is happening right now. It is compressing the extremes so tight that when it does go, it will have to move fast because there is so much money in the exact same place and so much money that screams out of place in milliseconds when signals are met.
The computers are giving us information now that has not been there since February. Now we…
Yes it's all true, and it 's all been true at least since 1997. And hasn't made any difference. That was when the fed decided the nasdaq at 3000 wasn't good enough and bailed it out after the Asian flu or Long Term Capital or ____________ and allowed it to go to 5200 before the Big Crash. I agree with everything written here but like everyone else don't know when or if there will be a final top. The best guess is it will go until it stops, but of course stop it will. Be assured though this administration will do everything possible to prop it up. I expect more than one September/October surprise, which will likely include the …
Matt. Thanks for your kind words. I do remember 2008 and our discussions. It is incredible to think how much history from 2000 and 2008 has been lost on most investors....and it would seem advisors, with the enormous amount of money sitting in index funds.
With the incredible gaming that has been done since March, it is remarkable to see "We are in a recession" come from the government and still watch the mania push the NASDAQ up to beyond its dot.com stats.
Oh well. Back to the math plans. My district starts in August, kids at the end of August.
Will keep watch though. I mean, we are all living in the same global casino.
Take care of yourself!
It was good to see you write a post after so months. I guess you could have added TSLA to the stock library of unprecedented parabolic moves this year. I’m not sure if you remembered but we exchanged emails back in the fall of 2008 and discussed the opportunities to buy puts on these type of companies. There’s no doubt that Elon Musk is changing the world for the better with his passion and insight but can’t help to think the stock is in the late stages of classic bubble along with a select number of “covid” stocks. Will be waiting for the next breakdown and false rally. Stay well & keep writing !