The Big Short

21 Aug

The Big Short

In Stocks? Watch Out Below!

They’re lining up to warn you about the stock market!  Here’s a quick rundown:

Jeremy Grantham is as close to a bubble expert as there is on Wall Street.  His bubble calls are the stuff of legend.  And he says the US stock market is about to pop just like it did in 1929 and in 2000.

Here is the headline from Fortune:

Legendary investor Jeremy Grantham says the stock market has a 70% chance of crashing—and it could be an epic burst like the 1929 crisis.  

More in this snippet from The Motley Fool:

Grantham believes current market conditions have created a textbook setup for a bubble, and that the market has benefited from “almost perfect” conditions for roughly 10 years now. Specifically, Grantham points out that there has been a long period of economic growth, a bull market, and earnings strength.

“I’m only interested in the really great bubbles, like 1929, 2000, and 2021, [which] are the three senior bubbles in [the] U.S. stock market. We have checked off pretty well every one of the boxes,” he recently told WealthTrack.

And there is someone else whose genius we admire who is expecting a stock market calamity.  Maybe you’ve seen him portrayed in a hugely popular motion picture about the 2008 market meltdown.  Addison Wiggins provides some details:

Michael Burry of Big Short fame, played by a scruffy Christian Bale in the movie… just bet $1.6 billion on a stock market crash… sort of.

Burry placed bets that the S&P 500 would drop below 4,000 and the Nasdaq 100 would drop below 300. 

If you want to get technical, his hedge fund Scion Capital made the bets by buying put options on the $SPY, an ETF which tracks the S&P 500, and $QQQ, which tracks the top 100 stocks on the Nasdaq. 

It certainly looks like a chart that has roll over for a fall.  Burry is betting more than 90 percent of his portfolio on this position.  He is serious about it.

Along the same line, our friend Robert Kiyosaki points out that Burry isn’t the only one who thinks the stock market is way overvalued.  Warren Buffett is sitting on a pile of cash, says Kiyosaki.  On Neil Cavuto’s Fox show, Kiyosaki observed, “Buffett is on the sideline with $147 billion, his money’s in short-term Treasurys.”

“I just watch these guys waiting for the market to crash then go back in,” said the Rich Dad Poor Dad author.  “It’s a lot of money sitting on the sideline right now.” 

Meanwhile, here is a five-year gold chart.  Notice especially the triple-top.  As you can see, gold topped out in August of 2020 just north of $2,000.  It did it again in March 2022.   And for the third time, it topped out in May of this year just above $2,000.

A chart like that suggests that when gold breaks over $2,000 it will run long and hard!  Our friend market analyst Michael Shedlock points to the same triple top, saying, “Neither triple tops nor triple bottoms tend to hold. If that view is correct, gold is headed higher.”

Shedlock points out one other extremely bullish gold chart formation, the classic “Cup and Handle.”

“That is likely the prettiest cup and handle technical formations you will ever see,” he says.  “It took 10 long years for gold to get back to its 2011 high. Then we had a handle build over three years.”

A repeated theme from Shedlock is that gold tends to reflect faith in central banks.  There are few institutions as discredited today as central banks, including the Federal Reserve.  “If you have faith in central banks, sell your gold. Otherwise, I suggest hanging on to it!”