3 FAT YEARS, 3 LEAN YEARS (December 28, 2025): It is appropriate that the Bible parshah for this week is about Joseph interpreting Pharaoh's dream. Seven fat cows are swallowed by seven lean cows, and the lean cows are just as skinny as before. As you probably know, Joseph correctly interpreted this dream to mean that seven prosperous years would be followed by seven years of famine. Therefore, Joseph recommended that Pharaoh stockpile as much as possible during the seven good years, so that there would be plenty available during the difficult years which followed. Those who didn't live in Egypt mostly assumed that the prosperous times would last indefinitely, so when the famine arrived they weren't ready for it and were forced to go to Egypt to buy food. Eventually Pharaoh was able to trade food for real goods, land, and finally for labor. Pharaoh and Joseph succeeded in creating massive wealth because they had planned for the future to be different from the recent past.
Most people become maximally confident just before the biggest losses, and maximally pessimistic shortly before the strongest rallies for any asset.
Many investors have become dangerously overconfident after three bull market years for the most popular large-cap U.S. stocks. The problem with already overvalued stocks becoming even more expensive is that they eventually have to drop even farther to reach their fair value relative to their profits. That is exactly what will occur with very popular large-cap U.S. equities which have never been more overpriced by most fundamental measures. There has never been any country in history with such high ratios of prices to earnings, sales, book value, and most other benchmarks. Instead of intelligently preparing for a bear market for those shares, investors have been making all-time record inflows into them and into funds of those shares, with a record number of those funds having their debut in recent months as always occurs during a major topping process for any asset. The total net inflow into U.S. exchange-traded stock funds for 2025 will be a new calendar-year record by far of approximately 1.5 trillion U.S. dollars.
The most important time to prepare for tough times is when hardly anyone except for top corporate insiders has been doing so.
We have the most insider selling ever recorded in total U.S. dollar terms in 2025, along with the highest-ever ratio of total U.S. dollars of selling divided by the total U.S. dollars of top executives buying their own shares. This is true even with hundreds of shares falling toward multi-year lows during the fourth quarter of 2025 from a combination of tax-loss selling, regressing to the mean sooner than the most popular favorites, and typical underperformance by unfavored shares in the early part of any severe U.S. equity bear market. Some of the most depressed shares have enjoyed notable insider buying from October through December 2025 and I have been recommending those shares for purchase in my recent postings.
U.S. government debt has been slowly gaining in popularity since October 2023, but yields remain mostly not far below their highest levels since the beginning of the 21st century.
During the past several months we experienced the first time in history that the government bonds of any country were yielding roughly quadruple the yield of the most widely traded index for the same country. Those yields have somewhat retreated in recent months, but the 30-year U.S. Treasury yield of 4.82% is well above four times the 1.10% yield on VOO which tracks the S&P 500 Index with the lowest management fee, and is almost eleven times the 0.44% yield for QQQ, a popular capitalization-weighted fund of the top 100 Nasdaq stocks. Investors are so certain about achieving capital gains that they are willing to accept record low dividend yields.
Investors have been so eager to own winners that they have been selling those shares which are the most compelling bargains in order to raise the money needed to purchase their favorite megacaps.
In recent postings I have been listing those shares which are trading near or below half fair value, are near their lowest levels in several years or more, and have been enjoying buying by the top executives running the company. Some of those have already been experiencing sharp recoveries. Paradoxically, if a very depressed stock finally moves higher, it is likely to gain a lot in percentage terms to return to its former levels, which then attracts momentum players who wouldn't have touched it when it was most worthwhile. Many investors will eagerly buy something which has already doubled in price instead of buying it when it was out of favor and the profit potential was far greater.
Partly for not understanding the mathematics of the situation, and mostly for emotional reasons, far too many people refuse to buy near the beginning of any bull market and are especially eager to participate near the end.
If an asset moves from 10 to 60 then you might think you will still experience most of its profit gain by purchasing it at 20, since 20 is only 1/5 of the way from 10 to 60. However, if you buy it at 20 then your total profit will be 200% versus 500% by buying it at 10, so you have given up 60% of your profit instead of 20%. It is also far more dangerous to buy anything which has recently surged higher, regardless of whether it is shares of a highly popular stock that has been in the news, or silver, or anything else, because it is likely that this asset will have to drop by a substantial percentage whenever it decides to regress to its fair value and beyond.
Investors psychologically don't want to own anything when they keep hearing negative comments about it from brokers and the media, which is usually when it is completing a bottoming process. They desperately want to participate when they are bombarded with stories about how so-and-so who can barely tie his shoes is supposedly getting rich from owning a particular asset. Of course those so-called rich folks aren't really rich because they buy more near the top instead of selling, and thus lose even more during the next downturn.
Some formerly trendy assets including cryptocurrencies have already begun historic bear markets with far less media coverage than they had enjoyed when they were frequently making new all-time highs.
Have you noticed how little media coverage there has been of cryptocurrencies in recent months? Even the most popular ones like Bitcoin and Ethereum have received far less press than when these were making new all-time highs earlier in 2025. The reason is not because of a lack of volatility, as most cryptocurrencies have been dropping significantly faster than they had previously been climbing. It is mainly since the media know that viewers and listeners don't want to hear about falling assets. Given who most of their advertisers are, they don't want to mention that buying fluctuating assets may end up ultimately with losses instead of gains especially when measured in real terms.
The same treatment is likely to occur for large-cap U.S. stocks, gold, silver, and everything related to AI. From time to time you'll hear about how much these have dropped in percentage terms, especially if there is an especially sudden surge in volatility or a huge down day for a particular asset. However, you are likely to hear much less on the way down than you did on the way up, and financial journalists will try as hard as possible to find something which is making new all-time highs rather than dwelling on the weaknesses of former top favorites.
I recently added AVTR, FMC, DEI, and MOS to my holdings while buying more TLT, EDV, LTPZ, UTZ, SG, and LYB. I sold a little PALL and RIG to take advantage of their prices more than doubling over the past several months. Top insiders of gold mining and silver mining companies have been doing their heaviest net selling since 2011. I have been buying shares where top corporate insiders are buying, the shares became popular for tax-loss selling, and the valuations are near multi-year lows.
Intelligent investing requires frequent gradual adjustments to capitalize on whatever the most knowledgeable participants have been doing. The traders' commitments are almost up to date while insider buying and selling has consistently been useful in determining the best course of action. Precious metals shares, which had been by far the heaviest percentage of my total asset allocation, have become far too popular with the public although I still have most of the gold coins I had purchased in 1998-2001 when this had been the least popular sector and gold was averaging below 280 U.S. dollars per troy ounce for lengthy periods of time. Tax-loss selling has somewhat abated and some of the shares I had previously recommended have been smartly rebounding, partly aided by momentum players who prefer to buy after recent gains instead of before.
I have been allowing some U.S. Treasuries to mature without reinvesting them in similar U.S. Treasuries whenever their current yields are near their lowest levels in a few years.
The bigger the bear market, the longer it will usually last.
The biggest bear market in U.S. history by percentage loss occurred from September 3, 1929 through July 8, 1932 with the average stock losing about 87% of its value assuming reinvestment of all dividends. This decline thus lasted over 34 months. The second-biggest drop by most measures was the plunge from March 2000 through October 2002, which lasted exactly 31 months to the day for some funds including QQQ which had dropped just about exactly 83.6% if you assume reinvestment of all dividends. The Nifty Fifty shares from January 1973 through December 1974, a period of just about exactly 23 months, was a smaller percentage decline of about 81% for the average name in the Nifty Fifty favorites.
Most measures of valuations for large-cap U.S. stocks had surpassed their previous bubble peaks in recent months. Therefore, it seems possible that the current or upcoming bear market for funds including QQQ will take longer than these previous examples. Even if 2026 is a big down year for the U.S. stock market, the final lows for nearly all funds of U.S. stocks will likely not occur until the second half of 2028 and perhaps in 2029. There are likely to be several powerful upward bounces along the way with some of them being approximately 50%, similar to what we have experienced during the five previous bubbles for large-cap U.S. stocks. The total decline for QQQ will likely surpass its 83.6% total decline during the collapse of the internet bubble.
If you're surrounded by sharks then it doesn't matter why you had originally decided to swim in that part of the ocean. You have to leave.
Many people tell me that they're going to hold their large-cap U.S. stocks "for the long run." Some of them are aware of the all-time record number of new U.S. exchange-traded stock funds, or the all-time record inflows, and some know about the massive selling of the biggest U.S. stocks by top corporate executives. However, they think they can somehow "ride through" any pullbacks, or that they're long-term investors who don't care about fluctuations. You can't ride through a loss of 80% since you have to quintuple your money to get back to where you started and if you adjust properly for inflation you probably have to gain much more than that. If you're going to be devoured then it doesn't matter why you were there in the first place. There will be far better opportunities to accumulate most of today's overpriced assets in upcoming years.
In order to buy low and sell high, first you have to buy low. In order to have the money to buy low, you have to first sell high and then wait patiently for the next bottoming process. You will know it is arriving when the top corporate insiders are becoming aggressive buyers.
Investors have been concentrating into fewer and fewer shares even more narrowly than they had done at the height of the 1999-2000 internet bubble:
Mutual funds usually keep about 10% of their total assets in cash near market bottoms and close to 4% near market peaks, and recently set a new all-time record of only 1.5% in cash in December 2025 (thanks to Elliott Wave International for this chart):
By far a record number of companies have been mentioning AI in their earnings calls even if their lines of business have little or nothing to do with artificial intelligence:
Just as had been the case during the internet bubble in 1999-2000 when internet was the magic word, companies which have mentioned AI in their conference calls have enjoyed over twice the percentage gains in their stock prices as companies which have not:
Disclosure of current holdings:
Below is my current asset allocation as of 4:00 p.m. on Friday, December 26, 2025. Each position is listed as its percentage of my total liquid net worth.
I extracted the 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) emerging-market funds; 6) individual Brazilian ADRs; 7) energy; 8) other individual shares.
VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 26.44%;
17-Week/52-Week/26-Week/13-Week/2-Year/8-Week/3-Year/5,10,30-Year TIPS/4-Week/6-Week/20-Year: 22.81%;
TLT long: 12.68%;
I Bonds long: 4.08%;
LTPZ long: 1.08%;
EDV long: 0.88%;
PMM long: 0.01%;
XLK short: 33.97%;
QQQ short: 26.10%;
GDXJ short: 2.20%;
SMH short: 1.49%;
GDX short: 0.46%;
AAPL short: 0.16%;
PSQ long: 4.02%;
SARK long: 0.29%;
Gold/silver/platinum coins: 13.17%;
PALL long: 3.38%;
FLBR long: 0.76%;
EWZ long: 0.69%;
EWY long: 0.23%;
FLKR long: 0.17%;
TUR long: 0.03%;
EWZS long: 0.02%;
UGP long: 0.55%;
VALE long: 0.40%;
GGB long: 0.20%;
BBD long: 0.17%;
RIG long: 0.62%;
WTI long: 0.08%;
PTEN long: 0.02%;
MOH long: 1.21%;
UTZ long: 1.00%;
HUN long: 0.88%;
LYB long: 0.77%;
SG long: 0.62%;
AVTR long: 0.51%;
CAG long: 0.48%;
VAC long: 0.45%;
ALIT long: 0.33%;
FMC long: 0.30%;
DEI long: 0.28%;
OGN long: 0.24%;
MOS long: 0.17%;
FXY long: 0.04%;
CLF long: 0.01%.
