I guess, I know I am getting older when I start sounding like my Father!
With the recent volatility in the infamous Crypto currencies, and the relentless climb of the “never ending” Bull market; I think even seasoned/experienced traders are starting to believe the B%$#s(%T.
Is this time different?
Before I start, no…this is not some chance for me to stick my head out and scoff at the Bitcoin Cult followers (wink wink). I just thought it was time to bring a little sanity and gut check to my blog since, sprinkled with a healthy frosting of experience, as it has been so long since my last posting. Don’t get me wrong…there has been plenty to write about, but with Trump, Covid, and the election…it would have been a 24-hour a day job. The events were coming at me too fast.
First, my friends over at CNBC must share some of the blame. Anytime you have mainstream media (in this case the most followed and fairly respected financial cable news channels out there) giving not only coverage but credibility to anything…it will be accepted. It started with Bitcoin and fermented like a fine wine. Back a few years ago you couldn’t find any established financial professional giving Crypto a second thought. Slowly but surely, the supporters grew as the price climbed, and suddenly everyone was managing a portfolio of crypto and long-time supporters at $60,000. Kaboom! We know what happened next. Like the joke of the guy jumping off a 12-story building and each floor they could hear him yelling “So far- So good!”
Let me help you with something…anything that moves up and down on a daily or weekly basis by 50%…is not an investment. It’s not based in fact, substance, or reality. It is PURE speculation.
Next (and yes, I’ll blame CNBC) is the newly minted force of Robin Hood traders and Reddit. These are fancy words for the retail investor…they have always been there. The difference is now they have a platform (Robin Hood) that will allow my 19-year-old nephew to buy $25 in Tesla, and the other platform (Reddit chat rooms) to communicate and share common thoughts. They actually sit on Air and try to discuss what the Robin Hood traders might do. The problem is that these traders are mostly under 30 years of age, and it is estimated that a quarter of them are first time traders. They have never seen interest rates over 3%. They have never seen a stock market decline (last meaningful one was 2008). They have never seen a recession or financial crisis. They have never seen inflation!
I am finding that even some of the most experienced news commentators are forgetting the 1980’s. Back then you were considered lucky to find a mortgage at 6.5-7%.
Let’s set the record straight!
• The average PE of a stock listed on the NYSE has historically been 15…not 22 or even 100.
• The average PE on the Nasdaq has been 12-27 (https://www.macrotrends.net/stocks/charts/NDAQ/nasdaq/pe-ratio)…again not 100.(hello Tech stock holders)
• The Par price of a 30- year bond started at 8%…not 2%. The Fed has artificially manipulated and controlled the Bond market since the 2008 crisis. Instead of ripping off the band-aid then…we (the World) have been artificially coddled like an infant. (hello Bond holders)
The World Governments (in my opinion) will never allow an alternative currency that they do not control. One that is used by illegal entities or for the purpose of illegal activities just wont last. They just haven’t figured out how to tax or regulate it…. YET. (hello Bitcoin )
Nothing lasts forever! (hello new traders)
My last point doesn’t need a bullet point, because it’s the guiding principle of my career and the one truth that always wins. NO ONE …and I mean no one is bigger than the Market. Ultimately, like the force of water, the power of the ocean…the Market is always right.
Use your Stops, my friends.
Disclaimer: these are my opinions and in no way pointing a finger at any news channel or brokerage firm.