I don’t proclaim to have any secret formulas. However, after 40 years of successfully timing financial market trends, I have valuable insights to share with investors who want to preserve their wealth.
“Never before have I witnessed the convergence of so many different economic factors coming together all at once- directly pointing to the type of bear market where fortunes vanish in a fleeting moment.”
A bevy of ‘off-the-scale’ signals are screaming: WATCH OUT BELOW!
The puppetmasters pulling the strings will do their utmost to ward off a market downturn before the election and possibly, Inauguration Day.
The ‘powers that be’ use nefarious methods to defy the public, including blatant market manipulation, wide-eyed propaganda, and outright misrepresentation of statistics.
These tactics insult the intelligence of every American in a futile attempt to delay the approaching bear market. Attempts to kick the can further down the road will only make this inevitable decline worse, intensifying what could be one of the biggest fallouts in market history.
In this article, I point out the extraordinary warning signs for investors to heed amidst a rapidly changing domestic and geopolitical landscape. In a subsequent blog, I’ll dive deeper into the economic and political factors behind these warnings. If you haven’t subscribed to my free Substack newsletter, now would be a great time to click the ‘subscribe’ button below so you don’t miss a beat of the market pulse!
Bear Market Warning #1
The first warning sign comes from the legendary investor, Warren Buffett. Anytime you think of great investors, Buffett is likely to be top-of-mind, and for good reason. Buffett’s investing acumen turned Berkshire Hathaway into a holding company with unparalleled assets. They encompass major equity holdings; a wide-ranging collection of companies that Berkshire owns outright or has a controlling interest; and various smaller companies that Buffett believes have the chops to become much larger. Berkshire’s enormous asset base reaches virtually all industries and trumps any other company.
Each of these holdings provides a hawks-eye view of the economy, making Buffett the ultimate insider. In other words, no one has a better view of what’s happening in the economy than Warren Buffett and the team. His recent actions speak volumes, and their message is terrifying. His cash holdings recently topped $275 billion, compared with $167 billion at the end of 2023. Cash now represents around 25% of his total assets, the largest percentage ever by a wide margin. Historically, cash holdings of 15% would be considered extreme. His current cash position points to a uniquely informed bearishness that’s off the scale.
Berkshire Hathaway is a collection of great companies with outstanding managers and analysts. Buffett has singled out an analyst who stands out from the rest. Ajit Jain manages Buffett’s largest and most important business, insurance. Jain’s deft handling of Berkshire’s insurance holdings has created a virtuous circle, which has turbocharged Berkshire’s gains for about a generation. Berkshire’s enormous asset base allows it to write insurance on events beyond the reach of competitors. That gives it a major competitive advantage realized in “float” – free cash that can be put to work to further increase Berkshire’s size, which makes its dominance even greater.
Recently, Jain sold more than half his Berkshire holdings, including those held in family trusts that likely fund his philanthropy, targeted at finding cures for a rare disease that has affected a family member. You might argue that Buffett’s and Jain’s actions could be attributed to prospective retirement plans. But that theory doesn’t work. After all, Berkshire has been structured as a money machine, no longer uniquely dependent on any particular person to sustain. Couple that with Buffett’s near preternatural ability to recognize superb talent – a talent that currently populates Berkshire. Much more likely than prospective retirement is that both Buffett and Jain, with their uniquely well-informed knowledge of worldwide economic conditions, see reason to be deeply concerned.
Bear Market Warning #2
The next bear market warning comes from market valuations. We’re not talking about macro valuations, although most measures related to P/Es or similar metrics are clearly among the highest ever (though still, unlike the behavior of the ultimate insiders, Buffett and Jain, not off-the-charts high). Rather, we take a micro perspective and look at particular stocks.
Stocks dubbed “the magnificent seven” such as Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, and Tesla, are listed in the order of their capitalization. Together the seven represent about 34% of the S&P 500’s total capitalization and have accounted for about 50% of the gains in the index over the past 12 months.
Folks, that’s an extraordinarily high level of concentration. How extraordinary?
Let’s rewind. At the height of the tech bubble at the turn of the century, the top 10 stocks accounted for 33% of the market’s capitalization. The top seven stocks today exceed that percentage, and if you add to them the next three highest-cap stocks, today’s Top 10 account for 39% of the S&P 500’s total cap. This means the previous record, which was assumed untouchable, has been topped by nearly 20%.
Such concentration is a warning sign in that, as in 2000, it severely exposes the market to any trouble at the top. This is especially concerning today, given that the magnificent seven owe much of their recent gains to AI mania.
The leading AI stock, Nvidia, accounts for a barely believable 31% of the entire gain in the S&P over the past 12 months. I’ve written about AI in previous blog articles and will go into more detail when I write about AI again. For now, I’ll mention that I had a recent conversation with Claude 3.5 sonnet – the chat box that consistently outperforms all other chat boxes including GPT 4.0 across all categories – and it wasn’t encouraging.
Yes, the chat box is easy to use and has the potential to perform repetitive tasks. But it lacks any signs of creativity. It tends to conflate ideas rather than make accurate distinctions between them. It’s another indication of how massively overhyped AI is, not only because of the false belief that it will become a creative tool but also because of its downsides, such as the exponential increase in resource use that comes from efforts to broaden its scope.
Bear Market Warning #3
A final warning comes from unwarranted propaganda. Here is one example out of many. The IEA is a Western-based institute that provides information about world oil markets. In a section of a recent monthly report, it says:
“Global oil stocks provide a further buffer, even as observed crude oil inventories drew by 135 mb over the past four months to their lowest since at least 2017 and OECD industry stocks remain well below their five-year average.”
Let’s break down their use of language. The language “at least” suggests that current inventories could be at decade lows. The analysis ends with supply projections, including a quizzical paragraph:
“As supply developments unfold, the IEA stands ready to act if necessary. As shown in 2022, the Agency and its member countries can quickly take collective action. IEA public stocks alone are over 1.2 billion barrels, with an additional half a billion barrels of stocks held under industry obligations. China holds a further 1.1 billion barrels of crude oil stocks, enough to cover 75 days of domestic refinery runs at current rates. For now, supply keeps flowing, and in the absence of a major disruption, the market is faced with a sizable surplus in the new year.”
Noteworthy is that the IEA states its 2025 projections in an earlier paragraph that implies a 1.2 million gain in U.S. production. That’s the difference between a mismatch on the demand side. If this statement is true, it implies we will need to use SPRs to keep the market in balance, or emergency reserves will be required in 2025 – not quite the same as smooth sailing, especially given rock-bottom current inventories. Propaganda is undoubtedly a big part of the recent sharp sell-off in oil prices and could set the stage for a violent rebound once traders realize the real picture.
Wrap Up…
I don’t think anyone should ignore these powerful warnings regarding the current state of financial markets. My next blog will explain the factors underlying these warnings. Stay tuned!
