"Risk comes from not knowing what you're doing." --Warren Buffett

RISKS WITHOUT REWARDS (September 29, 2024): In this U.S. Presidential year, far too many investors have been acting like seals and not the Presidential kind. They have become so accustomed to repeating the same tricks, piling over and over again into funds of U.S. large-cap stocks, that they aren't considering the risks they are taking relative to the rewards. You can get away with this kind of mindless approach with assets which are undervalued, since undervalued assets regardless of their so-called "reasons" will eventually rebound to fair value and you will do reasonably well. However, whenever assets are at or near the highest ends of their historical ranges, especially when they are wildly popular and overowned, you are going to come out behind even after decades of faithful Boglehead behavior.

It is time for investors to stop pretending that they have a divine right to come out ahead by brainlessly buying dangerously overvalued assets. By the time they realize their mistakes, they will lose half of their money or more. They should instead be primarily invested in U.S. government debt including U.S. Treasuries, I Bonds, and TIPS. Those who own "boring" U.S. government debt will have just about exactly 117 dollars near the end of 2027 for every 100 dollars that they have now. Those who are too lopsidedly invested in the shares of large U.S. companies, many of which are trading at four, five, or six times their historical average levels relative to profits, sales, and book value, will be far behind "boring" U.S. Treasury investors. This will be true not only three or four years from now, during which time the biggest losses will likely occur, but even thirty or forty years from now. This is proven by the historical record following previous bubble peaks which I will now describe in detail.

The Boglehead myth has recently been more thoroughly researched and decisively debunked.

If you invest in anything when it is underpriced then you have the wind at your back. The long-term upward trend will eventually work in your favor. However, if you buy something which is at the 99th or 100th percentile of overvaluation then you will be behind in real terms even after several decades. Edward McQuarrie researched the entire history of the U.S. stock market dating all the way back to 1793 to determine whether U.S. Treasuries or U.S. stocks achieve greater returns, and discovered that their total long-term performance has been nearly identical:

In the Long Run, Stocks Outperform Bonds, or Do They?

The best-known modern period of severe underperformance by U.S. equities had occurred from the September 1929 stock-market top to the August 1982 bottom. During this interval of nearly 53 years, the S&P 500 lost 38 percent after adjusting for inflation:

If this is backdated further to the previous century, then the period from June 30, 1851 through June 30, 1932 was accompanied by a 21% net loss for U.S. stocks in real terms during this 81-year span:

Of course you can also select numerous periods of time when the S&P 500 Index has impressively outperformed, especially if you begin from a starting point of notable undervaluation. Where you end is a function primarily of where you begin, not which asset you own. There is no magic which will cause you to "always be ahead in the long run," which is one of the most irrational and misguided conceits of Boglehead investors. Since we only live to be 100 years old or less, rather than 10 thousand years, it very much matters where we are in the cycle.

We are either at or near the 99th to 100th percentile for many U.S. equity valuation measures.

U.S. stocks, especially large-cap shares which have been by far the most popular with investors, have never been more overpriced in their entire history relative to current and future earnings than they have been during 2024 according to most reliable measures of valuation. Here are two charts which highlight their dangerous current levels:

The CNN Fear & Greed Index has rarely reached or exceeded 72 in its entire history:

The most important executive orders are the all-time record insider sales by the highest-ranking officers of U.S. companies.

In 2024 we have experienced all-time record insider selling by the top executives of large U.S. companies. This is not a coincidence; those who know the most about valuations and future profits are well aware that their companies' shares have never been more overpriced and will likely never be as overpriced again in their lifetimes and probably not in their children's lifetimes. That is why the total U.S. dollar volume of such selling is roughly twice the previous all-time record and is far above the average level of selling. Top executives have also done the least U.S. dollar volume of total insider buying in history during 2024:

Corporate Insiders Are Dumping Stock at the Fastest Rate in More Than a Decade

More aggressive investors who are aware of current record overvaluations, and who understand the risks they are taking, may choose to sell short.

It is possible to sell short assets which are at a high multiple of fair value including QQQ, or to purchase bear funds which do this including PSQ if you are less comfortable with short selling. It is essential to understand the potential risks and rewards with any kind of investment before taking such action. In addition, whenever you establish any position, you should always begin with a tiny percentage of your total liquid net worth and only add 125 dollars per trade for every one million dollars of your total liquid net worth. Many investors dangerously overtrade by doing amounts which are far too large, which will almost always give you a mathematically inferior average price.

Unlike long positions where you must surrender your U.S. Treasury bills to purchase those longs, short sellers can hold their Treasuries as collateral which will count almost as much as cash. You will also be paying the lowest dividends in history.

One little-appreciated advantage of selling short is that if you establish any long position then you have to give up the U.S. Treasury interest to make such a purchase. If you buy SPY, for example, then you are giving up 4.75% which you could get on 4- or 8-week U.S. Treasury bills, or similar yields on funds such as the Vanguard Federal Money Market Fund VMFXX, to get 1.18% in dividends which is the current 30-day SEC yield for SPY. It makes no sense to surrender 3.5%, because then you have to make 3.5% in capital gains just to break even, and that's not counting the fact that U.S. government debt is free of state and local income tax. If you are selling short and you use U.S. Treasury bills as your collateral, then those will count as 94% cash positions by SEC regulations. In other words, having 100 thousand dollars in U.S. Treasuries has the same marginable value as 94 thousand dollars in cash. You will thus be able to continue to collect interest so that if nothing happens in one year you will come out ahead compared with those who have long positions in the same securities. Since the SEC dividend yield for QQQ is 0.58% while short-term U.S. Treasury bills are yielding a blended average of 4.58%, the annualized net increase in your account per year will be exactly 4% if you are short QQQ and its components are unchanged in value.

U.S. Treasuries overall in October 2023 sported their highest yields since 2000. It makes much more sense to purchase assets which are at 23-year lows than to buy shares which have never been more overpriced since the beginning of the U.S. stock and Treasury markets in the late 1700s. Current U.S. Treasury yields have declined moderately from their 2023 peaks but remain well above their long-term historic averages. Investors have been shunning a guaranteed 4% to 5% annualized since, just as had been the case at previous bubble peaks including 1929, 1972, and 1999, they are overconfident about gaining 20% or more each year with large-cap U.S. stocks.

The behavior of the U.S. dollar index has been ignored by most investors even though it has been one of the most consistently reliable signals since it began trading at the start of 1972.

Only a small percentage of investors track the behavior of either the U.S. dollar index or the greenback relative to other global currencies. Historically the U.S. dollar tends to complete important peaks and thereafter make lower highs whenever U.S. stocks are set for significant uptrends, as we had most recently experienced when the U.S. dollar index completed a two-decade peak on September 26, 2022 and on earlier occasions before stock-market surges such as March 4, 2009 which was two days before the S&P 500 had ended its bear market on March 6, 2009 at 666.79. Symmetrically, the U.S. dollar index will often bottom and begin to form higher lows whenever U.S. equities are set for meaningful declines, as we had seen on numerous occasions including the important double bottom for the greenback in March and July 2008.

During the past several years the U.S. dollar completed a historic bottoming pattern in early 2021 before rallying to its highest point in more than two decades on September 26, 2022. This was followed by a two-year correction which either just ended or is approaching its final downward intraday spikes. There is no guarantee that the U.S. dollar can't drop further, but I expect to see it powerfully rally to its highest point since 1985 by 2027 or 2028. The next several months should also be accompanied by a generally rising U.S. dollar which will imply significantly lower prices for almost all other assets except for U.S. government debt.

Investors and most analysts have recently become as aggressively bullish toward gold and silver and the shares of their producers as they had been equally and staunchly bearish two years ago.

Investors consistently want to buy high and sell low, and this tends to be even more true in the precious metals sector where important tops and bottoms occur more frequently than they do for U.S. equity indices. Fortunately, just as with insider buying and selling, the U.S. government requires those who trade actual metals such as gold, silver, and platinum to register either as commercials, non-commercials, or small speculators. Commercials are those who own physical metal including miners, jewelers, and those who produce finished products from these metals. Non-commercials are hedge funds and others who manage money for other people. Small speculators are ordinary investors.

Commercials have rarely been more bearish toward gold, silver, and platinum than they are right now, only favoring palladium.

Historically, commercials gradually go net long whenever a particular asset is most likely to rise in price, and to gradually go net short whenever anything is most likely to decline in price. Not coincidentally, this trading approach is almost identical to my own method, partly since I based it upon long-term insider and commercial behavior. Recently the ratios of commercial short to commercial long positions for gold, silver, and platinum are near the highest-ever extremes of their multi-decade activity, meaning that those who are the most knowledgeable about precious metals are the most concerned about upcoming price declines and have been intensively hedging their inventory. This stands in stark contrast to most analysts and the media who have recently been especially bullish.

You can find the traders' commitments for silver, copper, and gold at the following link where it is updated each Friday at 3:30 p.m. Eastern Time:

U.S. Government Traders' Commitments for Silver, Copper, Gold, and Others

Here are the traders' commitments for palladium and platinum:

U.S. Government Traders' Commitments for Palladium, Platinum, and Energy

With gold, commercials were most recently long 76,713 and short 416,419 contracts. Silver commercials showed 29,339 longs and 111,171 shorts, while platinum commercials had been long 15,715 and short 45,255. Palladium commercials were long 10,572 and short 3,941, the only one of the four precious metals with a high long-to-short ratio rather than the other way around.

To a somewhat lesser extent than we have experienced with insiders for large-cap U.S. stocks which have sold about twice as much as their previous all-time records, the executives of gold mining and silver mining companies have been recently selling gold mining and silver mining shares at their most aggressive pace since August 2020.

Just during the past several weeks we had insider sales for Royal Gold (RGLD) numerous times, in addition to Newmont Mining (NEM), Hecla Mining (HL) earlier in September 2024, and Apex Silver Mines (APXSQ). In spite of gold frequently achieving all-time highs, the shares of mining companies have been repeatedly struggling to surpass their recent highs and are far below their peaks from the summer of 2020 when gold was more than five hundred U.S. dollars per troy ounce lower than it is now. We have also experienced more frequent intraday highs occurring near the opening bell which is consistent with a topping pattern.

The bottom line: Investors are far too heavily laden with low net dividends and high downside risk for popular large-cap U.S. equity favorites when they should be embracing U.S. Treasuries which yield 4% more with zero risk and no state or local income taxes. Cryptocurrencies remain irrationally popular in spite of having been in downtrends for more than a half year and having no proven long-term intrinsic value. Real estate is eagerly desired for the precise reason that it should be avoided since valuations are roughly double fair value in the U.S. and had reached triple fair value in Canada before modest declines in real terms during the past 2-1/2 years. Gold and silver have thousands of years of proven intrinsic value, but these and the shares of their producers have become perilously trendy in recent months primarily because "they're going up so don't miss out." Commercials and top corporate insiders have rarely been more bearish toward precious metals except for palladium since their euphoric peaks in January 1980. If you are able to handle the uncertainty of selling short QQQ or buying PSQ then this can be a worthwhile speculation, while the vast majority of your total liquid net worth should be invested in U.S. government debt until valuations eventually become more compelling elsewhere.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, September 27, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.56%;

17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long/20-Year: 23.48%;

TLT long: 11.54%;

I Bonds long: 11.23%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.66%;

QQQ short: 24.50%;

SMH short: 1.53%;

AAPL short: 0.15%;

GDXJ short: 0.11%;

SARK long: 0.83%;

PSQ long: 0.04%;

PALL long: 1.44%;

Gold/silver/platinum coins: 7.64%;

FXY long: 0.72%.

"The stock market is a device for transferring money from the impatient to the patient." --Warren Buffett

GDXJ: 48 TO 28 TO 58 (August 25, 2024): It is easy to determine whether to buy or sell precious metals because we have the huge advantage of knowing exactly what the insiders are doing both with the shares of the producers as well as with the futures contracts for the metals themselves. Recently we have experienced the heaviest selling by the top executives of gold mining and silver mining companies since the summer of 2020. The traders' commitments for gold, silver, and platinum show unusually bearish readings where the commercials (including jewelers, fabricators, and miners) who own physical metal have massive ratios of short to long positions. Meanwhile, hedge funds are sporting an all-time record ratio of gold longs (355,551) to gold shorts (64,298). We have also experienced GDXJ far underperforming GLD since July 2020, with GDXJ forming numerous lower highs including the past several weeks while gold bullion and GLD have frequently set new all-time highs.

A combination of recent insider selling of the shares of gold mining and silver mining shares, the shares underperforming bullion, commercials being heavily short gold futures, and hedge funds being heavily long gold futures are likely to be followed by much lower prices for both gold and silver. I expect gold to drop below two thousand U.S. dollars per troy ounce sometime during the next several months, and perhaps below 1800 if past patterns repeat themselves. Silver could drop toward or even below 20 U.S. dollars per troy ounce over the same time period. Almost all technical and fundamental analysts are asking how much higher gold can climb when they should be looking the opposite way.

You can find all of the traders' commitments at this site:

U.S. Government Traders' Commitments for Futures (go to Current Legacy Reports)

GDXJ is a fund of mid-cap gold mining shares.

For U.S. stocks overall, a fund like SPY or VOO represents the largest 500 companies while IWM tracks the Russell 2000 which are companies 1001 through 3000 by market capitalization. For precious metals mining, GDX represents the shares of the world's biggest gold mining and silver mining companies, while GDXJ covers the mid-cap holdings. There is some overlap between the smallest companies in GDX and the largest ones in GDXJ. Currently there is no true fund of small gold mining companies, although it would be useful to have such a fund available for trading.

Gold mining and silver mining shares generally lead gold bullion in both directions.

GDXJ reached a 7-1/2-year peak of 65.95 in August 2020. Since then it has formed lower highs of 51.92 in April 2022 and 49.13 on July 16-17, 2024. Gold bullion is much higher today than it had been at any of these previous times, but the shares of gold mining and silver mining shares have not responded positively. Historically, gold mining and silver mining shares usually lead gold bullion in both directions. For example, in September 2022, GDXJ slid to a 2-1/2-year bottom of 25.80. From September through November 2022, as GDXJ formed several higher lows, gold bullion and GLD kept dropping to lower lows, with gold eventually bottoming in November 2022 at 1621.50 U.S. dollars per troy ounce. Before precious metals can once again move meaningfully higher in tandem with the shares of their producers, we will likely once again see gold mining and silver mining shares outperforming gold bullion instead of underperforming it as it has done in recent years. We will also likely see insider buying instead of insider selling. We should also see the traders' commitments with silver commercials being either net long or approximately neutral instead of being heavily net short as they are now.

Especially whenever the U.S. dollar is strongly rallying against currencies such as the euro over the next several months, GDXJ will likely once again drop below 30 as it has done many times since its inception.

There is no way to know whether GDXJ will bottom near 20 or 30 during the upcoming year, but it will likely be somewhere in between those levels and perhaps near its September 2022 bottom of 25.80. As with all investments, it is essential to use a ladder consisting of dozens or even hundreds of very small good-until-canceled purchase orders placed months in advance to gradually accumulate it, since no one can possibly know with any accuracy when the bottom will occur or at approximately what price. I already have numerous orders to begin buying GDXJ near 29 and to buy it more and more aggressively the lower it drops, just as I have done repeatedly in past decades. I first began buying gold mining shares via the fund BGEIX in 1988 when it was possible to purchase 50 dollars per day of this fund with zero commissions.

Bubble collapses for large-cap U.S. stocks almost always feature initial substantial losses for gold mining and silver mining shares, followed by dramatic percentage gains.

During the previous U.S. large-cap bubble collapse at the beginning of the century for the internet bubble, QQQ topped out on March 10, 2000 prior to plummeting 83.6% by October 10, 2002. Gold mining shares and their indices/funds such as HUI bottomed on or near November 15-16, 2000 which was a little more than eight months later. We can never be sure about timing. However, it seems likely that we began or are about to begin a similar collapse for large-cap U.S. shares for the same reasons of dangerous overvaluation and even more intense selling of their shares by top executives than we had in 1999-2000. Gold mining and silver mining shares will likely retreat to their lowest levels since the autumn of 2022 and perhaps even lower than that, toward but probably above their March 2020 bottoms. The next bottoming process for GDXJ and similar shares will likely be completed either near the end of 2024 or during the early months of 2025.

If we look again at HUI, then if you had purchased its equivalent at its November 2000 bottom then it was multiplied by a factor of more than seven in three years. We can't say for sure how much it might gain under a similar bubble collapse, but even if GDXJ "only" doubles then this would be a superior rate of return. GDXJ has already proven its ability to rebound from depressed levels, having more than tripled within less than one year from its bottoms in January 2016 and March 2020. The key, as always, is to buy something whenever everyone else is despondent and is selling it rather than when everyone is excited about the prospect of additional all-time highs.

Whenever the most people are invested in any asset, it consistently performs the worst; when the fewest people want to own anything, it dramatically outperforms:

Besides being overloved, U.S. large-cap stocks are absurdly overpriced relative to profits, sales, or any other benchmarks:

U.S. equity fund managers have become dangerously overconfident about investors not making future redemptions, thereby reducing their cash percentages to all-time record lows. If investors become worried, they will quickly use up this cash and force these fund managers to sell their stocks to meet higher-than-expected redemptions:

Costco's price-earnings ratio once again surpassed 55.

Instead of focusing on extremely overpriced shares including Apple, Nvidia, Microsoft, Tesla, Amazon, and other well-known tech names, it is even more interesting to look at Costco. Costco can't possibly create a revolutionary new product: its business model is people driving their cars to a huge parking lot, purchasing reasonably-priced items which Costco had obtained with favorable wholesale deals, and then bringing those items home. Costco has been around since 1983 which is more than forty years. The current price-earnings ratio for Costco is "only" about five times its historic average while its profit growth has been very steady through the decades.

There are two possible scenarios: 1) extraterrestrial beings arrive from other galaxies with their minds focused on purchasing as much from Costco as they can get, thereby quintupling Costco's profit growth; or 2) the price-earnings ratio for Costco collapses 80% or more to restore it to its long-term historic average. Take your pick.

In spite of the heaviest insider selling and the lowest put-call ratios in history for the largest U.S. stocks, investors who are not top corporate executives have been doing much more buying than selling.

In hindsight, investors will look back at this period of dangerous overvaluation for popular large-cap U.S. stocks and wonder why they didn't do some selling. The reason is that the media keep brainwashing you into putting even more of your retirement money into the most dangerously overvalued assets. Other assets like residential real estate, high-yield corporate bonds, and cryptocurrencies are also near all-time record overvaluations, but more people are interested in adding than subtracting.

Investors are far too eager to take risks which are wildly out of proportion with the potential rewards. They are not nearly eager enough to desire guaranteed gains with zero risk. The result will therefore be exactly the same as it has been for every bubble throughout history.

There are bargains out there, although they could become even better bargains.

Unlike gold, silver, and platinum, for which commercials have high ratios of short to long positions, palladium shows commercials with an even bigger ratio of longs to shorts. You can buy palladium using the ticket symbol PALL. Other unpopular shares include stocks in countries like China, Brazil, and Vietnam, with Chinese shares having suffered a bear market which has persisted for more than 3-1/2 years from its February 2021 top. Rare-earth metals producers and their funds including REMX are also notably out of favor. As the popular U.S. stocks slide 40% or 50% from their recent highs within a year, these losses will most likely initially spill over into almost all other assets as many investors sell first and ask questions later. However, just as they had done during 1999-2003, investors will eventually differentiate between sectors and will begin to purchase the most undervalued shares. Gold mining and silver mining shares, after they complete much greater losses, could be among the first to complete their bear-market bottoms several months from now just as they had done in November 2000.

U.S. Treasury bills are especially compelling, as Warren Buffett well knows.

Investors have been shunning U.S. Treasury bills of 3 months or less which yield 5% or more guaranteed with exemption from state and local income tax, even though those yields are generally the highest since 2000. They have also been avoiding longer-term U.S. Treasuries which yield more than 4% including the 20-year U.S. Treasury. The main reason is that they think that getting 4% or 5% guaranteed explicitly by the U.S. government is less than the 10%, 20%, or 30% that they'll surely achieve through large-cap U.S. stocks which in their opinion "only go up in the long run." This is the exact same mistake that investors made in 1999-2000, and previously near other peaks prior to severe U.S. equity bear markets. Instead of ending up with a three-year increase of 17% compounded and partially tax-exempt, they will end up with only 17% of their money if they are invested in QQQ.

The U.S. dollar has fallen sharply out of favor and is likely getting ready to move significantly higher versus nearly all currencies except the Japanese yen.

The U.S. dollar has been trading at its lowest point versus many currencies since around the end of 2023. Most analysts expect the U.S. dollar to continue lower, but it will likely rally powerfully within the next three to four years to reach its highest point since its all-time peaks of 1985. This is partly since investors will be fleeing U.S. stocks, cryptocurrencies, and high-yield corporate bonds. Currently unpopular U.S. Treasuries and the U.S. dollar will benefit just as they had done during past bubble collapses including 2000-2002.

The Japanese yen is an important exception, having fallen several weeks ago to its lowest point versus the U.S. dollar since 1986. The yen will likely continue to rebound until it is much closer to fair value. Just as it didn't make sense for Japan to have the most expensive cost of living and housing prices in the world as it did in the late 1980s, it makes even less sense for Japan to have the lowest cost of living of any industrialized country and among the lowest housing prices worldwide as has been the case in 2024.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, August 23, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.44%;

17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long/20-Year: 23.31%;

TLT long: 11.52%;

I Bonds long: 11.10%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.49%;

QQQ short: 24.16%;

SMH short: 1.53%;

AAPL short: 0.14%;

GDXJ short: 0.08%;

SARK long: 0.91%;

PSQ long: 0.04%;

PALL long: 1.35%;

Gold/silver/platinum coins: 7.33%;

FXY long: 0.71%.

"It's very hard to go against the crowd. Even if you've done it most of your life, it still jolts you." --David Dreman

WINTER FOLLOWS AUTUMN (June 30, 2024): Many investors have embraced the mythical "soft landing" scenario. Every multi-year bull market in U.S. history, with steady growth and low inflation, eventually becomes overheated with above-average inflation, just as every moderate spring season is followed eventually by a hot humid summer. This overheating is followed by a choppy, dramatic slowdown during which inflation unevenly declines while GDP growth decelerates and eventually goes negative. It is similar to summer being followed by autumn. Then, just as autumn must lead into winter, negative GDP growth--also known as a recession--is accompanied by an equity bear market. As often as this scenario has repeated itself in the United States since the 1700s, many people today are convinced that we're going to magically transition from colorful falling leaves directly into blossoming flowers and warming temperatures.

The weather doesn't work that way and neither does the economy or the stock market. The Russell 2000 and many other consistently reliable leading indicators have been in bear markets since 2021, with numerous lower highs along the way. After the leaves have reached peak color in November, the next month isn't going to be April or May. Instead we get December, and usually an even colder January, and then a volatile February. Winter is approaching. You can dream of spring eventually returning, but to expect it to happen immediately after autumn is fantasy.

Top corporate insiders have been selling at an all-time record pace, not only in the popular AI shares but in numerous absurdly overpriced U.S. large-cap stocks.

We can spend hours or days debating whether or not Nvidia is overvalued, but let's instead look at a more clear and revealing instance of the current U.S. large-cap bubble. For four decades, Costco (COST) has been growing its profits at 10% or 11% per year, with its price-earnings ratio fluctuating from high single digits to low double digits. Recently Costco has sported a price-earnings ratio of 53.8. There are many possibilities about what the future might bring, but Costco growing its profits at a 50% annualized pace will never happen even if we are invaded from other galaxies and the invaders are eager to buy all of their supplies at Costco. If you didn't flunk kindergarten then you can calculate how much Costco's stock price has to drop to return to its long-term valuation.

Each time that analysts cheer allegedly "great" earnings from any company, the stock price usually immediately surges higher. Within a day or two the top executives usually make massive sales, taking advantage of the irrationally high valuations. Either 1) these insiders are correct by doing their heaviest selling in history by a wide margin, often selling years' worth of accumulated shares; or 2) the least-knowledgeable investors are correct by making all-time record inflows into the U.S. stock market. I know which side I'm betting on.

While top corporate insiders have done their heaviest selling in history during 2024, ordinary investors have done their most aggressive buying in history. Which group is right? History shows us the clear answer.

Ordinary households recently set a new all-time record allocation to the U.S. stock market, about four times their lows from the early 1980s and significantly higher than at the 2000 internet bubble top:

Overconfident investors have also set new records by piling into leveraged long U.S. equity funds, while bailing out of leveraged short funds in their certainty that a significant percentage loss for the U.S. stock market won't happen any time soon:

Other assets including residential real estate have become dangerously overpriced, although they are generally not as wildly overvalued as large-cap U.S. stocks.

Real estate worldwide had been reasonably priced for decades until 1997. Since then, we have experienced housing bubbles worldwide to varying degrees, with the U.S. reaching a bubble peak in 2005-2006 and an even higher bubble zenith in 2022-2024. Here is a chart of U.S. real residential housing prices from January 1976 through June 2024:

While U.S. houses are about twice as high relative to household incomes as compared with their long-term averages, Canadian real estate in early 2022 had reached triple fair value. Whenever any asset is fundamentally very under- or overvalued it must experience a volatile price adjustment in order to return to fair value.

The primary argument for owning any cryptocurrency is that a famous person also owns it and endorses it (and we would be shocked, shocked to hear that such a person is being paid for doing so).

With cryptocurrencies we don't even know what fair value is, because there is no proven history. Bitcoin is the oldest cryptocurrency which was invented in 2009, when the previous severe bear market was ending. Therefore, we have no clue as to how these will perform in another true bear market. It is like buying a rare tropical plant, putting it in your back yard in a place where it goes below freezing numerous times each winter, and assuming that it will thrive. It might be in wonderful shape by August or September, but it may not be in prime condition several months later. Why anyone would want to own such an unproven asset is beyond my limited ability of comprehension.

High-yield corporate bonds have mostly been approaching their lowest-ever spreads relative to U.S. Treasuries.

There are times when U.S. high-yield corporate bonds are at incredibly undervalued levels, such as they had been in years including 1932-1933 and 2008-2009, and there are periods like 2024 when their spreads to U.S. Treasuries have approached or set all-time record lows. Investors love to buy near all-time highs because they perceive elevated prices as proof of any asset's superiority, whereas they end up selling in disappointment near multi-year bottoms since all they hear about is how prices will keep on dropping.

A surprisingly diverse range of assets have quietly become absurdly undervalued, including some major emerging-market equity bourses.

While the price surges for stocks, real estate, cryptocurrencies, and high-yield corporate bonds have resulted in unsustainably overpriced levels being achieved, there are numerous assets which are trading well below fair value. Most emerging-market securities have been trading near their lowest relative valuations in years or decades, with stocks in countries including Brazil, China, Indonesia, and the Philippines being especially worthwhile bargains. Because the early stages of any severe bear market tend to be accompanied by a high degree of correlation, these bargains will probably become even better bargains during the upcoming year which makes it important to be patient before jumping in too soon.

Several less-heralded assets have been or will soon be completing multi-decade bottoms.

Other assets have become cheap enough to be worth purchasing immediately without waiting for lower prices. During the past several months we have had repeated downward spikes for assets as diverse as long-dated U.S. Treasuries (TLT), palladium (PALL), and the Japanese yen (FXY). U.S. Treasuries and their funds including TLT probably completed two-decade bottoms in October 2023 and added key higher lows in April 2024, while PALL may have bottomed in February 2024 at 78.50 and recently slid almost all the way back to higher lows just above 80. The most recent in this group to make new lows has been the Japanese yen, which during the past week touched its lowest level versus the U.S. dollar since 1986.

Funds of precious metals shares including GDX and GDXJ will eventually become compelling buying opportunities, but history and the traders' commitments tell us clearly that we must wait several months or longer before taking action.

QQQ dropped 83.6% from its peak on March 10, 2000 to its bottom on October 10, 2002. Meanwhile, HUI, an index of gold mining shares, completed a key bottom on November 15-16, 2000 and before the end of 2003 was worth more than seven times as much. Therefore, wait several months after QQQ has begun a major bear market and then get ready to aggressively purchase gold mining and silver mining shares. Be patient and don't act too soon.

One way we can be certain that it is too early to buy GDX or GDXJ is that the traders' commitments are especially bearish for gold, silver, and platinum. Commercials (see cftc.gov) such as miners, fabricators, and jewelers who own physical gold are long 86,551 and short 358,039 contracts which is more than 4:1 short to long. Non-commercials (primarily hedge funds) are long 284,885 and short 38,656 which is more than 7:1 long to short. Regardless of how much gold China's central bank does or doesn't buy, these are unsustainable speculative longs which will be dramatically flushed out over the next several months. Gold bullion will drop below two thousand U.S. dollars per troy ounce and could eventually fall below 1800 before powerfully rebounding afterward.

The bottom line: it's not different this time. Don't fall victim to the soft-landing myth. As well-known stocks including Apple (AAPL) and Costco (COST) have been have been trading for roughly five times their long-term average price-earnings ratios, the only realistic possibility will be massive percentage losses for large-cap U.S. stocks during the next few years. Following bubble peaks, stocks don't just retreat from overvalued levels to fair value and stop dropping; they usually end up with undervaluations of 35% to 60% as we had previously experienced frequently including 2008-2009 and 2002-2003. U.S. Treasury yields have been close to their highest levels in more than two decades and will serve as an irresistible magnet once U.S. stocks have fallen enough to make some investors nervous about continuing to be so heavily overinvested in the most popular big U.S. companies.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, June 28, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 37.24%;

17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long/20-Year: 22.91%;

I Bonds long: 11.01%;

TLT long: 10.75%;

PMM long: 0.01%;

XLK short (all shorts are once again unhedged): 34.84%;

QQQ short: 23.78%;

SMH short: 1.61%;

AAPL short: 0.12%;

SARK long: 1.00%;

PSQ long: 0.04%;

PALL long: 1.10%;

Gold/silver/platinum coins: 7.12%;

FXY long: 0.58%.

"The inability to hold cash and the pressure to be fully invested at all times meant that when the plug was pulled out of the tub, all boats dropped as the water rushed down the drain." --Seth A. Klarman

NINE ALIGN; BENIGN? NEIN! (April 2, 2024): We have recently experienced several simultaneous extremes which investors are ignoring due largely to two key factors: 1) investors will almost always believe that whatever has occurred in recent months will continue over the next several months, regardless of the merits of such a momentum argument; and 2) the Goldilocks myth of a "soft landing" has become so widely prevalent that the vast majority of individual investors in their retirement plans and hedge funds have become dangerously overcrowded into the most popular U.S. stocks. Nearly 100% of equity valuations are at or near all-time record overpricings, while many reliable signals of upcoming market behavior have approached or surpassed all-time record extremes.

Many investors apparently weren't paying attention in kindergarten. They should have learned that Goldilocks is always followed by the three bears. Mama Bear is backstage now, already cued up and ready to make her dramatic entrance. Speaking of cue, the most overvalued assets including QQQ are likely to lose one-third or more of their recent peak valuations, which would imply QQQ dropping below 300 at least briefly during the next twelve months. In the final months of 2022, all forecasters of the U.S. economy insisted that there would be a U.S. recession. Now almost none of them expect a recession. They're going to be as wrong in 2024 as they had been in 2023.

Several reliable signals have been flashing bright red.

All of the following warnings are close to their most extreme levels ever recorded: 1) we have the lowest-ever put valuations and the lowest overall "skew" of put valuations relative to call valuations since options began trading on the CBOE at the start of 1973; 2) we have the longest-ever inverted U.S. Treasury yield curve and we had recently experienced the most-inverted Treasury curve in its entire history going all the way back to 1789; 3) the U.S. dollar amount of insider selling divided by the U.S. dollar amount of insider buying set a new all-time record during the first quarter of 2024; 4) investor inflows set several historic records including the largest-ever weekly inflow into U.S. exchange-traded equity funds during March 2024; 5) most measures of valuation which had been favored by classic value analysts including Benjamin Graham and Seth Klarman either approached or surpassed all-time records going back to 1790 when the Philadelphia Stock Exchange had its debut; 6) we have experienced the greatest-ever divergences between the most popular large-cap U.S. shares and just about everything else worldwide; 7) investor sentiment is close to multi-decade peaks; 8) perhaps most importantly, far more investors are concerned about missing out on future gains than they are about losing money in the financial markets.

No trigger has even been needed to begin either a massive collapse or a major rally. Follow the insiders whenever their trading is near a rare extreme in either direction.

Whenever someone asks me which event will trigger a massive percentage loss for QQQ and related assets, the answer is best encapsulated in the following question: what triggered the 83.6% drop for QQQ starting on March 10, 2000? What "caused" the even larger percentage losses beginning in September 1929? How about January 1973 or the 19th-century bubbles which had begun collapses in 1837 and 1873? In other words, the financial markets have never been and will never become cause-and-effect processes. Whenever valuations for any asset are either unusually high or low relative to fair value, anything can spontaneously initiate a regression toward the mean and beyond. I had to laugh when I saw the news articles on Tuesday about why U.S. stock futures were lower. All of them related to events which had occurred over the weekend or on Monday during market hours. Can't the market respond immediately? Investors tend to forget that during the subprime mortgage housing price bubble collapse of 2007, which had begun in January of that year, most equity sectors kept climbing at first. The S&P 500 didn't peak until October 11, 2007, long after the subprime news was already widely known. Other analysts pegged the collapse of Lehman Brothers as the trigger, even though that occurred in September 2008. Probably that helped to accelerate a much later phase of the downtrend but it had already been in place for a long time.

Top corporate executives are well aware of this principle. They don't waste time debating what could "trigger" any future event in the financial markets. The reason that top executives overall and especially in the most-overpriced sectors have been selling at their most intense pace in history is because they are close to being pure value investors. They know better than anyone what fair value is for the company which they are helping to run, and when current valuations have deviated the most from this level. That is why insiders consistently buy aggressively near bottoms and persistently sell near tops. They are often "wrong" in the short run but they are rarely off the mark in the long run.

The unusually lengthy interval since the last true bear market encourages investors to believe that the next bear market is emotionally far away, even as it is much more likely to happen.

Many people including myself remain puzzled why the U.S. Federal Reserve didn't immediately begin to raise the overnight lending rates shortly after the U.S. Presidential election near the end of 2020. The real reason is probably that, not having experienced significant U.S. inflation since the early 1980s, most people on the Fed really couldn't imagine inflation surging the way it ultimately did. Similarly, with the last true U.S. equity downtrend ending in early March 2009, it seems psychologically to most investors that bear markets were something which happened a long time ago and are no longer a serious possibility.

The level of surprise is therefore going to be quite high whenever we undergo the largest percentage losses in over fifteen years for most U.S. stocks. Just about everyone has concluded that huge exchange-traded equity fund inflows will continue for many more years, that VIX will keep dropping below 13 for many more years, and similar "obvious" conclusions. George Santayana stated that those who don't remember the past are condemned to repeat it. My corollary is that those who do remember the past, but believe that "it's different this time," deserve to repeat it.

We have already been in bear markets for years, but hardly anyone pays attention to them because they don't involve the most popular shares.

The stock market in China began its downtrend during the second week of February 2021. Most small- and mid-cap U.S. shares also completed their tops in 2021, and even recently the Russell 2000 (IWM), after a strong rebound since October 2023, wasn't able to approach its high of February 2021, much less its brief spike higher in November 2021 when most U.S. stocks by count touched their highest points of their bull markets which had begun from the depths of March 2020. Since most investors don't track these or other emerging-market indices, or baskets of thousands of U.S. stocks, but only pay attention to the most well-known names, they are convinced that there is a solid uptrend for the entire U.S. stock market.

The most impressive percentage increases above fair value are inherently unsustainable, and are therefore consistently followed by the most impressive percentage declines.

You could argue that the rally for AI shares and related large-cap popular names since October 2023 has been impressive, and it has in the same way that the large-cap popular rally diverged from everything else and was impressive in September 1929, January 1973, and March 2000. However, all extremes come to an end sooner or later because the basic Boglehead premise is fatally flawed. There is a long-term uptrend to any asset, just as there may be a long-term uptrend in the temperature due to global warming, but that doesn't mean you throw away your snow shovels and winter tires in July and expect the weather to keep getting hotter. Mean regression has been proven by Benjamin Graham and Seth Klarman and many other value investors throughout history to be a much stronger force than the long-term uptrend, especially whenever the current distance from the mean in either direction is unusually extreme. That is why we had such powerful multi-year rallies which began in late 2002 and early 2003, and again in late 2008 and early 2009. It is the primary reason why we must experience an approximate repeat of the internet bubble over the next few years.

I am surprised how few analysts have pointed out the obvious parallels between the internet bubble of 1999-2003 and the current AI bubble 24 years later.

Usually nothing repeats exactly in the financial markets, although bubble collapses are so similar to each other that if I were to remove the X and Y axes on charts of the railroad bubble of the 1870s and the internet bubble from the early part of this century, and ask you to tell me which was which, I would challenge you to get it correct. In this case, however, we have almost an exact parallel in several ways, including the dramatic outperformance of the most popular large-cap shares in late 1999 and early 2000 which is almost exactly analogous to late 2023 and early 2024, almost to the exact day.

March 2000 is remarkably similar to March 2024. Nonetheless, most investors use the period from October 2023 through March 2024 as their guide to the next several months, rather than looking at what had occurred after March 2000 or January 1973 or September 1929.

In some cases the parallel is to the exact day, or as exact as it can be. The internet bubble for the Nasdaq and QQQ had topped out on March 10, 2000. This would have been impossible to occur on March 10, 2024, as it was a Sunday. However, on March 8, 2024, both XLK (a fund of popular tech shares) and SMH (a fund of semiconductors) may have completed their peaks for the cycle. QQQ could have done so later on March 21, 2024. In 2020, the S&P 500 Index (SPX) continued to receive inflows mainly from individuals in their retirement plans even after tech shares had topped out, causing SPX to reach its highest point so far on March 28, 2024. In 2000, the S&P 500 similarly experienced a delayed zenith on March 24, 2000. That's about as close as you're going to get in real life. This doesn't guarantee that QQQ will drop 83.6% as it had done from its top on March 10, 2000 until its bottom 31 months later on October 10, 2002, but it has to be a realistic possibility especially since by many measures this index was more overpriced in March 2024 than it had been in March 2000.

We have ended or are near the top of the sixth U.S. stock-market bubble in its history. It will collapse the same as the previous five.

In the 1830s investors insisted that since we never had canals before, we wouldn't experience a severe U.S. equity bear market regardless of how overpriced many of the canal shares had become by 1837. The same fairy tale was popular in the 1870s regarding railroad stocks, in the 1920s about industrialization, in the early 1970s regarding the popularization of computers, in the late 1990s with the internet, and now in modern times with AI. All of these involved huge societal changes, but they had zero net impact on the financial markets because the financial markets have always followed and will always follow the same basic principles. If a company has a certain level of profit, and that profit is increasing by a certain percentage, then regardless of whether you're living in 1824 or 1924 or 2024 you can compute how much that stock should be trading for. If investors are depressed or excited about investing, thereby distorting this number in either direction, it creates an opportunity for alert investors who recognize that all such distortions are temporary and will eventually fluctuate toward nearly equal and opposite extremes. During the late 1920s Benjamin Graham repeatedly insisted upon this key point even with loud Bogleheads like Irving Fisher insisting upon the Boglehead point of view even before it had that name. The worst bear market in world history proved that mean reversion will always triumph at any extreme, no matter how "permanent" famous analysts claim that it is.

We don't just have an AI or large-cap bubble, although that exists and is especially dangerous. We have simultaneous perilous overvaluations for cryptocurrencies, gold, residential real estate, and many other assets. The percentage loss of total worldwide net worth is probably going to experience one of its biggest-ever declines in history.

During previous historic bubbles including Tulipmania nearly four centuries ago in Amsterdam, it wasn't just tulips which collapsed in price. There had been simultaneous bubbles for residential real estate, the stock market, and numerous related assets which are not generally remembered by most people but which can be reviewed in detail for free online at "Extraordinary Popular Delusions and the Madness of Crowds" by Charles Mackay. Residential real estate is overpriced for the same fundamental reason as U.S. large-cap stocks: the ratio of housing prices to average household income in many countries including the United States is close to double its long-term average level. People's incomes in real terms are not going to suddenly double, which means that housing prices will have to fall by half in real terms. Gold has probably been in a long-term uptrend since August 1999, but the traders' commitments for both gold and silver, showing commercials net short about 2.7 to 1 for each, are a warning sign that the most-experienced investors who own actual gold and silver as miners, fabricators, jewelers, and so on, are betting on the price dropping. Gold will probably fall by a minimum of 400 dollars an ounce from wherever it is topping out in this cycle, and perhaps by more than 500 dollars, while silver will likely drop below 20 U.S. dollars per ounce at least briefly later in 2024. Once silver commercials go net long, as they almost did in March 2023 and had actually done in September 2022, it will be time to buy into this sector in the anticipation of a powerful rally.

As for cryptocurrencies, no one has any idea what they are worth. At least a stock with a price-earnings ratio of 50 will become a bargain when its P/E drops below 8, but any given cryptocurrency is only worth whatever someone else believes that it's worth. Peter Pan is one of my favorite children's stories by J.M. Barrie, but you can't use Peter Pan logic to justify any investment.

The following charts highlight rare multi-decade extremes from reliable media sources, some of which became their most exaggerated in a century.

The bottom line: the most popular shares as a group, as are epitomized by funds including QQQ and XLK, have been making many upward spikes since February 12, 2024 but haven't been able to remain above those key intraday highs. Hedge funds, which by far had been their most net long any asset in history when they had dangerously overcrowded into AI shares and related large-cap U.S. favorites, will likely curtail their buying or actually do some net selling, although as usual with more than 90% of hedge funds they won't become serious sellers until these and related funds have already dropped 15% or 20% from their respective March 2024 tops. We will continue to experience frequent sharp upward bounces for U.S. stocks for about three years, with some of those rebounds for QQQ approaching or exceeding 50%, but during that time all of the major indices will join the Russell 2000 in primary downtrends which almost certainly means a loss of more than 70% from its peak for the S&P 500 Index and more than 80% for funds of the most popular shares including QQQ. During the next twelve months, when hardly anyone is anticipating a significant drop for the U.S. stock market, QQQ will likely at least briefly spike sharply below 300 before recovering. Over the longer run, QQQ is likely to fall below 100 and perhaps much lower by 2027 or sooner. This will surprise most investors, but compared with its October 2002 or November 2008 bottoms it would be a very similar "Papa" bear-market bottom adjusting for inflation and earnings.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Tuesday, April 2, 2024. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/Savings/Checking long: 37.13%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 21.66%;

I Bonds long: 10.88%;

TLT long: 10.86%;

PMM long: 0.01%;

XLK short (all shorts once again unhedged): 30.58%;

QQQ short: 20.17%;

XLE short: 5.48%;

XLI short: 3.05%;

XLV short: 1.82%;

SMH short: 1.33%;

AAPL short: 0.03%;

SARK long: 0.88%;

PSQ long: 0.04%;

PALL long: 0.17%;

GDXJ long: 0.14% (fully hedged with covered calls at a strike price of 45);

Gold/silver/platinum coins: 7.01%;

FXY long: 0.24%.

"Most of the change we think we see in life is due to truths being in and out of favor." --Robert Lee Frost

BUSTING HEDGE FUNDS (December 17, 2023): I had worked at Thomson Reuters for 16-1/2 years; the person sitting next to me had the responsibility of tracking hedge funds and reporting on their behavior. After doing this job for a couple of decades, he pointed out to me how the vast majority of hedge funds which had shown little correlation in their investing behavior through the early 1990s had become increasingly alike by the second decade of this century. The proliferation of hedge-fund conferences where they discussed their "best ideas," combined with nearly identical computer algorithms and momentum strategies becoming increasingly much more popular, almost totally displaced former tendencies toward value investing and identifying compelling bargains.

Although there remain key exceptions including money managed by Seth Klarman, Marc Faber, Jim Rogers, Howard Marks, Ray Dalio, and some others where it is unlikely that you will be able to have them handle your accounts, more than 90% of hedge funds are crowding into identical concepts at any given time. This herd following is especially prevalent at key extremes and has almost certainly caused many of those extremes to become much more exaggerated than they would have been if they hadn't existed. It is also increasingly the case that hedge funds as a group are doing almost exactly the opposite of top corporate insiders and commercials. Thus, tracking insider behavior and the traders' commitments has demonstrated repeated multi-decade extremes where the insiders and commercials are heavily on one side while hedge funds have been piling even more aggressively the other way.

Doing the same as insiders and commercials and the opposite of hedge funds has become an increasingly available and profitable investing strategy which I have been doing more consistently as the 21st century has progressed.

As a result, the most consistently successful strategy in the 21st century has been to do whatever the insiders and commercials are doing at any rare extreme, while going against the hedge funds. During the past year we have already seen several examples of this behavior with hedge funds establishing an all-time record short position in U.S. Treasuries in October 2023. This was followed by the biggest Treasury rally in four decades which intensified during the past week as hedge funds rushed to close out their shorts ahead of all the other hedge funds, and were not particularly successful in doing so. TLT had traded at 81.92 in the pre-market session on October 23, 2022, and less than two months later was trading above 99.

Hedge funds piling into the AI bubble is their latest extremely overcrowded trade, while the top corporate insiders of these companies have done all-time record selling of their shares.

The latest overcrowding by hedge funds has been in being long AI stocks. While most U.S. and global stocks and their funds including IWM have been in bear markets since they had topped out in November 2021, funds which are concentrated in the biggest and most popular megacaps which have generated the most investor excitement in this year's AI bubble have dramatically outperformed in spite of their unimpressive profit growth. QQQ has almost regained its all-time top, while XLK and SMH are among those funds which have experienced the greatest percentage gains during the past year and have achieved new record highs. The top insiders of these companies have never sold more aggressively than they have done during the past few years, while the only time hedge funds had been more committed to any concept was when they had been massively short U.S. Treasuries in October 2023.

This chart, just updated, highlights the amazing recent overcrowding by hedge funds into QQQ and Nasdaq 100 futures which has achieved an overwhelmingly lopsided extreme by a large factor even when compared with 2021 or 2022:

Less historically extreme but still massive overcrowding has created other 2023 situations ripe for busting.

Hedge funds, as is evidenced by the official exchange data at cftc.gov, had never demonstrated a higher ratio of shorts to longs for palladium, thereby leading to PALL plummeting to 85.25 at 12:06 p.m. on December 5, 2023. Since then it has rebounded above 100. Hedge funds piled massively into gold on Sunday evening, December 3, 2023 to reach a spot price of 2137.50 U.S. dollars per troy ounce for the first time in history. Given how hedge fund crowding leads to huge reversals, gold bullion is likely to drop to around 1750 during the next several months before enjoying its next strong rally. The traders' commitments for gold as of December 5, 2023 showed commercials (who are those that own physical gold, such as miners, jewelers, and fabricators) long 103,193 contracts and short 330,138 which is more than 3:1 short to long. Not surprisingly, almost all of those on the other side of this trade were hedge funds and related managed money organizations which the commodity exchange calls "large speculators."

Silver's commitments the same week showed commercials long 40,974 and short 92,988 which was clearly also bearish for silver. Hedge funds were thus aggressively long gold and silver and even more aggressively short palladium. Palladium commercials that week were long 12,814 and short 1,537 which is more than 8:1 long to short.

Hedge funds had done all-time record crowding into shorting the Japanese yen, enabling the yen to fall to its lowest point since July-August 1990. Since then the yen, which trades as an exchange-traded fund via FXY, has experienced its strongest short-term rebound since the Bretton Woods agreement was terminated over a half century ago.

Hedge funds formed a lesser bubble by massively overcrowding into energy commodities and their shares two months ago.

Several times since November 2022 including around the middle of September 2023, hedge funds massively crowded into anything relating to energy while energy insiders sold shares at their most intense pace ever recorded. This was an especially notable reversal for top energy executives who in 2020 were their most aggressive in buying their own shares in their entire history. Starting on September 14, 2023, when XLE reached an all-time dividend-adjusted zenith of 93.685, energy shares and their funds including XLE have been among the biggest losers of all unleveraged exchange-traded funds in any sector.

The media often encourage ordinary investors to do as the hedge funds are doing, which is not surprising since they get a lot of their information from hedge funds which are naturally trying to get others to follow whatever will benefit their own portfolios.

Why have the media suddenly been talking about a "Fed pivot?" It's not because financial journalists have suddenly discovered how to interpret whatever the Fed has been doing. It is because they receive a lot of their data and even more of their interpretation of that data from hedge funds which naturally want to get retail investors to pile into their largest positions. In addition, whenever any asset is especially popular or depressed, the media will seek out stories which will allegedly explain "why" U.S. Treasury yields will keep climbing even when they are at their highest levels since 2000 (as in October 2023) or why AI stocks will keep rising regardless of how overpriced they are (as in December 2023). If you follow the media then you will repeatedly buy near each top and sell near each bottom.

The current U.S. equity bear market is following its usual sequence of sector bottoms.

The Russell 2000 and nearly all related funds such as IWM, along with most stocks worldwide which are unrelated to the AI bubble, have been in notable bear markets since their November 2021 tops, on average losing about 20% of their value during the past 25 months. Before any U.S. equity bear market intensifies, as the current one will almost certainly do soon, we have a sequence of historic sector bottoms which are completed in the following order: 1) U.S. Treasuries which probably completed their nadirs in October 2023 and are in major uptrends; 2) gold mining and silver mining shares which I expect will bottom around the spring of 2024 before initiating powerful rebounds; 3) emerging-market stocks and bonds which will perhaps bottom around the summer of 2024 with Chinese shares notably underpriced and which could thereby become compelling bargains at that time; 4) non-precious commodity producers which might also gain by substantial percentages after they bottom later in 2024; 5) special situations which vary from one bear market to another. In this case, the sectors which could approach multi-year lows in 2024 and thereafter rally strongly might include currently unpopular biotech shares and their funds like XBI along with airline shares and their funds including JETS.

I also plan to be open-minded about other sectors becoming worthwhile for purchase sometime during 2024.

The ultimate bottoms for most AI shares won't occur until 2025 or 2026.

As a general rule, those shares which achieve historic bubbles tend to lose over 80% of their value and to take two to three years to complete their total downtrends. After QQQ had topped out on March 10, 2000, it lost 83.6% of its value by the time it bottomed exactly 31 months later on October 10, 2002 (see stockcharts.com which includes all reinvested dividends by default). If QQQ loses 83.6% of its recent high of 406.5, which could potentially go even higher in the short run, then this would mean an eventual QQQ bottom of 66.666 which looks to me like a very lucky number indeed.

The bottom line: An increasingly profitable strategy during the 21st century capitalizes on the tendency of the vast majority of hedge funds to use momentum methods and to thereby overcrowd massively into various positions. Top corporate insiders and commercials throughout various points in 2023 have been doing almost exactly the opposite of those hedge funds near all key extremes for a wide variety of assets including AI stocks in December (QQQ,SLK,SMH), U.S. Treasuries in October (TLT), the Japanese yen in November (FXY), large-cap energy shares in September (XLE), and all precious metals in early December including palladium (PALL), gold (GLD), and silver (SLV). You can therefore consistently make money, although not always immediately, by following the insiders and commercials and doing the exact opposite of the most overcrowded hedge-fund concentrations during the next several years.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, December 22, 2023. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/Savings/Checking long: 36.32%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 21.66%;

TLT long: 11.67%;

I Bonds long: 10.54%;

PMM long: 0.01%;

XLK short (all shorts once again unhedged): 28.39%;

QQQ short: 17.23%;

XLE short: 5.15%;

XLI short: 2.77%;

XLV short: 1.69%;

SMH short: 1.01%;

AAPL short: 0.02%;

SARK long: 0.90%;

PSQ long: 0.03%;

PALL long: 0.20%;

GDXJ long: 0.14% (fully hedged with out-of-the-money covered calls);

Gold/silver/platinum coins: 6.28%;

FXY long: 0.17%;

PAK long: 0.03%.

"The near absence of bargains works as a reverse indicator for us. When we find there is little worth buying, we find there is probably much worth selling." --Seth A. Klarman

BUDDING BURSTING BUBBLES (November 12, 2023): Investors are easily impressed by large percentage moves, while barely noticing important asset behavior. Therefore, since the total losses so far for major U.S. large-cap equity indices including the S&P 500, Nasdaq, and QQQ have been modest so far, most people aren't concerned about whether or not we are in a primary bear market. The total declines overall are generally less than 10% from their peaks in November 2021 or early January 2022. U.S. real estate overall also has mostly single-digit percentage declines. Therefore, the fact that most of the above and other indices have experienced numerous lower highs over the past two years isn't appreciated even with the bearish implications of this activity in prior decades. Small- and mid-cap U.S. equity indices and funds have almost all suffered larger percentage losses, but hardly anyone pays attention to the Russell 2000 and similar benchmarks.

Therefore, even though the U.S. equity bear market is roughly half over timewise, and is probably entering its most dangerous downside phases, most investors are blissfully complacent. This is evident from VIX closing at 14.17 on Friday, November 10, 2023, an astonishingly low level two years into a bear market. Hardly anyone thinks they need protection or hedging against potential upcoming losses. Boglehead myths are widely prevalent with many such investors convinced that they have a divine right to come out ahead in the long run no matter how overvalued the assets are which they own.

Investors can get 5.5% guaranteed by the U.S. government with zero state and local income taxes, making the U.S. stock market much more overpriced than it had been two years ago.

One plausible reason for U.S. equities reaching all-time record overvaluations in November 2021 was that the 26-week U.S. Treasury bill had been yielding less than 0.1%. Currently it is yielding just about exactly 5.5%. This means that investors can obtain this kind of annualized gain with zero risk. Especially with the spread between the 13-week and the 10-year U.S. Treasuries reaching an all-time record going back to 1789, this makes U.S. stocks even more dangerously overpriced relative to U.S. Treasury bills and with far greater downside risk. Investors are so concerned about "missing out" on potential upside that they're unaware of the likelihood of losing more than half of their money. No one can say how far any asset will decline during a bear market, but if QQQ declines as much in 2023-2025 as it had done from its March 10, 2000 zenith to its October 10, 2002 nadir then those who currently hold QQQ and similar assets will lose more than 80% of their current valuation. This includes reinvested dividends and is even without adjusting for inflation.

There are two major consequences of the longest-ever U.S. equity bull market.

The U.S. equity bull market which began in March 2009 lasted longer than any other bull market in U.S. history. Whenever anything persists for such a lengthy period of time, investors psychologically don't believe that anything which had happened in prior decades has any significance. It has been so long since we had suffered the previous severe bear market that hardly anyone can imagine a significant percentage decline. This is similar to how hardly anyone two years ago thought that inflation could reoccur, since it had been such a long time since we had experienced surging inflation. Paradoxically, if some investors think about selling and then prices climb even higher, they congratulate themselves for not selling "too soon" and become even less likely to sell the higher that prices are rising. Insiders are an important exception, demonstrating their highest-ever overall ratios of insider selling to insider buying since early 2021 and only behaving otherwise during the final four months of 2022.

Besides investors being emotionally far too distant from the previous two true bear markets of 2000-2002 and 2007-2009 to believe that a third such decline could be underway, the duration of any bear market tends to be proportional to the bull market which precedes it. In general, a bear market will last roughly one-third as long as its prior bull market. Since the U.S. equity bull market which started in March 6-9, 2009 lasted for almost thirteen years, the current U.S. equity bear market will probably last for roughly four years which means that it won't likely be completed until around the end of 2025. This relatively leisurely pace has fooled many investors into believing either that the bear market "is over" or that we might experience one more moderate correction, rather than the far greater likelihood of two upcoming crushing down years which overall become progressively more dramatic.

The biggest losses will generally be suffered by the best-known shares.

U.S. equity overvaluations are far more pronounced and out of line with corporate profit growth for the best-known and largest U.S. companies, especially those which had generated a high level of excitement from the AI bubble and excitement over other modern technology. Nearly all of the 2023 gains for major U.S. large-cap equity indices were achieved by a surprisingly small number of trendy stocks. A company with an annualized profit growth averaging about 10% cannot maintain a price-earnings ratio near 40 regardless of what is happening with the economy, how inverted the U.S. Treasury curve happens to be, or what is occurring with the U.S. dollar. Momentum can sometimes seem to prevail for awhile, but eventually a regression toward the mean and beyond to a nearly opposite extreme of undervaluation must happen sooner or later.

The strongest proof of the unsustainability of the current situation is the irrationality of investors' attitudes toward any given company.

Perhaps you are thinking to yourself: maybe it makes sense for a company like Microsoft to have a price-earnings ratio which is four times its profit growth, since AI will allegedly cause its profits to quadruple. You can believe in such foolish fantasies, but consider that the corporate bonds of the most popular large-cap companies have been among the biggest losers over the past few years while the stocks of the same companies have been among the biggest winners. If a particular company is really going to outperform with its fundamentals then its bonds should also be outperforming along with its stocks. What is really happening is that investors have been crowding more and more aggressively into the biggest percentage winners while piling out of the biggest percentage losers, regardless of their merit. This has caused closed-end bond funds including "boring" municipal bonds to experience some of their highest-ever historic discounts, while anything related to AI has enjoyed some of the biggest gains regardless of whether new technology will ever get around to increasing these companies' profitability.

The U.S. economy is behaving like a trip on the planet Mercury.

Unlike Earth, the planet Mercury doesn't rotate. It maintains the same side toward the sun at all times. This side is incredibly hot, while the dark side which faces away from the sun is incredibly cold. If you are on the planet and you decide to pass from the scorching to the frigid side, you will briefly pass through a region where the temperature is just about right for human habitation. This is similar to what is happening with the U.S. economy: it is going from an overheated state with very low unemployment and bloated inflation, just like 1929-1930, 1972-1973, 1999-2000, and 2007-2008, to a period of serious recession, high unemployment, sharply diminished inflation, and depressed asset prices. 2025 is going to be very similar to 1932, 1974, 2002, and 2008, with stocks bottoming during or shortly after each of those years and real estate following roughly one year later.

Real U.S. equity bear markets always end with sizable undervaluations, heavy net investor outflows, intense insider buying by top executives, and pervasive media gloom. We are nowhere near any of the above.

At the end of any bear market, whether for stocks or real estate, we usually have an average of a 20% discount to fair value for real estate and a 40% discount to fair value for the U.S. stock market. We will have a multi-decade high for insider buying, exaggerated ratios of insider buying relative to insider selling, all-time record net outflows by investors who are finally panicking after losing more than half of their money, and day after day of negative media commentary about the economy and the markets. Until all of the above actually happen we can be certain that much greater downside for the U.S. stock market lies ahead.

The excuses change through the ages but the results are identical.

During the 1800s investors said that because of progress, canals, or railroads, the old valuation rules were no longer relevant. In the 1900s industrialization, computers, and at the turn of the century the invention of the internet convinced many that price-earnings and price-to-book measures were no longer relevant in the "modern age." Today you hear a lot about how AI has "permanently" changed the situation or how the Fed will ensure that valuations remain far above average indefinitely.

It's not different this time.

I have been gradually adjusting my mix of assets as I always do in order to respond to changing circumstances and multi-decade extremes, and I have general plans for the next several months.

As TLT and the actual 20-year U.S. Treasury both fell to their lowest valuations since 2004, I had been gradually purchasing them into weakness through October 2023. Related assets including closed-end bond funds like PMM slid to even deeper average bargains which hadn't been experienced generally since 2000, so I had gradually bought them also. More recently I have been adding to my short position in QQQ and related shares as they complete additional lower highs and haven't dropped much overall from their respective peaks from November 2021. I had been selling short large-cap energy shares and their funds including XLE at each of their peaks since November 2022 including September 2023. The Japanese yen slid to its lowest point since July-August 1990 making FXY a worthwhile bargain.

During the next several months I expect to be covering some or all of my short positions whenever QQQ experiences dramatic weakness such as a loss of about half from its current price. The next major purchase I think will be likely will be buying gold mining and silver mining shares through funds including GDXJ, although the traders' commitments demonstrate clearly that it is still too early to be doing so. Most likely gold bullion will drop below 1800 U.S. dollars per troy ounce sooner or later to provide the next buying opportunity in this sector.

The following charts highlight recent multi-decade extremes:

The bottom line: We have numerous nearly simultaneous multi-decade extremes in the global financial markets which sooner or later will all regress toward the mean and beyond to nearly opposite extremes within two or three years. This is likely to lead to an additional loss of 80% for QQQ and AI bubble stocks, roughly double the current valuations for TLT and the 20-year U.S. Treasury bond, much higher valuations for most closed-end government bond funds and the Japanese yen, and losses of about half on average for real estate around the world. The alternative is a simple one: put your money into U.S. Treasuries which mature within a couple of years and are paying up to 5.5% with both interest and principal guaranteed along with being exempt from state and local income taxes.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Friday, November 10, 2023. Each position is listed as its percentage of my total liquid net worth.

I computed the exact totals for each position and grouped these according to sector.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) gold/silver mining; 5) coins; 6) miscellaneous securities.

VMFXX/TIAA(Traditional)bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/Savings/Checking long: 35.67%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 19.28%;

TLT long: 10.35%;

I Bonds long: 9.88%;

PMM long: 0.01%;

XLK short (all shorts once again unhedged): 26.54%;

QQQ short: 14.17%;

XLE short: 5.06%;

XLI short: 2.51%;

XLV short: 1.58%;

SMH short: 0.92%;

AAPL short: 0.02%;

SARK long: 1.22%;

PSQ long: 0.02%;

GDXJ long: 0.53% (fully hedged with out-of-the-money covered calls);

GDX long: 0.24%;

PALL long: 0.15%;

ASA long: 0.09%;

Gold/silver/platinum coins: 5.92%;

FXY long: 0.15%;

PAK long: 0.03%.