Stock Market is Eerily Quiet…Where Are We Headed?
Bears (Michael Burry, u/Criand, Ray Dalio) vs. Bulls (Cathie Woods)
Bears (Michael Burry, u/Criand, Ray Dalio) vs. Bulls (Cathie Wood)
The stock market has been eerily quiet the past month. If you look at the S&P500, it looks like polar forces are tugging at the price. There has been big news, and it just seems that the stock market can’t make a decision so far.
Bitcoin and the entire cryptocurrency market crashing. Is it market manipulation?
Rumors of the Fed finally begin tapering as the economic recovery starts.
Fears of inflation as 10-year treasuries spike.
Despite the movements above, the S&P has been stagnant. A mere 0.66% percent movement upwards.
Financial Gurus Speak Up: Bears vs. Bulls
The prominent financial gurus have been on complete opposites, and here are their main points.
Ultra Bear 1: Michael Burry
Michael Burry is the legendary investor who predicted the Lehman Crash in 2008. Christian Bale portrayed him in the Big Short. He recently garnered fame, making millions with his short position against GameStop.
Ever since last year, Michael Burry has been warning us regarding a potential crash. He even uses the name “Cassandra” for his Twitter handle, which references the character in Greek mythology. Cassandra was given the gift of prophecy but was cursed, ensuring that nobody would believe her warnings.
He recently made a tweet on 06/15, 2021:
People always ask me what is going on in the markets. It is simple. Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude. #FlyingPigs360
The significant point is that he thinks this will be the greatest speculative bubble of all time, implying that it is bigger than the Dot-Com bubble or Lehman Crash.
Burry has a couple of reasons for his bearish stance. “The US government is inviting inflation with its MMT-tinged policies. Brisk Debt/GDP, M2 increase while retail sales, PMI stage V recovery. Trillion more stimulus & re-opening to boost demand as employee and supply chain costs skyrocket.”
US Debt is increasing in relation to GDP.
The money supply is increasing while “retail sales and PMI” are recovering. He is suggesting that inflation is inevitable.
Increasing Margin Debt. Margin Debt is currently two times higher than the dot-com bubble and Lehman Crash.
Massive amount of leverage, especially in the crypto market.
If you don’t know how much leverage is in crypto, you don’t know anything about crypto, no matter how much else you think you know.
Ultra Bear 2: u/Criand
u/Criand is a Redditor who posted a thread on 06/16 explaining how the Lehman Crash of 2008 is repeating but at a much greater magnitude.
If you hadn’t had a chance to look at the thread, it is highly worthwhile to check it out here.
In short, he mentions the below. I am cutting out a lot, so please look at the thread if you have time.
The market crash of 2008 never finished.
The current issue is similar to that of 2008, but it is with the commercial loans and not loans for homes.
There are commercial mortgage-backed securities or CMBS, which are based on loans for businesses. And business tenants across the country are unable to make their payments.
Delinquency rates of commercial mortgages have skyrocketed with the pandemic, and it is a matter of time before CMBS will collapse.
Mild Bear: Ray Dalio
Ray Dalio, the legendary investor and owner of Bridgewater Associates has mentioned that we are in a bubble, but not to the level of the 2000 Dot Com bubble of the Great Depression.
“By our measures, the bubble is not what it was in 2000 and not what it was in 1929,” he says. “But it’s kind of like halfway there.”
He looks at six metrics to gauge if one is in a bubble.
How high are prices relative to traditional measures?
Are prices discounting unsustainable conditions?
How many new buyers (i.e., those who weren’t previously in the market) have entered the market?
How broadly bullish is sentiment?
Are purchases being financed by high leverage?
Have buyers made exceptionally extended forward purchases (e.g., built inventory, contracted forward purchases, etc.) to speculate or protect themselves against future price gains?
Details can be checked out here.
Ultra Bull: Cathie Woods
Cathie Woods is a big believer in growth stocks. Similar to Michael Burry, she believes that the S&P will crash, but not due to inflation. Instead, she argues it will happen due to disruptive and innovative companies destroying traditional companies.
Also, she affirms that inflation is not a concern, going as far as believing that there is a risk of deflation.
If we are correct in our assessment that the risk to the outlook is deflation, not inflation, then nominal GDP growth is likely to be much lower than expected, suggesting that scarce double-digit growth opportunities will be rewarded accordingly.
Moreover, Cathie states that we are in a capitulation phase providing the perfect buying opportunity. The good news is that fear, uncertainty, and doubt (FUD) has provided investors with an opportunity to average down into some innovation strategies at an approximate 30–40% discount to their recent peaks.
The full paper of her recent view can be found here.
We are at a crossroads right now, and the stock market can break out any moment in either direction. On the one hand, many indicators, such as Buffet Indicator (stock market/GDP), Margin on Debt ratio, etc., suggest that we are at unprecedented levels. But on the other hand, this COVID pandemic is also a situation that we have never seen before.
I think it's impossible to read the market, and timing the market never beats time in the market. I am simply going to keep some cash on the side and hold on to assets that I believe will play a massive part in our lives in the long term.
This is not financial advice. I am not a financial advisor and you should do your own research and not just listen to random people on the internet. Nothing contained in this publication should be construed as investment advice.