Close all the long positions in risky assets

S&P 500 reached 4100 finally. If this is not the peak, it will be very close to the peak of this bear rally. There may be another bounce in January after some retracing. Once the markets eventually roll over, the drop will be bloody. The so far relatively strong assets such as emerging markets will drop substantially too. After long term T-bonds come down to a bit higher than the previous low, it may be the time to buy long term T-bonds and hold until the bear market is completely over, which could still be some way off. 

The almost sure route for market for the rest of bear market

 What I have predicted from October 4 as the most likely route for the rest of bear market went exactly as the market itself. But S&P has not reached a high close to 4100. At this point, rather than drifting further down, it will go back up and finish this journey (or even higher) after finally bottoming next week or so. Pay attention to bitcoin miner like Mara or even exchange like Coin. Mara is current about 10$ and it is not impossible for it to reach 40 at the peak of this rally. Commodities will go up sharply too. Everything will fizzle up by the time around the end of this year when we have the next leg of bear market set up. 

The highly likely route for market for the rest of bear market

Risky assets will give up most of the gain from this Monday by late next week, which is when it is a good time to buy risky assets and enjoy a three week jump that will peak during the Fed meeting week of November 1-2, 2022. After that risk asset prices will drift down and give back more of the gain during this short term bounce, and eventually have two bloody quarters in the first two quarters of 2023. Then we should expect bottoming around that time. 

An eerie feeling today

 Markets are up today. I have a hunch that is also supported by some evidence that it could open sharply lower tomorrow and dive to a low for a few weeks, go back up and dive to a lower low. Both are likely to be sharply lower than what we have today. 

The good news may be that this could be the start of the end of the bear market in terms of extent of dropping. The end of the end of the bear market is likely more than one year away. 

The predictions for the next few years and some thoughts on the longer term markets

 A few weeks has passed since my January 20, 2022 blog about a potential bear market lasting for a few years. It is very clear by now that that worldwide bear market has started. The market has largely completed the first major leg of drop. There will likely be a winding bounce from here lasting a few months. But the second major leg, especially for Nasdaq, will probably happen by the fall.

 

Can the markets still bounce strongly and go up a lot more? It is not impossible and has happened in the history, but it seems like a more and more remote possibility.

 

Here are my predictions for the short and long term markets, conditioning on that US doesn’t have a nearly civil war kind of panic after 2024 election. In fact, the bear market may eventually end with 2024 election and the 2025 inauguration, at least that is my hope.

 

1.       Nasdaq and S&P will drop 40-50% from its recent peak over the next few years. The other global markets will also drop a similar amount. Maybe the bear market could eventually end around the 2025 inauguration. But if the US falls into a civil war kind of panic and reality, hell will be in sight.

2.      The timing of the largest drop will vary across indexes given their different components. For example, Nasdaq will likely drop the most and will finish most of the expected drop first. S&P will finish most of its expected drop later.

3.      However, the next few months from March 2022, markets will enjoy a winding but significant bounce, recovering most of the losses suffered in the first leg of the drop by the peak of the bounce. This would be time to get out, or set up shorts near the end of this bounce, which will be the start of the second major leg of the drop.

4.      There will still be many sharp ups and downs after these first two major legs of drops. In percentage terms, they will still be quite big even if markets would have dropped substantially after the two major legs. Markets will not settle for a final low until quite a few such ups and downs, probably at least two or more years from now.

5.      US is likely to have a recession in late 2023 or 2024. The recession will be relatively mild in terms of employment and output.

6.      Some of the current darling stocks will drop very substantially. For example, can you imagine Tesla at around or below $200 again?

7.      USD has not peaked yet but is close to its peak. After peaking, it will fluctuate at a high level for a couple years before a very significant leg down lasting many years. So don’t bet that it will go down or go down soon.

8.     Gold will slump from this level too but will get out of the slump before all the other assets. The time of its bottom could be in 2023. It will likely have a strong bull market from there, appreciating many times. Gold companies will take longer to bottom, say another year after gold bottoms.

9.      US housing bull market from 2011 is only about half done. It will go up slowly for a few years and then up sharply for some more. So prepare for about another 10 years of US housing bull market and a price appreciation of a similar amount of what we had since 2011.

10.  Chinese housing market and stock market will hold up a bit better than the rest of the world for a little longer. Just holding on there, unlikely to go beyond its prior peaks. Then they will likely have a very serious slump that will not end until say 5 years later.

11.   Hong Kong stock markets look extremely cheap to most people but will drop at least 50% from its peak in 2018. It could drop 2/3 from that peak too in extreme cases. If it does drop that extremely, it is probably wise to load up the assets if it still has a somewhat independent future.

12.  Commodities will also be among the last to slump in this cycle but it will have a pretty bad slump too. It could be the most lucrative investment opportunity among all for the many years after the slump is over.

13.  Value will significantly outperform growth in the next 10 years. Quant funds will do relatively better too.

对未来几年的预测以及对长期市场的一些思考

 我 2022 年 1 月 20 日关于可能持续数年的熊市的博客以来，已经过去了几周。现在越来越清楚，全球熊市已经开始。市场已经基本完成了下跌幅度的第一个主要阶段。从这里开始可能快要出现持续几个月的曲折反弹。但下跌幅度的第二个主要阶段，尤其是纳斯达克，可能会在秋季开始。

 

市场还能强劲反弹并进一步上涨吗？这并非不可能，而且历史上已经发生过。但这似乎是越来越遥远的可能性。

 

以下是我对短期和长期市场的预测，前提是美国在 2024 年大选后不会出现近乎内战的恐慌。事实上，熊市最终可能会在 2024 年美国总统大选和 2025 年就职典礼附近结束，至少我希望如此。

 

1. 未来几年，纳斯达克和标准普尔将从最近的高点下跌 40-50%。其他全球市场也将下降类似的幅度。也许熊市最终可能会在 2025 年美国总统就职典礼前后结束。但如果美国陷入内战的那种恐慌和现实，地狱才是底。

2. 因成分不同，各指数完成大部分跌幅的时间也不同。例如，纳斯达克可能跌幅最大，并将首先完成大部分预期跌幅。标准普尔将其在之后才完成大部分预期的跌幅。

3. 然而，从 2022 年 3 月起的未来几个月，市场将迎来曲折但显著的反弹。在反弹高峰时将收复首轮下跌中遭受的大部分损失。这将是最后退出投资的时候，或者在这次反弹结束时设置空头，因为这将是第二次主要下跌的开始。

4. 在前两个大幅度的下跌之后，还会有很多大起大落，但是趋势依然往下。即使市场在两个主要阶段之后已经大幅下跌，之后的下跌以百分比计算仍然会相当大。市场要等到相当多的这样的起起落落后才会安于最终低点，那可能是至少从现在起两年或更长时间。

5、美国很可能在2023年底或2024年出现衰退。衰退在就业和产出方面将相对温和。

6. 一些当前的投资宠儿将大幅下跌。例如，你能想象特斯拉回到 200 美元左右或以下吗？

7. 美元尚未见顶，但已接近见顶。在达到顶峰后，它将在几年内处于高位波动，然后开始持续多年的非常显著的下跌。所以接下来一两年不要打赌它会下跌或很快下跌。

8. 黄金也会从这个水平下跌不少，但会在所有其他资产之前摆脱低迷之前重新上涨。它到底的时间可能在 2023 年。从那里它可能会开始一个强劲的牛市，升值很多倍。黄金公司将需要更长的时间才能触底，比如在黄金触底后一年。

9. 从2011 年开始的美国房地产牛市到现在只完成了大约一半。它还会在接下来几年内缓慢上升，然后再急剧上升好几年。因此要为美国还有 10 年的房地产牛市做好准备。接下来的涨幅可能与 2011 年以来类似的涨幅一样大。

10. 中国房市和股市接下来一年可能会比世界其他地方好一点点。但是只是坚持在那里波动，不太可能超越之前的价格高点。然后他们可能会经历一次非常严重的熊市，从现在起至少 5 年后才会结束。

11. 香港股市对大多数人来说看起来极其便宜，但将从 2018 年的峰值下跌至少 50%。在极端情况下，它也可能从峰值下跌 2/3。如果它确实大幅下降，而且如果它仍然有一个稍微独立的未来，那么它可能是一个非常明智的投资选择。

12. 大宗商品将是这个周期中最后一个开始下跌的，而且也将出现相当糟糕的下跌。但是一旦经济衰退结束后，这可能是那之后的许多年里最赚钱的投资机会。

13. 价值型股票将在未来 10 年显著超过成长型股票。量化基金也会相对比基本面投资基金做得更好。

The most likely scenario for the next couple years

 The Winter Olympics is over and Russian gloves will be off very soon now their courtesy to the host China is no longer needed. The full scale invasion of Ukraine is nearly inevitable.

 

It beats me why the largest land empire needs more land. Why don’t they want more money or people by becoming more productive and reproductive? I guess that one goal of Russia may be just to get rid of Biden and help Trump. By pushing inflation up significantly more could doom the Democrats in 2022 and 2024.

 

In the most extreme and also most likely scenario, the invasion and subsequent Western sanction and Russian retaliation will produce large jump in energy and grain prices and prices in many other things, and push the inflation further and much higher. This wholesale global geopolitical change could lead to a new cold war between the West and Russia and maybe even China.

 

This further flare of inflation will set off more and more determined global central bank tightening. The global stock markets will drop 30-50% from the current level in a first sharp drop, a strong rebound, and another drop over the next couple years. Some current prime assets, e.g., Tesla, could drop to unfathomable levels if technics are aligned.

 

Commodities and related stocks, and emerging markets are likely to be the best assets after the second drop if one has cash. They could run up many times in a short few years after that.

 

The technical signals are also pointing more and more to this scenario.

2022 felt like 2001

 Although the markets started the rebound as expected, they look like the fall of 2001. There is a distinct probability, which is still less than 50%, that after a couple weeks of bounce, US markets may bounce to below the prior peak and can plunge about 50% over the next few years from there. The other markets are not immune. Many think that emerging markets, particularly China, and European markets may provide some safe heaven, they will easily plunge 30-50% too. The drop, if it happens, will likely happen in two stages. The first stage will be the next few months, followed by rallies of different strengths in different markets. Then after another year or more, we may reach the second leg of the drop, which is likely to be below the lowest point for the first leg for most markets. If one has a clear plan for the whole process, one could trade on it. Otherwise it would be better to stay away from the markets for the next couple years. As we reach the end of the second leg of the drop, it will be a great time to invest and have many investments that will give you 10 times or more returns over the few years from then, especially in international markets, and emerging markets and commodities in particular.

2021 felt like 1999

 

Time flies! It is such a coincidence that my last blog was exactly three years ago.

 

I have told quite a few friends in 2021 that it felt like 1999. Will 2022 be like 2000? I am not sure yet but it is certainly getting close. If Nasdaq drop 30% in the next few months, I would certainly say that now is like 2000 and it will drop a lot more after some violent bounce. What I am not sure is that the time lengthen still seem not there. The bull market from 2009, especially for Nasdaq, feels like the slow motion and extended time version of the 1990s. So if that is right, then we could have a close to 20% drop in Nasdaq and then have another few years of bull markets, just with more volatility than what we had before. The answer will reveal itself in the next few weeks.

 

What is certain is that after the 2000 moment finally descend on US markets, the other markets will drop significantly too, including the already bounced up emerging markets and commodities. Even with the sharp bounce of emerging markets and commodities in the last few years, they still go nowhere compared to 2011 (around or below the level in 2011), when I predicted their underperformance relative to the US markets. In comparison, the SP500 index is about four times of what it was in 2011 and Nasdaq 100 almost eights times.

 

After this much needed sharp drop in the US markets, whenever it really comes, US small value, and particularly commodities and emerging markets could start a very sharp and relatively sustained rally. It won’t probably be as big or sustained as the 2003-2008 rally as it is unclear any huge emerging markets as big as China at the time will go through the industrialization process. India may still not be there yet. But even without such a big pull like China’s industrialization, it is something that could yield many stocks with 1000% returns within a short few years. Hope it can be much closer in time. However, if the deep bear market for Nasdaq is still a couple years away, this opportunity will then have to wait for a few more years.

 

Let’s see about the answers from the development of Nasdaq in the next few weeks.