Wednesday, February 18, 2015

Danger, Danger, High Voltage! Foolish or brave? Foolishly brave?


Here is a ridiculous video to represent the ridiculous situation we are in now.

This post is from ZH, which has a very interesting Citigroup report:






Why anyone would put their money in the US markets is completely beyond me anymore. I am definitely outright bearish at the US (and even Europe) stock markets right now. But I do understand that the stock market can be irrational for a very long time.

Without even knowing anything and just looking at their valuation, you would imagine that earnings are being forecasted to fly through the roof. Are they?


I have very strong convictions that this is it, we're way over and have long past the point of re-re-re-acceleration of the economy in this run. Unemployment based out, demand and sales are weakening, profit margins are going to drop from their record highs. It's not something secret, people do know this, which is why forward earnings have peaked out and will be heading lower. And of course, it is correct.

However, value and price are 2 different things. The stock market "should" reflect the status and health of the real economy. Perhaps people are still looking at the markets too up close to realize what is going out.

If earnings have peaked and will be heading lower, stocks "should" follow. Really, this isn't like some magical fancy model with complex calculations. The only reason why "this time is different" is due to the ridiculous central bank intervention. If you think your stock prices in those countries are driven by fundamentals, let me cough politely in protest.

"eh, earnings coming down leh. what should i do?"

"issit? orh, better buy more then"

"buy? not sell?!"

"central banks all buying, we buy also la! later they can buy from us ahaha"

???

This is a massive game of chicken. Buying high and selling higher is not a horrible strategy. In fact, it is clearly the same concept of buying low and selling higher, except that we shift valuations across the board a few multiples higher. This makes it slightly more risky, but it is not to say that it is a flawed strategy. I suppose the problem that I see here is that it will not be going higher, so how do you buy now to sell higher? Do people even have a sell strategy? I think now is an excellent time to say, "hey okay, made a lot of money and things don't like they can ever be as rosy as this, time to get out!".

Food for thought: David Tepper reduced his US equity exposure by 40%. I like David Tepper because he's a self made man and he has balls of steel. As a distressed specialist, him selling off 40% of his US exposure tells me that one of the world's richest and smartest person thinks that things are getting lofty here. I highly doubt his exposure in the US will be increasing anytime soon. He's either going to sell as it goes up, or starting selling down if this ship tanks. Basically, he's already made his move. Now he's watching the rest of the market participants to see what they do.

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