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1/ Sentiment & Valuations Thread! 
Citi’s panic/euphoria model goes above 1.6X.
Last time that happened was in the year 2000.
Stock market fell 3 years in the row, halving in value. No positive returns for 12 years were registered.
Citi’s panic/euphoria model goes above 1.6X.
Last time that happened was in the year 2000.
Stock market fell 3 years in the row, halving in value. No positive returns for 12 years were registered.
2/ US broad stock market has registered 4X book value recently, which is the most overvalued reading since the Dot Com bubble.
This is very extreme.
However, many growth companies don't have tangible assets anymore, so it's worth looking at many indicators...
This is very extreme.
However, many growth companies don't have tangible assets anymore, so it's worth looking at many indicators...
3/ ...especially price to sales which has recently registered a record reading above 2.7X.
Today's valuations are very similar to the late 1990s and early 2000s.
Today's valuations are very similar to the late 1990s and early 2000s.
4/ Therefore, combing these valuation metrics has historically given us an ability to predict a "ballpark" return one should expect over the subsequent 10 year period.
Verdict?
The S&P is priced to deliver -2% p.a. into 2030, over the next decade.
Just as bad as the late '99!
Verdict?
The S&P is priced to deliver -2% p.a. into 2030, over the next decade.
Just as bad as the late '99!
5/ What about the traditional Price/Earnings metrics, with various twists?
Forward P/E is around 22X. Median forward P/E is above 20X.
CAPE ratio is above 35X, the highest level since the year 2000 (and higher than 1929).
Normal P/E has ticked over 37X.
Forward P/E is around 22X. Median forward P/E is above 20X.
CAPE ratio is above 35X, the highest level since the year 2000 (and higher than 1929).
Normal P/E has ticked over 37X.
6/ The current greed is probably seen the best by looking at the options market.
The put/call ratio has now fallen to levels last seen in the year 2000.
It isn't a matter of whether stocks will go up or not? Rather, by how much will they go up & how quickly can one get rich?
The put/call ratio has now fallen to levels last seen in the year 2000.
It isn't a matter of whether stocks will go up or not? Rather, by how much will they go up & how quickly can one get rich?
7/ Insider buying signals are far more important than insider selling signals. There is no doubt about that.
However, consider that insider selling managed to correctly call several intermediate & longer-term tops — from which it took quarters, if not years to recover.
However, consider that insider selling managed to correctly call several intermediate & longer-term tops — from which it took quarters, if not years to recover.
8/ By no means should we completely ignore a strong insider selling ratio — including the current signal which shows most selling since January 2020 (just before the crash).
Together with other indicators presented here, this strengthens the weight of the evidence approach.
Together with other indicators presented here, this strengthens the weight of the evidence approach.
9/ Investor Intelligence Survey shows 2nd highest Bull reading in decades!!!
Scary stuff, to be honest.
II survey gauges sentiment from financial advisors & newsletter editors.
Being a trader for 2 decades, this is one of my go-to indicators & has helped make me good money.
Scary stuff, to be honest.
II survey gauges sentiment from financial advisors & newsletter editors.
Being a trader for 2 decades, this is one of my go-to indicators & has helped make me good money.
10/ Wall Street analysts are extremely bullish on earnings!
At times, this occurred after a major crash and the markets suffered only a correction before trending higher.
At other times, it occurred near major peaks (2000, 2007, plus 2011 & 2018 for global stocks).
At times, this occurred after a major crash and the markets suffered only a correction before trending higher.
At other times, it occurred near major peaks (2000, 2007, plus 2011 & 2018 for global stocks).
11/ It is easy to sound negative or bearish without any skin in the game, and even more importantly, without a track record of being able to call tops and bottoms.
So what is mine?
So what is mine?
12/ On 04th of October 2011, I called a bottom in the US stock market on the day.
Some of my older followers from the ShortSideofLong blog I used to write a decade ago might remember my post.
Here are the screenshots below.
Some of my older followers from the ShortSideofLong blog I used to write a decade ago might remember my post.
Here are the screenshots below.
13/ On 19th of February 2020, right on the day of the stock market top, I wrote the following tweet thread:
"We just dialed down our exposure to equities meaningfully. We do not like the risk to reward setup & will let the bus run while we walk instead." https://twitter.com/TihoBrkan/status/1230154971858993154?s=20
"We just dialed down our exposure to equities meaningfully. We do not like the risk to reward setup & will let the bus run while we walk instead." https://twitter.com/TihoBrkan/status/1230154971858993154?s=20
14/ With small caps completely decimated, I turned bullish on the 26th of March 2020 — at least on that one sector.
"I'm going to start with a decent lump sum. This should help a lot because it's very wise to back up a truck after a crash." https://twitter.com/TihoBrkan/status/1243177020558848001?s=20
"I'm going to start with a decent lump sum. This should help a lot because it's very wise to back up a truck after a crash." https://twitter.com/TihoBrkan/status/1243177020558848001?s=20
15/ The great thing about trading is: when you make the right call you protect your portfolio or make some serious returns,
And when you make the wrong call, and I've also made plenty of those, you should be able to protect yourself by cutting the position rather quickly.
And when you make the wrong call, and I've also made plenty of those, you should be able to protect yourself by cutting the position rather quickly.
16/ As George Soros, one of the greatest hedge fund managers ever said:
“It's not whether you're right or wrong,
but how much money you make when you're right,
and how much you lose when you're wrong.”
That is what counts!
“It's not whether you're right or wrong,
but how much money you make when you're right,
and how much you lose when you're wrong.”
That is what counts!
17/ In summary, the risk to reward does not make sense to me at all — just like 19th of Feb 2020.
We are COMPLETELY dailing down our exposure to equities.
If Citi's model has any predictability power, 2021 will be a major down year, resulting in some serious losses.
We are COMPLETELY dailing down our exposure to equities.
If Citi's model has any predictability power, 2021 will be a major down year, resulting in some serious losses.
18/ Does that mean we are turning negative on the world & we will stop investing?
No.
Definitely not. As my mentor taught me, there is always a bull market somewhere.
We invest in other asset classes, too. Our hope is assets away from the stock market will outperform in 2021.
No.
Definitely not. As my mentor taught me, there is always a bull market somewhere.
We invest in other asset classes, too. Our hope is assets away from the stock market will outperform in 2021.
