TRUMP BUMP? DUMP! (November 20, 2024): On November 5, 2024, the U.S. held elections in which the Presidential winner was a Republican, while the Senate and House of Representatives ended up with majority Republican results. Before these elections, we already had by far the heaviest insider selling in the history of the U.S. stock market, the highest-ever valuations for most large-cap U.S. stocks, the highest-ever percentage of total U.S. assets invested in U.S. stocks, the highest-ever ratios of U.S. stock-market capitalization to U.S. GDP, and similar rare extremes which were above the 99th percentile.
There was a brief euphoric bounce to even higher levels which mostly peaked in the morning of Monday, November 11, 2024, less than one week following the elections. When a very overpriced asset temporarily becomes even more expensive, due primarily to emotional excitement, then this is historically an ideal selling opportunity. It works the opposite way too: when a very undervalued asset temporarily becomes even cheaper mainly for psychological reasons, this is one of the best times to make a purchase.
Gold mining and silver mining shares consistently complete tops and bottoms prior to most other stocks doing likewise.
During the 1999-2003 global equity bear market, HUI which is a fund of unhedged gold mining shares completed its bottom on November 15-16, 2000. This was almost two years before many other equities and their funds had bottomed on or near October 10, 2002. During the 2007-2009 bear market, gold mining shares were similarly among the earliest stock funds to complete their lowest points at or near the open on October 24, 2008. The S&P 500 didn't fall to its lowest point of 666.79 until March 6, 2009. It works the other way also: gold mining shares topped out in August 2020, well over a year before the Russell 2000 had completed its highest point in November 2021 and several years prior to the recent potential zenith for the S&P 500 Index.
Both GDX and GDXJ recently completed multi-year highs during the pre-market session on October 23, 2024. This pullback is likely to lead to losses for most other stock funds. Just as in past decades, GDX and GDXJ will be among the earliest exchange-traded funds to complete their lowest points for the cycle, perhaps in the first half of 2025. My guess is that both GDX and GDXJ will fall to bottoms which are between their early autumn 2022 lows and their early autumn 2023 lows. If this guess is wrong then it will probably be that one or both of these drop below their September 2022 bottoms to five-year nadirs. Assets including QQQ will probably fall to their lowest levels of 2025 several weeks to a few months afterward, possibly with QQQ dropping below 300, with QQQ thereafter enjoying a multi-month rebound which could carry it near 400 before resuming its bear market which might eventually end after many ups and downs around 2027 with QQQ below 100.
Emerging markets have been creating unheralded opportunities which might bottom around the spring and/or summer of 2025.
Emerging-market valuations relative to earnings are near their lowest-ever points of the past several decades, only briefly approached or surpassed during previous U.S. stock-market bubbles. Investors have become overly enamored with large-cap U.S. stocks and have therefore mostly sold their holdings in most other parts of the world to chase after dangerously overpriced U.S. shares. This has already created compelling opportunities. My main reason for waiting before buying is that the first major downward phase for large-cap U.S. shares will usually spill over into nearly all other stocks and corporate bonds in most of the world and in most sectors.
There are many possible worthwhile buying opportunities for emerging-market stock funds which may bottom roughly a half year from now near multi-year lows. Exchange-traded funds worth considering for purchase at that time may include EWZ, EWZS, and BRF (Brazil), VNM (Vietnam), EWW (Mexico), GXG (Colombia), IDX (Indonesia), and EPHE (Philippines).
Undervalued assets including TLT, FXY, and PALL have fallen to historic bottoms and have been forming several higher lows as is typical of the early stages of all true multi-year bull markets.
Just over one year ago, TLT fell to its lowest intraday point (81.92 at 5:40 a.m. on October 23, 2023) since June 15, 2004. Since then it has made several higher lows under 90. In July 2024 the Japanese yen fell to its lowest point since 1986 versus the U.S. dollar which can be purchased via the exchange-traded fund FXY. PALL, a fund of palladium bullion, dropped to 76.49 at 8:30:48 a.m. on August 5, 2024, thereby touching its lowest level since May 30, 2017, and since then forming several higher lows including 84.31 at 8:54:24 a.m. on November 14, 2024. The traders' commitments for all of the above three assets are demonstrating aggressive commercial accumulation which should lead to significantly higher prices over the next few years.
The U.S. dollar index has been rallying since September 27, 2024, which is generally negative for most stocks.
On September 27, 2024, the U.S. dollar index dropped to 100.514, its lowest point since July 20, 2023, and completing a two-year pullback which had begun from a two-decade top on September 28, 2022. Since then the U.S. dollar has been very strong with almost no media coverage. A powerful greenback is almost always followed by declines for most stocks and corporate bonds. Whenever the U.S. dollar index reaches an important peak and begins to form lower highs, which will likely occur sometime during 2025, this will signal that it is time to move progressively onto the long side with most equities and their funds.
We have achieved new all-time extremes between the 99th and 100th percentile for a wide range of valuation categories which have mostly been tracked for decades or longer.
The following charts highlight how large-cap U.S. stocks have been trading near all-time overvaluations even if you go all the way back to the founding of the Philadelphia Stock Exchange in 1790:
The CNN Fear & Greed Index reached 76 for one of the few times in its history:
Compared with the rest of the world, U.S. stocks haven't been more overpriced at least since 1950:
Investors have the most optimistic expectations for their U.S. stock investments since this survey began in 1987:
Using S&P 500 price to sales or price to book, we approached new all-time extremes for both in November 2024:
A measure of sentiment based upon quantitative indicators rather than a survey has shown the greatest-ever anticipation of future percentage gains for large-cap U.S. stocks:
2007 was the last year when the spreads between high-yield corporate bonds and U.S. Treasuries of identical maturities were as low as they have been recently:
Mark Hulbert has quantitatively compiled a list of indicators which have been used for decades to gauge the U.S. stock market's level of over- or undervaluation using percentile readings:
Investors currently have far too much of their money in U.S. stocks and not nearly enough in U.S. Treasuries:
Investors are shunning U.S. Treasuries and bank CDs paying 4.5% while putting money into QQQ paying 0.57%, because, just as with any historic bubble peak, they're certain they can "easily" make several times the difference with capital gains:
The bottom line: Investors years from now will look back at the current time and wonder why they weren't selling U.S. stocks much more aggressively, just as Warren Buffett and the top executives of many of the world's biggest companies have been doing during the past several months near all high points. Instead, investors have made all-time record deposits into large-cap U.S. stocks and have never been more overconfident about achieving future gains. The internet bubble ended with QQQ dropping 83.6% from its intraday peak of March 10, 2000 to its intraday bottom of October 10, 2002, 31 months later. However long the current bear market lasts won't be known except in hindsight, but now is an even more critical time to go against the crowd.
Disclosure of current holdings:
Below is my current asset allocation as of 4:00 p.m. on Wednesday, November 20, 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: 37.36%;
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: 23.44%;
I Bonds long: 11.38%;
TLT long: 10.83%;
PMM long: 0.01%;
XLK short (all shorts are once again unhedged): 35.59%;
QQQ short: 25.58%;
SMH short: 1.50%;
AAPL short: 0.15%;
GDXJ short: 0.13%;
GDX short: 0.01%;
SARK long: 0.58%;
PSQ long: 0.04%;
PALL long: 1.49%;
Gold/silver/platinum coins: 7.71%;
FXY long: 0.80%.
