"When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focusing on risk." --Seth A. Klarman

LONG TREASURIES, SHORT STOCKS (September 4, 2023): In the entire history of the U.S. financial markets there has rarely been an opportunity where U.S. Treasuries were such compelling investments relative to U.S. stocks. The 6-month U.S. Treasury bill is yielding just about exactly 5.5% while the S&P 500 Index is yielding less than 1.6%, one of the greatest spreads ever recorded.

The U.S. Treasury yield curve is at all-time record inversion, meaning that the short-term U.S. Treasury bills of several months to maturity have their widest-ever spreads over longer-term U.S. Treasuries. This chart shows the spread between the 3-month and 10-year U.S. Treasuries going back to 1982:

Here is a chart showing the extreme relative outperformance of the S&P 500 Index relative to the 10-year U.S. Treasury since 1993:

The 10-year U.S. Treasury hasn't underperformed so dramatically since it was first introduced by Alexander Hamilton in 1789, the year before the 1790 debut of equities trading on the Philadelphia Stock Exchange:

Commercials in U.S. Treasuries, analogous to top corporate insiders for individual companies, have a total net long position which is roughly twice their previous all-time record going back to 1990. The maroon bars represent the commercials in the 10-year U.S. Treasury, meaning those who trade it as a necessary part of their career rather than for the purpose of speculation (special thanks to Software North):

The U.S. money supply, measured by M2, has never contracted as sharply as it has done recently, as you can see from this chart dating back to 1965:

We have also experienced the lowest prices for one-year index put options since these valuations started to be tabulated in 2008:

Investors love call options and hate put options at market peaks, while chasing after puts during all bottoming patterns. Meanwhile, most people were so excited about megacap U.S. tech shares in 2021 that total fund inflows exceeded those of 2001 through 2020 combined [not a misprint], but this record was far exceeded by the AI bubble eagerness in 2023:

U.S. equity overvaluations have never been more glaring than they were near their 2021, 2022, and 2023 peaks including July 2023:

The prices of the most popular technology companies have soared far out of line with their actual earnings:

Not all global stock markets are overpriced. U.S. gold mining and silver mining shares and their funds are moving toward undervaluations which could become compelling later in 2023, although silver's traders' commitments warn that it's too early to buy as you can see by comparing the current maroon bars with those from the leftmost part of the following graph in September 2022 which was the last excellent purchase opportunity for precious metals and the shares of their producers:

Much-hated Chinese stocks have suffered recent record net outflows and will likely be worth buying sometime during the next several months after U.S. stocks have already been in more pronounced downtrends:

The bottom line: In 2000, 2007, and 2023, we experienced the highest U.S. Treasury yields of each decade when investors were far more eager to own U.S. stocks than they were to be long "boring" U.S. Treasuries. This was followed by losses of more than half for most U.S. equities while those who had bought U.S. Treasuries were rewarded by locking in yields just before they had dropped steeply after both 2000 and 2007. It is more likely that this will occur again this time, rather than less likely, because we have a far greater degree of commercial accumulation of U.S. Treasuries now than we have experienced at any time since 1990. We also have all-time record extremes of U.S. equity call buying, the most undervalued put options, all-time record net equity fund inflows, and the lowest-ever total U.S. dollar amount of insider buying ever recorded during the past three months:

Barron's: Insiders Wave a Red Flag

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Monday, August 28, 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: 31.83%;

26-Week/17-Week/52-Week/13-Week/2-Year/8-Week/3-Year/5,10-Year TIPS/4-Week/42-Day long: 17.24%;

TLT long: 9.92%;

I Bonds long: 9.53%;

XLK short (all shorts unhedged): 25.15%;

QQQ short: 12.48%;

XLE short: 5.04%;

XLI short: 2.55%;

XLV short: 1.67%;

SMH short: 0.88%;

AAPL short: 0.02%;

SARK long: 1.20%;

PSQ long: 0.01%;

ASA long: 1.26%;

GDXJ long: 0.57%;

GDX long: 0.25%;

BGEIX long: 0.00%;

Gold/silver/platinum coins: 5.69%;

PAK long: 0.03%.

“The trick of successful investors is to sell when they want to, not when they have to.” --Seth Klarman

2020 RETREAT, 2021 REBOUND (August 23, 2020): The most difficult aspect of investing is appreciating the urgency to act when almost no one else wants to do so and to refrain from trading when almost everyone else is either excitedly chasing after recent extended strength or selling in a panic following recent dramatic losses. Now is one of those times when Robinhood investors are tripping over themselves to purchase the most overpriced mega-cap technology shares while most investors are congratulating themselves for not selling in March 2020. Far too many are oblivious to the huge dangers of remaining heavily invested at the most overvalued stock-market top in history surpassing the previous record extremes of 1928-1929, 1972-1973, and 1999-2000. Just during the past week the market has sent multiple simultaneous signals of imminent danger and yet investors are mostly partying like it's 1999. They'll end up suffering the same fate of those who didn't sell two decades ago when the Nasdaq plummeted 78.4% from 5132.52 on March 10, 2000 through 1108.49 on October 10, 2002.

Three key leading indicators completed major reversals during the past week.

Let's consider each of these three indicators in order of importance:

1) The U.S. dollar index likely completed a 27-month bottom of 92.127 at 10 a.m. Eastern Time on August 18, 2020 followed by a higher low of 92.154 at 9 p.m. the same day. Whenever the U.S. dollar begins to rebound from an important bottom it generally indicates that risk-off is likely to prevail for some unknown period of weeks. Given typical calendar behavior it is likely that risk assets worldwide, including most U.S. equity indices, will drop to complete important bottoming patterns during the final weeks of 2020 and perhaps at the beginning of 2021.

2) VIX may have completed a six-month bottom of 20.28 on August 11, 2020 followed by a higher low of 20.99 on August 19, 2020. When VIX completes an intermediate-term bottom during a bear market for U.S. equities, it often surges higher afterward as investors are mostly stunned by the stock market's sudden pullback. While VIX may not return to the mid-80s where it had been in March 2020 it is likely to regain 60 or 70 before the end of 2020.

3) SMH is a fund of semiconductor shares which may have peaked at 9:39 a.m. on Tuesday, August 18, 2020 with an all-time high price of 174.33. For more than a half century semiconductor shares have completed important tops and bottoms in advance of most other U.S. equity indices as a useful leading indicator. It could be different this time but probably it isn't. SMH will probably similarly let us know when the downtrend is coming to an end several months from now.

Breadth is deteriorating with fewer and fewer shares achieving new all-time zeniths.

The Russell 2000 Index, consisting of two thousand medium-sized U.S. corporations, topped out on August 31, 2018 and hasn't reached that level since then, with lower highs in January 2020, February 2020, and August 2020. Over the past two years we experienced two meaningful corrections for U.S. equity indices: during the autumn of 2018 when the S&P 500 dropped over 20% and in February-March 2000 when the S&P 500 slid just over 35%. Most likely we have already begun or will soon initiate a pullback roughly halfway between these declines or perhaps around 27.5%. The S&P 500 almost reached 3400 which it had barely failed to surpass in January-February 2020, this time falling short by just 46 cents. During the past week there were far fewer new 52-week highs than we had experienced during previous peaks for the S&P 500 in recent years. According to this week's Barron's there were only 220 new highs on the New York Stock Exchange, 284 on the Nasdaq, and 8 for NYSE American.

Insider selling relative to insider buying is near all-time highs going back several decades.

Top corporate U.S. executives have been aggressively selling, with among the highest ratios ever recorded for insider selling to insider buying in August 2020. In March 2020 we had the biggest ratio of insider buying to insider selling since March 2009 and the market rallied accordingly. Watch out below.

The market's intraday behavior demonstrates the greatest strength whenever Robinhood investors are busiest trading.

In recent weeks the greatest gains for U.S. stocks tend to occur near the opening bell on the first trading day of the week, usually a Monday, as market orders placed during the weekend all crowd in simultaneously. With most inexperienced traders being busy at their jobs during regular trading hours, many of them don't have time to trade until after the closing bell, thereby leading to funds like QQQ and XLK reaching their highest-ever levels between 6 and 7 p.m. Friday, August 21, 2020 rather than earlier in the day. Expect Robinhood traders to continue to dominate at the beginning of each trading week and sometimes in the after-hours sessions, thereby giving you additional ideal opportunities to sell and to sell short.

The worst losers of recent years are likely to rally strongly in 2021.

One reason for raising lots of cash now is that we are likely to experience compelling bargains for certain sectors near the end of 2020. Which sectors will those be? In recent years small- and mid-cap shares have hugely underperformed the most popular large-cap names. Value shares since June 1, 2007 have set a new all-time record level of sustained underperformance relative to growth shares. Deflation-loving companies have far outpaced assets which benefit from rising inflationary expectations.

In 2021 I expect these losers to exact their just revenge as small- and mid-cap value inflation-loving shares are among the top assets to rebound from their late-2020 bottoms. This would likely include some sectors like gold/silver mining which had been undervalued but had skyrocketed after their mid-March 2020 bottoms, only to become far too popular when gold surpassed two thousand U.S. dollars per troy ounce which attracted the eagerly-chasing Robinhood crowd. Once funds like GDXJ which had reached 65.95 eventually retreat below 40, gold mining and silver mining shares will be worth buying again as they will likely more than double within about one year.

Do not buy too soon. Wait for VIX to start forming lower highs following a multi-month peak and for other leading indicators to signal that the severe autumn stock-market correction of 2020 is almost over.

The bottom line: be mostly in cash and partly in short positions for the rest of the summer and for most of the autumn.

I have significantly increased my short positions as listed below while only doing a tiny bit of buying of GEO each time it approaches or goes below 10.50 per share, and I intend to continue to sell short into all rallies--even modest ones. Hardly anyone I know has been interested in betting against the market, either frustrated by repeated new all-time highs or convinced of foolish conspiracy theories such as the market not dropping substantially prior to the U.S. elections on November 3, 2020. Historically the U.S. stock market tends to be significantly weaker than usual in the months leading up to any Presidential election and this is easily verified by examining the past several years which were multiples of four.

Disclosure of current holdings:

From my largest to my smallest position I currently am long the TIAA-CREF Traditional Annuity Fund, bank CDs, money-market funds, Discover Bank Savings paying 0.80%, I-Bonds from 2001-2003, XES, MTDR, PSX, CDEV, WTI (all energy shares purchased in the second week of July 2020), GEO, BCBP, OPBK, SONA, KRNY (continuing to purchase GEO and regional banks into weakness). I have 5.0% of my total liquid net worth in the previously-mentioned energy securities, 4.2% in the regional banks I listed, 1.7% in GEO, and am otherwise completely sold out of everything else on the long side.

I have 16.7% of my total liquid net worth short XLK (half new), 4.4% short TSLA (some new), 1.7% short ZM (some new), 0.5% short QQQ (all new), and 0.4% short SMH (all new). I plan to keep adding especially to my XLK short into strength whenever XLK is near 117 or above. My cash and cash equivalents including bank CDs, savings/money-market accounts, I-Bonds, stable-value funds (fixed principal, variable interest) comprise 73.7% of my total liquid net worth. (It seems to exceed 100% but for short positions only part of the total cash value is required to hold them.)

I am currently sporting my heaviest net short percentage since August 2008.

“Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred.” --Seth Klarman

SLASH TRASH, STASH CASH (August 2, 2020): The last seven months have featured wild market swings in both directions. At the start of 2020 investors were willing to take absurdly high risks in nearly all assets, being far more concerned about missing out on additional gains than they were about the danger of losing money. During the third and fourth weeks of March 2020 we experienced the two biggest-ever weekly net outflows from U.S. equity funds in their entire history, smashing the previous marks from early 2009 and previous panics. By early June most people had once again become irrationally euphoric, so in my update from that time I recommended heavily selling most securities except for gold mining and silver mining shares which were still in strong uptrends. After a brief pullback which provided buying opportunities for energy shares during the second week of July, we currently have renewed intense irrational exuberance which has spread to precious metals, so last week I unloaded all of my shares of GDXJ, GDX, SIL, SILJ, and related funds and kept only my coins. At the end of the week in response to absurd bullishness regarding mega-cap U.S. technology shares, I significantly increased my short position in XLK to 8.5% of my total liquid net worth and will add more this week if the excitement continues. I now have more shorts than longs and the most cash since February 2012--roughly 5/6 of my total liquid net worth.

VIX kicks.

VIX has been the most consistently reliable indicator throughout the decades in telling us when to buy and when to sell. During the past several weeks VIX has tried repeatedly to slide into the low 20s and has repeatedly failed to do so, with the most recent attempt on Friday, July 31, 2020 when it dropped to 23.55 at 9:06 am. Eastern Time. Sooner or later VIX is going to surge higher and double or triple, although it will not likely surpass its March 18, 2020 top of 85.47. As this is happening most risk assets worldwide are going to suffer much greater percentage losses than most investors are currently anticipating. Hardly anyone has been hedging or establishing short positions in the false belief that the global economy will prosper once the coronavirus is cured. Paradoxically, the sooner there is a proven vaccine and/or cure for the coronavirus, the more rapidly we will experience a severe bear market because there will be nothing to look forward to except huge worldwide deficits and a persistent slowdown in global economic and profit growth.

Tech dreck.

The total market capitalization for U.S. equities is now roughly twice the total U.S. GDP for the first time in history, surpassing its previous all-time record of 1.87 from March 2000 (source: Randall Forsyth in Barron's from August 3, 2020). U.S. mega-cap technology shares are more overvalued than they had been during the end of 1999 and the beginning of 2000 which had been their previous absurd peaks. It should be remembered that the Nasdaq had plummeted 78.4% from its March 10, 2000 top of 5132.52 to its October 10, 2002 nadir of 1108.49 so we are almost certainly setting up for a repeat performance. Adjusted for earnings and inflation the Nasdaq could drop even more over the next few years than it had done during its historic collapse at the beginning of this century. Just as in early 2000, 1929, and early 1973, the market's most-popular companies are especially overpriced. As they regress toward the mean, they are so heavily owned by index funds and trillions of dollars of managed money that this by itself could push the worldwide economy into a recession in another year or so.

Dollar holler.

On Friday, July 31, 2020 the U.S. dollar index slid to a 2:49 a.m. bottom of 92.546 which marked its most depressed point since May 2018, after which it began to tentatively rebound. The U.S. dollar has entered what appears to be a well-entrenched downtrend, so as it reverses sharply higher along with VIX it is likely to surprise and confuse most investors who are expecting additional greenback weakness. The Russell 2000 is revealing the truth: following its all-time top of August 31, 2018 the Russell 2000 has made lower highs in January, February, June, and July. This means that the real U.S. stock market, not counting the biggest and most-popular names, has been in a downtrend for nearly two years. The longer a U.S. equity bear market continues the more frequently we will experience severe corrections such as the one we had suffered in February-March 2020. Lots of people think that was a one-time event "caused by" the coronavirus but it was merely a continuation of a series of corrections including the drop of more than 20% for the S&P 500 Index over a period of more than three months in September-December 2018. Most likely the next three to five months will be accompanied by a drop of at least 20% for all U.S. equity indices and potentially much greater losses by the time the next intermediate-term bottoming patterns are completed.

Gold cold sold.

Have you noticed recent frequent upside price projections for gold these days? Near the end of 2015 and the start of 2016 nearly all analysts were talking about not if, but when gold would drop to 1000 or 800 or 600 or 300 U.S. dollars per troy ounce, with no one talking about gold recovering to 1200 or 1300 which of course is what it did. Now we see repeated guesses as to when gold will reach two thousand, 2500, 3000, 5000, ten thousand, and so on, with hardly anyone suggesting that it might drop to 1800 or 1700. Any very overcrowded trade is always very dangerous regardless of fundamentals.

More importantly, the most reliable leading indicator for gold is its behavior relative to GDXJ and other funds of gold mining shares. When gold first touched 1970 U.S. dollars per troy ounce just before the end of the after-hours session on Monday, July 27, 2020, GDXJ had its last trade of the day at 64.18. On Friday the last trade just before 8 p.m. Eastern Time for GDXJ was 60.25 and that was with gold bullion just above 1975. When higher gold prices are met by lower highs for GDXJ then this is almost always followed by a substantial pullback for the entire sector. It works the opposite way also: when gold bullion keeps dropping while GDXJ resists repeated pullbacks then a rally is usually closely approaching.

The most bearish behavior would be gold actually reaching or closely approaching 2000 while GDXJ keeps forming lower highs.

Sweep creep deep.

There is no guarantee that Democrats will sweep the U.S. House of Representatives, the Senate, and the Presidency on November 3, 2020 but such an outcome has become increasingly likely. Just as in 2008, a Democratic sweep will cause many investors to become fearful of the future. Such a sweep could lead to the U.S. corporate tax rate climbing to roughly 28% (it was lowered from 35% to 21% at the end of 2017) as well as the SALT limitations being repealed and likely significantly higher marginal tax rates for wealthier U.S. residents. Once investors realize simultaneously that long-term capital gains rates are likely to rise sharply on January 1, 2021, investors will rush to lock in currently unusually-low rates during the final weeks of 2020. Combined with tax-loss selling for some of the biggest 2020 losers and disappointment by Robinhood investors that it's not as easy to make money as it looks, we could experience a multi-month decline which doesn't end until the final weeks of 2020 or perhaps in early 2021 followed by the next bear-market rebound.

House louse.

Real-estate prices have rebounded from their sharp March 2020 selloffs partly since 30-year U.S. fixed mortgage rates had briefly dipped below 3% and partly since the coronavirus has caused unusually low inventory, plus the U.S. stock-market rebound has likely engendered overconfidence in many other assets. As U.S. equities and corporate bonds retreat in value, residential inventory is likely to progressively increase as people sell houses to raise cash. The process of falling real-estate prices is likely to accelerate in 2021-2022 and perhaps beyond, with the primary reason in 2021 being an unexpectedly large rise for mortgage rates as both inflation and interest rates surprise everyone including the Fed with their resurgence. 2022 is likely to bring a worldwide recession and the lowest stock-market valuations in more than a decade, both of which will exert additional downward pressure on housing prices. Many people don't realize that, according to Robert J. Shiller in a New York Times article from earlier today (July 31, 2020), inflation-adjusted U.S. home prices soared 45% from February 2012 through May 2020. This increase is entirely artificial, helped by new U.S. government rules to allow nearly anyone with a good credit rating to buy nearly any house with zero down payment or closing costs which are financed along with the house itself. Real U.S. housing prices slid 36% from December 2005 through February 2012 (source: the same NYT article) so some kind of repeat performance is likely. Houses are no longer as "safe as houses": in the age of the internet they fluctuate sharply in both directions just like stocks, bonds, collectibles, and everything else. It's a small world after all.

The bottom line: get heavily into cash now to minimize your potential losses for the remainder of 2020 and to have plenty of buying power for what will likely become numerous compelling bargains.

Investors tend to be too heavily committed too much of the time, thereby making it impossible to fully take advantage of true bargains such as we had experienced in March 2020. Since the Russell 2000 and most baskets of small- and mid-cap U.S. equities have been in downtrends since August 2018, we are likely to experience several more major corrections over the next few years. You can often make more money in a U.S. equity bear market by making opportunistic purchases near all intermediate-term bottoms than you can by selling short on the way down, although it also makes sense to be short funds like XLK and QQQ or if you have a retirement/cash account to buy something like PSQ which will have inferior returns to selling short directly but which is taxed more lightly in some jurisdictions including Canada. I had recommended holding onto gold mining and silver mining shares two months ago but now those should be sold also.

Disclosure of current holdings:

From my largest to my smallest position I currently am long the TIAA-CREF Traditional Annuity Fund, bank CDs, money-market funds, Discover Bank Savings paying 0.95% (mostly new), I-Bonds, XES, MTDR, PSX, CDEV, WTI (all energy shares purchased in the second week of July 2020), GEO, BCBP, OPBK, SONA, KRNY (continuing to purchase regional banks into weakness). I have 5.0% of my total liquid net worth in the previously-mentioned energy securities, 3.5% in the regional banks I listed, 1.5% in GEO, and am otherwise completely sold out of everything else on the long side.

I have 8.5% of my total liquid net worth short XLK, 4.0% short TSLA, and 1.5% short ZM. I plan to keep adding especially to my XLK short into strength whenever XLK is near 110 or above. My cash and cash equivalents including bank CDs, savings/money-market accounts, I-Bonds, stable-value funds (fixed principal, variable interest) comprise 83.3% of my total liquid net worth, my highest percentage total since February 2012. (It seems to exceed 100% but for short positions only part of the total cash value is required to hold them.)

"Those who cannot remember the past are condemned to repeat it" (George Santayana). "Those who can remember the past but insist that it's different this time deserve to repeat it" (Steven Jon Kaplan).

The two previous longest bull markets in U.S. history occurred as follows: 1) from August 1921 through September 1929 which was followed by a bear market of over 34 months from September 1929 through July 1932; and 2) from October 1990 through March 2000 which was followed by a bear market of 30-31 months in duration (exactly 31 for the Nasdaq). The longest-ever bull market which began for the S&P 500 on March 6, 2009 and which may have ended for that index on February 19, 2020 might therefore last for 30-36 months which implies a major bottom somewhere near the end of 2022. The bear market for the Russell 2000 and many other small- and mid-cap U.S. shares began on or around August 31, 2018 and has therefore been intact for nearly two years with several key lower highs along the way.

Friends don't let friends become overinvested.

“Buy on the sound of cannons; sell on the sound of trumpets.” --Nathan Rothschild, 1810

EUPHORIA TO PANIC TO EUPHORIA (June 9, 2020): Since the internet became popular in the 1990s we have experienced far more frequent and more exaggerated extremes in both directions for nearly all assets. During the past half year we have gone from U.S. equities being dangerously overpriced, to a fabulous buying opportunity for equities worldwide, back to an even more dangerous euphoria which exists today. Even hated energy and Brazilian shares have soared and have recently encouraged insider selling along with new massive fund inflows and all-time record call buying for numerous securities. It is as important to sell now as it had been at the most extreme stock-market peaks in history including August 1929, January 1973, March 2000, and October 2007. Actually 2007 wasn't even especially overvalued but I included it since the other dates may seem like ancient history especially to younger investors. It is urgent to sell soon while almost everyone else is congratulating themselves for being far too heavily invested.

As usual, VIX is sending a valuable signal which almost everyone is ignoring.

In mid-March 2020 VIX soared into the mid-80s and then began to form considerably lower highs. This signaled that the most experienced investors who often sell put options as portfolio insurance were getting less worried about the possibility of significant additional stock-market losses while most amateur investors were getting more worried as prices continued to drop into March 23, 2020. In March 2020 we had the biggest-ever weekly net outflow from equity funds in history, surpassing the previous record from February 2009, and then the record was broken the very next week near the end of March 2020. The most experienced investors were correct as we experienced one of the strongest short-term percentage rebounds in history. Now we have the opposite situation where amateurs are getting more optimistic while VIX is making higher lows instead of lower lows for several trading days, signaling that the most-experienced options traders are increasingly worried about a substantial selloff in upcoming weeks. I have no doubt that the professionals will be proven right yet again.

Investors have been piling into whatever has been rallying the most in percentage terms regardless of merit.

Even bankrupt companies have been enjoying astonishing price increases in recent trading days while sectors which had been abandoned as hopeless including Brazil and energy have enjoyed dramatic upward surges. Just as the strongest rallies are preceded by especially sharp extended losses, the most severe pullbacks are preceded by nearly vertical price increases. Investors have already seen major uptrends followed by sharp downtrends in September 2018 and March 2020, both of which had occurred after the Russell 2000 had completed its all-time top on August 31, 2018. The bear market for the Russell 2000 has existed for nearly two years and will soon intensify regardless of what happens with coronavirus, geopolitics, or any other meaningless triggers or phony cause-and-effect relationships. Whenever assets are dangerously overpriced they are far more vulnerable to above-average percentage losses.

Mega-cap technology shares have never been more overpriced overall even if you compare them to periods like March 2000.

Stocks like AAPL and MSFT have never been more overvalued relative to their likely future profits than they are now. The same applies to a few dozen other overpriced names which are almost all involved directly or indirectly with technology and modern finance. As is often the case during a lengthy bear market, investors are very reluctant to give up on their blockhead Boglehead dreams about making money "in the long run." Those who buy near major tops have always come out far behind even if they are patient enough to hold forever; those who bought or held Nasdaq shares prior to their March 10, 2000 intraday peak of 5132.52 are currently barely ahead after adjusting for inflation after more than two decades and that is with the Nasdaq recently registering a new all-time top. Investors who owned stocks in August 1929 had lost more than half of their money after adjusting for inflation by August 1982 which was 53 years later, and that is counting all reinvested dividends.

Sometimes bulls make money and sometimes bears make money but hogs get slaughtered.

Bulls made plenty of money from Christmas 2018 through January-February 2020. Bears did beautifully during the final weeks of winter. Afterward bulls have done wonderfully. Those who are just sitting around doing nothing and congratulating themselves for being geniuses are about to lose more than half their money for the third time in the 21st century which has only existed for a little over twenty years. In a bull market you can be more patient while buying and holding, but in a bear market such an approach will wipe you out. Sometimes you absolutely must sell and now is absolutely one of those times.

Real estate will likely lose one-third of its value worldwide as it had done in 2006-2011.

One reason the previous recession was so severe was that as people perceived their houses being worth less they cut back on their spending and sold stocks. This is known as the negative wealth effect and it will likely be a major factor in 2020-2023. Only a few analysts are concerned about how lower prices for stocks, houses, bonds, and many other assets will encourage people to become more frugal.

Sometimes you have to adjust your expectations to adjust to reality.

When I was aggressively buying in March 2020, and in some cases through mid-May 2020, I expected to hold most of those shares for perhaps one year and at least into early 2021. However, they have experienced such outsized gains which in many cases exceeded my most optimistic one-year forecasts that it is essential to get out now while it is still possible to achieve high prices. The speculative fever and mood in June 2020 is at least as great as it had been in August 1929, January 1973, and March 2000, and far exceeds that of any time in 2007.

A false belief in the omnipotence of the Fed will be especially crushing when this illusion is shattered.

At every major market top in history there is an overconfidence that nothing bad can happen because of one reason or another. Today there is a widespread false belief that the U.S. Federal Reserve will print unlimited money or purchase unlimited quantities of securities and that this action will enable prices to keep climbing indefinitely. As the bear market continues and intensifies and investors progressively realize that this was a false premise then they will become even more disillusioned than they would have been if there had been no Fed intervention. This loss of faith will be a contributing factor to one of the biggest-ever percentage drops for U.S. equity indices in their entire history.

Summary: even if you live a long life, selling now will likely be one of the key wealth-building events of your lifetime. You must sell high and prepare to buy low again.

Far too many investors believe that they have already experienced the bear market of the decade when it has barely gotten underway. Absurdly overpopular mega-cap technology shares will likely drop by 70% or more over the next few years or less. Sell now when everyone wants to party on.

The bottom line: investors are more dangerously overconfident now than they were in early 2020.

While insiders are doing some of their most intense selling ever recorded for many sectors, we have set new all-time records for call buying relative to put buying along with numerous all-time extremes in short-term percentage gains for thousands of securities along with other rare extremes of positive sentiment. We have gone from euphoria in early 2020 to panic in March 2020 to euphoria in June 2020. The next stop is despondency as the market probably surrenders over half of its post-March 23, 2020 gains for many assets.

Disclosure of current holdings:

From my largest to my smallest position I currently am long GDXJ, the TIAA-CREF Traditional Annuity Fund, SIL, bank CDs, money-market funds, GDX, I-Bonds, GOEX, BGEIX, RGLD, WPM, SAND, and SILJ. I am completely sold out of Brazilian shares, energy shares, shipping, other emerging markets, and numerous other equity funds which I had been aggressively accumulating in March through mid-May 2020.

In March I had closed out all of my short positions; now I have closed nearly all of my long positions except for those related to precious metals while selling short especially XLK along with modest short positions in TSLA and ZM. These short positions combined total 8.8% of my total liquid net worth and I plan to keep adding to them into strength. Downside risk for U.S. equity indices is probably greater now than it has been at any time since early 2000. I would also sell short actual houses if there were a way to do so. My cash and cash equivalents including bank CDs and stable-value funds (fixed principal, variable interest) comprise 61.1% of my total liquid net worth, my highest percentage total since January 2018 when I had previously been a heavy seller.

"Those who cannot remember the past are condemned to repeat it" (George Santayana). "Those who can remember the past but insist that it's different this time deserve to repeat it" (Steven Jon Kaplan).

The two previous longest bull markets in U.S. history occurred as follows: 1) from August 1921 through September 1929 which was followed by a bear market of over 34 months from September 1929 through July 1932; and 2) from October 1990 through March 2000 which was followed by a bear market of 30-31 months in duration (exactly 31 for the Nasdaq). The longest-ever bull market which began for the S&P 500 on March 6, 2009 and which may have ended for that index on February 19, 2020 might therefore last for 30-36 months which implies a major bottom somewhere near the end of 2022. The bear market for the Russell 2000 and many other small- and mid-cap U.S. shares began on or around August 31, 2018 and has therefore been intact for nearly two years with several key lower highs along the way.

Investors have amazingly become more aggressive buyers of stocks, junk bonds, and call options in June 2020 than they were in January-February 2020 which had set most of the previous all-time records. The thundering herd is always maximally optimistic near a critical top, just as they had been maximally pessimistic less than three months ago. Look out below.

“When your views are truly contrarian they are inevitably uncomfortable. Courage and the ability to withstand pain are required.” --Michael Steinhardt

STEADILY SELECT SPLATTERED SECURITIES (March 29, 2020): A useful analogy to a bear market is to imagine that several dozen people carry buckets of brightly-colored paint up to various floors of a skyscraper and then simultaneously pour their buckets onto the street. The buckets which were carried to the highest floors will generally splatter more aggressively than buckets from lower floors but it will be a messy correlation rather than a clean linear pattern. In other words, some of the paint from floors which are not at the very top will end up splattering worse than some of the paint from higher floors due to the unpredictability of nature. The same is true of bear markets: the most overpriced assets will generally suffer but some undervalued assets and others which "shouldn't have" dropped so much will do so anyway. Because most investors aren't accustomed to trading in bear markets, especially now when we haven't experienced such a downtrend for eleven years, most people will be acting from confusion rather than with advanced planning. Even an inferior method is better to acting randomly or using emotions.

The weekly timing of the selling signals that the least-experienced investors are doing the most selling--which is when you should be doing your heaviest buying.

When do ordinary inexperienced investors sell? Definitely not at 11 a.m. on a Wednesday since they're busy working at that time. Most inexperienced people place market sell orders on non-trading days when they have time to do so. We saw this clearly in December 2018 when during the weekend prior to December 24 many investors sold in a panic with their orders being filled at the open that day, which triggered sell stops that led to additional losses. Investors had all of Christmas Day to place more market sell orders which were filled near the open on Wednesday, December 26, 2018 which triggered a final round of stop-loss selling followed by one of the biggest one-day rebounds in history the same day.

Do the opposite of the weekend warriors and follow the Nikkei 225 futures especially on Sunday evenings.

Nearly identical behavior has been occurring in recent weeks when ordinary investors have placed market sell orders during most March weekends which are filled at the open on Monday followed by stop-loss orders being triggered by those lower prices. The market then mostly recovers later in the week, only to experience the same behavior the following weekend. If you look back at the first quarter of 2009 then we had another instance of the same phenomenon. This kind of action has been true for decades. Experienced traders will do extra buying near the opening bell each Monday and on other days following non-trading days (like December 26, 2018) whenever fear is elevated.

Sometimes U.S. futures are trading limit down which makes it impossible to track how the global markets are behaving. Ignore the U.S. futures especially on limit down days and watch the Nikkei 225 futures which don't have limit-down restrictions. On Sunday evening, March 22, 2020, Nikkei 225 futures opened down about 11% and were down only 3% a few hours later, indicating that U.S. stocks would probably open lower but that better times probably were ahead. As I am writing this on Sunday evening we have similar albeit less exaggerated moves as Nikkei futures opened moderately lower and are now slightly positive. The exchanges' suspending trading during volatile moves is idiotic since most investors get especially nervous during trading halts. Some of my lowest purchase prices were achieved from fills which occurred within a few minutes of trading being resumed after an artificial halt.

When many investors and chartists are selling while top executives have been doing their heaviest buying since the last bear-market bottom in March 2009 then you know you should be gradually buying into weakness. Never chase after any recent trend.

Many ordinary investors have been confused by the market's recent plunge and have been either not buying into weakness or actually selling. Technical traders have been hit even harder by repeatedly chasing after short-term trends which usually reverse just after they are "confirmed." Do as the insiders do and gradually purchase whatever is most undervalued using ladders of good-until-canceled orders. Some of the best bargains have existed only for minutes or even for seconds on some especially-volatile trading days, so if you are trying to buy using market orders you are unlikely to succeed in getting the most-favorable prices. The ideal approach is one I use even in calmer markets: place ladders of very small orders of equal-dollar amounts which are spaced equally apart and which go very deep so the market never goes below the lowest rung in your ladder. It is better to buy very tiny amounts at truly compelling prices then to try to magically guess where you will profit from lump-sum trading.

When unusually heavy insider buying is combined with all-time record selling by inexperienced investors then that serves as an even stronger buy signal.

The best time to sell is when we have heavy insider selling combined with intense buying by the least-experienced investors; this is why I was steadily selling near the end of 2019 and the beginning of 2020. Now we have an even stronger buy signal due to all-time record selling by the least-experienced participants in the financial markets:

Funds and ETFs Witness Record-Breaking Outflows During the Week

A surprising number of stocks and bonds recently traded at or near multi-decade lows.

Bear markets are notorious for their capriciousness and usually end up erasing a significant percentage of the gains which had been achieved in recent bull markets. When U.S. equity indices had bottomed in early March 2009 they didn't just give up their gains since 2007 or 2006 but fell to 12-1/2-year lows for the S&P 500 which meant their cheapest prices since 1996 without adjusting for inflation. If you adjust for inflation then stocks in early 2009 had returned all the way back to their levels from the mid-1980s. Recently many traded shares fell to prices not seen since the early years of the 21st century or in some cases in a few decades without even adjusting for inflation. This has created compelling buying opportunities for those who have been alert to recent bargains while highlighting that the Boglehead approach of buying no matter how overvalued the stock market is doesn't work in the long run.

Those who bought U.S. stocks in August 1929 lost half of their money in inflation-adjusted terms if they held them for 53 years until August 1982.

There is zero political resistance to endless stimulus and literally printing money as rapidly as possible.

It is almost impossible for those who believe in restraining deficit growth to be seriously considered nowadays since the popular mood is for governments around the world to "do something about" the economic contraction caused partly by the severe restrictions required to fight the spread of coronavirus. The U.S. just passed a two-trillion-dollar stimulus package, the U.S. Fed is taking extraordinary action in other aspects, while governments worldwide are acting similarly even where they have a long history of being more subdued and conservative. This will have profoundly inflationary implications which aren't generally being considered by many investors except for insiders. Top corporate executives have been doing their heaviest buying in many companies which will benefit from rising inflationary expectations and massive global stimulus.

Housing prices have been collapsing but almost no one knows about it unless they are in the industry.

It is pretty clear why homebuilders and those who wish to sell real estate aren't eager to have it widely known that the much-publicized collapse for financial assets around the world has been accompanied by equally dramatic but mostly hidden losses for both residential and commercial real estate. REITs have plummeted but so many sectors have done likewise that this is often overlooked. Due to the coronavirus there aren't the usual selling procedures like open houses (scheduled public viewings) or even the ordinary procession of buyers meeting sellers. Most people naively believe that housing prices are remaining relatively flat. As wealth has evaporated worldwide this must inevitably lead to significantly lower prices for real estate, and since downturns for real estate usually last for a few years or more the pullback will likely continue for at least three years. If you are able to sell then do so as soon as possible, while if you have been considering doing any buying then I would strongly recommend waiting at least until 2023 before taking action.

The timing of lower highs will be of major significance in the U.S. elections scheduled for November 3, 2020.

Nearly all bear markets are notable in the way in which they form lower highs. The Russell 2000, consisting of companies 1001 through 3000 by market capitalization out of all 3600 U.S.-listed companies, topped out on August 31, 2018, formed a key lower high on January 17, 2020, and recently plummeted so deeply that it was recently trading below its levels from the final months of 2013. This wasn't widely reported in the mainstream financial media but it is immediately obvious on a long-term chart. We have likely begun a powerful rebound for risk assets around the world which will have major implications for the U.S. Presidential, Senate, and House of Representatives elections scheduled in just over seven months. If the S&P 500 and similar U.S. equity indices are completing important lower highs with the S&P 500 near three thousand around Election Day then Donald J. Trump has a good chance of being re-elected while the Senate will likely remain with Republicans holding a majority. On the other hand, if the current rebound stalls around some other time like Labor Day (September 7, 2020) and thereafter falls sharply then we could experience a meaningful shift toward the Democrats. During the 2007-2009 bear market there was a major plunge which began near the opening bell on the day after Labor Day which made it far easier for Democrats to sweep that year; during the 2000-2002 bear market there was an important top also around Labor Day of 2000 followed by a moderate pullback which may have made it possible for George W. Bush to squeak by in a disputed contest.

The media often discuss how the results of the U.S. elections will impact the markets but it is probably even more significant to consider how the markets will impact the elections. If Democrats regain both the U.S. Presidency and the Senate, and retain control of the House of Representatives, then significant tax and other legislative changes will become nearly certain for 2021 which could persist for several years or more.

Insiders have been buying at their most aggressive pace since March 2009.

The ratio of insider buying to insider selling reached its highest ratios since February-March 2009 with the following article discussing this topic:

Executives Are Buying Stock in Droves

Top corporate executives aren't permitted to sell the shares they purchase until at least six months after the date of purchase or else they have to surrender their gains. This means that they have not been buying simply in anticipation of a brief sharp recovery but are looking for a more sustained rebound.

Insider buying has not been uniform across sectors. Especially-undervalued securities in energy and travel are among those which have experienced multi-decade peaks of insider accumulation during the past few weeks.

TLT has been forming lower highs since the pre-market session on March 9, 2020, while VIX revisited the mid-80s multiple times two weeks ago and completed a significantly lower high when most major U.S. equity indices slid near the opening bell on March 23, 2020.

TLT, a fund of long-dated U.S. Treasuries, topped out at 181.41 three weeks ago on March 9, 2020. You won't find this number on your charts unless you use data which includes trading outside of regular hours since this top had occurred in the pre-market session at 7:56:29 a.m. Eastern Time. Meanwhile, VIX peaked several trading days prior to the March 23, 2020 bottom for the S&P 500, the Nasdaq, and many large-cap U.S. equity indices. This implies that the most-experienced investors who tend to purchase long-dated U.S. Treasuries and portfolio insurance became less eager to hedge at the same time that most ordinary investors were becoming increasingly nervous about their portfolios. This is analogous to the market's behavior in early 2009 prior to one of its strongest-ever ten-month uptrends from early March 2009 through early January 2010.

Summary: buying now will likely be profitable especially because we remain in a bear market for U.S. equities which began when the Russell 2000 topped out on August 31, 2018. Buying near the end of 2018 was highly profitable and buying in recent weeks will likely prove to be even more rewarding.

If you buy near an intermediate-term bottom during a bull market you will usually come out ahead. If you buy near an intermediate-term bottom during a bear market, especially when insiders are buying at their most intense pace in eleven years and in some sectors at all-time record levels, you will achieve greater annualized gains since bear markets tend to be far more volatile than bull markets in both directions. Those who bought in the final months of 2018 were well rewarded especially if they sold in late 2019 and early 2020. Similarly, those who have been buying the least-popular securities in recent weeks into the coronavirus panic and who keep buying into pullbacks will likely enjoy even greater annualized gains during some unknown period of months.

The bottom line: with all-time record investor outflows you know it must be worthwhile to be doing the opposite.

The most-experienced investors are doing their heaviest buying in eleven years while the least-experienced investors are doing their most panicked selling in eleven years. You don't need an advanced degree to figure out which side will come out ahead, and since we are in a long-term bear market the upcoming gains will likely occur surprisingly quickly. Whenever most people you know become excited about "getting back into the market" and insiders are unloading then it will be time to get out again.

Disclosure of current holdings:

From my largest to my smallest position I currently am long GDXJ (some new), the TIAA-CREF Traditional Annuity Fund, SIL, XES (some new), ELD (some new), FCG (some new), OIH (some new), PSCE (some new), bank CDs, money-market funds, GDX, I-Bonds, SCIF, MTDR (some new), URA (some new), PAK, EPOL, ECH, COPX (some new), REMX (some new), XOM (all new), PEO (all new), EZA (all new), GXG (all new), FXF, GREK (all new), EWW (all new), GNK (all new), EGLE (all new), IPI (all new), SBLK (all new), SALT (all new), FLNG (all new), EGPT (some new), GOEX, BGEIX, NGE, FXB, XOP (all new), CCL (some new), BA (all new), AA (some new), IDX (some new), EWM, RGLD, WPM, SAND, SILJ, KLXE (all new), and CHK. I am completely sold out of U.S. Treasuries, HDGE, SEA, SLX, ASHR, ASHS, TUR, FM, ARGT, RSXJ, LIT, EWU, EWG, EWI, EWD, EWQ, EWK, EWN, WOOD, EPHE, JOF, and AFK.

I have closed out all of my short positions which I will generally do whenever VIX reaches a multi-year peak. The only securities I would sell short now would be long-dated U.S. Treasuries and their funds including TLT. I would sell short actual houses if there were a way to do so. My cash and cash equivalents including bank CDs and stable-value funds (fixed principal, variable interest) comprise 17.7% of my total liquid net worth.

"Those who cannot remember the past are condemned to repeat it" (George Santayana). "Those who can remember the past but insist that it's different this time deserve to repeat it" (Steven Jon Kaplan).

The two previous longest bull markets in U.S. history occurred as follows: 1) from August 1921 through September 1929 which was followed by a bear market of over 34 months from September 1929 through July 1932; and 2) from October 1990 through March 2000 which was followed by a bear market of 30-31 months in duration (exactly 31 for the Nasdaq). The longest-ever bull market which began for the S&P 500 on March 6, 2009 may have ended for that index on February 19, 2020. This historical evidence suggests that the current bear market for the S&P 500 could last for 30-36 months which implies a major bottom for U.S. equity indices somewhere near the end of 2022.

The heaviest insider buying since March 2009 combined with all-time record investor net selling and repeated pullbacks near the opening bell worldwide especially on Mondays is likely signaling a major uptrend for most global risk assets. Keep steadily buying the most undervalued stocks and bonds and don't sell again until VIX is back down to the mid-teens. Some commodity-related and emerging-market securities may have begun major uptrends with triple-digit percentage gains while some individual shares have already doubled from their recent deep nadirs.

“Humans are prone to herd because it is always warmer and safer in the middle of the herd. Indeed, our brains are wired to make us social animals. We feel the pain of social exclusion in the same parts of the brain where we feel real physical pain. So being a contrarian is a little bit like having your arm broken on a regular basis.” --James Montier

FEAR: STOP FEEDING, START FADING (March 8, 2020):

There are two ways investors can respond to the coronavirus panic. The first one is the overly obvious wrong one: pile into long-dated U.S. Treasuries; buy shares of companies like Clorox and drug-related corporations which will allegedly benefit from a vaccine or some kind of cure; massively sell energy and travel shares and anything else which would be negatively affected by virus fears. Taking these actions has been widely popular as you can immediately see as yields on the 10-, 20-, 30-, and related U.S. government securities have plummeted to their lowest levels ever recorded since U.S. debt was first available in 1791. Many of these yields are not only all-time records but are roughly half the previous lows while representing the greatest-ever negative real yields (i.e., after adjusting for inflation) in U.S. history. Meanwhile, already-undervalued shares in sectors like energy and travel have become even more illogically depressed.

Second-level thinking is essential to profit in the financial markets. If they act early enough, first-level investors may sometimes be ahead in the short run but almost always lose in the intermediate and long run.

If taking panic action like piling into U.S. Treasuries is obvious even to the average pre-K investor who has barely learned to recognize the letters in the symbol names then probably it is not going to be a successful approach. More importantly, successful investing is almost always not about recognizing the obvious but gauging the most extreme overreactions by others who have recognized the obvious as a thundering herd. If media headlines about a virus lead to less travel then perhaps travel shares should drop by a tiny amount but not by fifty, sixty, or seventy percent. Even in an unusually volatile year like 2008 actual energy supply and demand fluctuated by only a half percent as prices quadrupled and then plunged below their pre-quadrupling levels. After the 9/11 terrorist attacks analysts were confident that flying and other forms of travel would remain depressed indefinitely. It is the absurd extent of the most exaggerated overreactions which provides most worthwhile buying and selling opportunities. Just as we adjusted after 9/11 to the knowledge and responsibility regarding occasional terrorist attacks, one way or another society will adjust more rationally to the existence of coronavirus. People will want to travel as much as they had done before and otherwise live fully again while knowing what do do in case they exhibit certain symptoms characteristic of coronavirus. Doomsday scenarios of "never doing so-and-so again" have always proven to be false in past decades and centuries.

Full credit must be given to Howard Stanley Marks for popularizing the concept of second-level investing. Like myself he has also become a recent heavy buyer of the least-popular shares worldwide.

The incredible level of worldwide stimulus in response to coronavirus is the main financial story and one which has been woefully underemphasized.

The financial media are rife with speculation about how this or that asset will allegedly react to coronavirus. The fact is that the market has already reacted, overreacted, overreacted some more, and then ridiculously way overreacted again. What almost no one is emphasizing is how governments around the world have been cutting overnight lending rates, pouring record billions into their economies--at least one or two trillion overall eventually--and how this is occurring not during a severe recession but near the end of an eleven-year global economic expansion. The real dilemma is that the worldwide economy is likely to generate rising inflationary expectations rather than deflation or contraction. The end of any lengthy economic expansion will eventually be a worldwide recession, but coronavirus has invited massive stimulus which other than an initial brief negative GDP impact has likely postponed the arrival of such a recession by more than a year.

The media know they will get more viewership by hyping the coronavirus and making it seem personally imminent, rather than responsibly reporting on current advanced efforts to develop cures and how people should avoid irrational overreactions.

Energy shares are trading near two-decade lows with some of them near three- and four-decade bottoms.

The sector with by far the most insider buying for an extended period of time has been traditional oil and gas shares and companies which service and are connected with those producers. Profits are generally much higher now than they had been in past decades so their price-earnings ratios and other fundamentals have become amazing bargains even when compared with past recession nadirs. In 2008 we had irrationally undervalued energy followed by the highest overpricing in history followed by a second irrational undervaluation, all within a single calendar year. Investors who are currently overreacting to the downside will be wildly speculating and pushing prices of energy shares to multi-year highs perhaps two years from now. Exactly why the shares of energy companies are so volatile and tend to fluctuate roughly in two-year swings is unclear but what has been the case in the past will almost certainly continue into the future.

Worthwhile funds in this sector include FCG, OIH, XES, and PSCE. PSCE is especially unpopular since it consists of small-cap energy names, and small-caps worldwide are out of favor at the same time that energy companies are unpopular--thus providing you with an attractive double play.

As I am writing this Sunday night, March 8, 2020, West Texas intermediate crude oil just dipped briefly to 27.90 U.S. dollars per barrel which it had not touched since the early weeks of 2016. Regardless of what it does in the short run, this price will roughly triple within about two years.

Travel shares have become as irrationally oversold as they had been after the 9/11 terrorist attacks.

Other than energy the heaviest insider buying during the past several trading days has been for companies which are connected directly or indirectly with travel. The assumption is that because of coronavirus--that excuse again--people will permanently travel less for business and pleasure than they have done in the past. Those who remember 9/11 remember similar forecasts; just two years later we had new all-time records for flights and vacations. This time it may not even take two years to rebound strongly because a partial cure might be found any day or warming weather could greatly reduce the virus' spread or a vaccine could be developed--or all of the above. Insiders don't have special knowledge but they recognize that when valuations have become their cheapest in decades it is usually worth gradually buying especially when so many investors are selling first and asking questions later if at all.

Cruise-line shares CCL, RCL, and NCLH have been especially out of favor in recent trading days and will likely all rebound significantly over the next several months.

Hardly anyone is considering the political impact of coronavirus as Democrats have a far greater chance of retaking the U.S. Presidency and the Senate while retaining control of the House of Representatives.

What does Donald J. Trump point to most often as the justification for having another four years in office? It is the way he has allegedly pushed the stock market higher. The problem with consistently taking credit for new all-time market highs is that you have to take equal blame for what may end up being one of the biggest-ever percentage declines from those highs in an election year. It's certainly not necessarily Trump's fault and if coronavirus is still around on Election Day then it may provide a convenient excuse for the decline. However, it is more likely that by November 3, 2020 coronavirus will have become a nagging background issue rather than continued headlines and that there will be several other reasons cited for weakness in U.S. equity markets. That will be especially true if we enjoy a multi-week rebound which I will expect will begin very soon time-wise.

Gold mining and silver mining shares have probably already completed key higher lows to point the way higher for commodity-related and emerging-market securities.

During the last bear-market bottoming cycle gold mining and silver mining shares mostly completed their respective nadirs at or near the opening bell on October 24, 2008. Most other commodity producers and leading sectors including semiconductors did so around November 20, 2008 while many other assets bottomed during the first quarter of 2009. It is likely that gold mining and silver mining shares were again among the earliest sectors to complete their coronavirus-inspired lows with GDXJ slumping to 35.25 on February 28, 2020 and making several higher lows thereafter. This has been followed by other commodity-related and emerging-market funds beginning to form additional higher lows with energy as usual being one of the last sectors in this category to rally strongly. Insiders continue to point the way by persistently buying into the lowest valuations with energy shares enjoying especially intense insider accumulation.

VIX keeps surging toward and occasionally above 50 but will not likely be able to remain above such levels for an extended period of time.

Fear is a powerful human emotion but it is not easily sustained. Whenever VIX is spiking as it has been doing lately it is warning that any stock-market downturn is likely to soon lead to an impressive intermediate-term rebound. I expect most global risk assets to enjoy uptrends which will be highly choppy but will generally last for at least several weeks until VIX is once again around 17, 16, 15, or perhaps even lower than that. If investors would learn to sell whenever VIX is forming key higher lows as it had done in February 2020, rather than when VIX is topping out as it is doing now, then they would enjoy far greater long-term success.

Buying on Monday morning has often been a successful strategy as weekend warriors upset by recent losses and above-average volatility finally surrender and place massive market sell orders which will be triggered at Monday's opening bell--an ideal time to add to your long positions.

The U.S. dollar index has quietly begun a two-year downtrend from a three-year top.

The U.S. dollar index rallied to 99.910 on February 20, 2020, its highest point in three years and not far below its zenith from the beginning of 2017, and has since formed numerous lower highs. The greenback will continue to choppily decline for perhaps two years and will eventually complete multi-year bottoms versus many global currencies. This process will encourage rising U.S. inflationary expectations which when combined with already-committed stimulus and foolishly-conceived interest-rate cuts will prove to be a potent reflating cocktail.

Summary: the biggest profits are made by taking the opposite side of the most extreme overreactions. We now have more such simultaneous extremes than probably at any time since the first several weeks of 2016.

When I wrote my last update in early February 2020 investors saw no urgency in selling and were eager to keep piling into the most popular technology shares when it was essential to aggressively reduce risk. Now when we have multi-decade lows for many sectors people are eager to sell rather than to capitalize upon numerous compelling buying opportunities. Most investors will keep buying high and selling low because they are subconsciously responding to media hype coaxing them not to miss out when prices are topping and to bail out from fear of further losses when prices are bottoming. In the long run the U.S. equity bear market which began with the Russell 2000's zenith on August 31, 2018 will continue for perhaps a few more years, but since so many are gloomy today we are going to enjoy a multi-week rebound. You will know when to start selling again whenever VIX has slid down into the mid-teens again and the media are telling you why you should get back into the market.

The bottom line: buy whatever the top corporate insiders are buying.

Most investors currently detest energy and travel shares while insiders have been eagerly buying them into weakness. You can guess which of those groups will again be on the right side of the market.

Disclosure of current holdings:

From my largest to my smallest position I currently am long GDXJ (some new from late February), 4-week U.S. Treasuries yielding 0.939%, the TIAA-CREF Traditional Annuity Fund, SIL, XES (some new), ELD (some new), FCG (some new), OIH (some new), PSCE (some new), bank CDs, money-market funds, GDX, I-Bonds, SCIF, MTDR (some new), URA (some new), PAK, EPOL, ECH, COPX (some new), REMX (some new), LIT (most sold), EZA (most sold), GXG (most sold), ASHS (most sold), ASHR (most sold), SEA (most sold), VNM (most sold), TUR (most sold), FXF, EGPT, GOEX, BGEIX, NGE, FXB, AA (some new), EWM, RGLD, WPM, SAND, SILJ, CCL (all new), SLX (most sold), FM (most sold), ARGT (most sold), EWW (most sold), RSXJ (most sold), GREK (most sold), and CHK. I am completely sold out of HDGE, EWU, EWG, EWI, EWD, EWQ, EWK, EWN, WOOD, EPHE, JOF, AFK, and IDX.

I have again reduced my short positions to a very small short position in XLI, a small short position in SMH, and a very small short position in CLOU. My cash and cash equivalents including bank CDs and stable-value funds (fixed principal, variable interest) comprise 25.5% of my total liquid net worth.

"Those who cannot remember the past are condemned to repeat it" (George Santayana). "Those who can remember the past but insist that it's different this time deserve to repeat it" (Steven Jon Kaplan).

The two previous longest bull markets in U.S. history occurred as follows: 1) from August 1921 through September 1929 which was followed by a bear market of over 34 months from September 1929 through July 1932; and 2) from October 1990 through March 2000 which was followed by a bear market of 30-31 months in duration (exactly 31 for the Nasdaq). The current lengthy bull market which began for the S&P 500 on March 6, 2009 and which may have ended for that index on February 19, 2020 might therefore last for 30-36 months, implying a bottom around the second half of 2022.

Because there is so much gloom and doom today expect a multi-week rebound for stocks and corporate bonds worldwide over the next several weeks. Buy now and don't sell again until VIX is back down to the mid-teens.

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” --Charles Mackay (1841)

MARKET MURDER MYSTERY (February 2, 2020): One feature of the global financial markets since the internet became popular in the mid-1990s has been an unusual concentration of irrational extremes in both directions. Partly this is because, with ordinary investors being able to buy or sell literally within seconds of hearing information or analysis, there is no longer any time for thought between an investor getting an idea to buy or sell and executing that idea. This encourages wild overcrowding into overly popular investments and equally illogical mass selling of out-of-favor assets. It is no coincidence that since 1996 the S&P 500 has traced a megaphone formation of higher highs and lower lows. Recently technology shares and several other sectors became their most overpriced in history with a few exceptions from late 1999 and early 2000, while energy and some other commodity-related assets have been trading near multi-year lows. Investors adore stocks like Tesla (TSLA) with price-earnings ratios near 300 while disdaining commodity-related companies with single-digit price-earnings ratios including Matador Resources (MTDR) and Alcoa (AA) which have enjoyed heavy insider buying.

How can one explain such strange divergences? Ordinary mortals have no clues, but fortunately some of our favorite detectives agreed to return from their hidden places (mostly in remote corners of town libraries) to help us in locating the suspects who created this incoherent mess. Let's see what they have to say.

Join our unexpected detective reunion.

Sherlock Holmes: How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth? I must conclude that the invention of this fascinating internet has indeed eliminated the essential mental pause between thought and action, thereby causing humans to behave precisely as apes. Put that in your book, Watson: you have always been a man of immediate direct action. When one billion men and women of action all buy or sell before thinking it over then you get the mispriced chaos we have now.

Dr. Watson: Are you referring, Holmes, to Apple (AAPL) and Microsoft (MSFT) making ridiculous gains in recent months which has nothing to do with their fundamentals?

Sherlock Holmes: Precisely, my dear Watson. It is the triumph of instinct over intellect. I have seen it many times in my day, but this is the first time I can recall an instance of society as a whole acting so singularly. Charles Mackay was right in his "Extraordinary Popular Delusions" about people going mad in herds.

Dr. Watson: Did he not say specifically that men--not people--think in herds?

Sherlock Holmes: Excellent recall, Watson, but nowadays the fairer sex have the right and perhaps the mandate to make equally inferior trading decisions as their male counterparts. That's true women's liberation.

Miss Marple: Indeed, Mr. Holmes, I believe you are being a bit unfair to us. However, your main observation is accurate. The situation reminds me of a naughty boy I knew once in my village. Before his fifth birthday he was already taking the wings off of bugs and destroying birds' nests. Before he reached the age of majority he had already committed a few murders. And he had such a sweet angelic face too, making everyone think he was just an ordinary nice chap.

Joe Friday: Just the facts, ma'am.

Sherlock Holmes: That is most edifying, Miss Marple, but how does that relate to the global financial markets in February 2020?

Miss Marple: My inference should be clear, especially to you, Mr. Holmes. The market pretends that everything is normal and permanent when it is the opposite. Popular overpriced favorites are just beginning what will become a historic collapse, while the most-hated securities will double and triple within a couple of years.

Hercule Poirot: It is essential to use the little grey cells, n'est-ce pas? Investors should be doing what the insiders are doing and the opposite of what the unwashed masses are doing. Instead they have it backwards. C'est dommage.

Captain Hastings: Now look here, Poirot, I just bought some of those newfangled technology shares for my own account. Are you telling me I shouldn't have done?

Hercule Poirot: It is not for me to play the fortuneteller, mon ami, but alas I see some losses in your future. You must recall how your last dozen or so ventures panned out in the end.

Captain Hastings: Just bad luck each time, Poirot. Surely it's different this time: the Fed, Brexit, the Chinese virus, Trump, . . . .

Hercule Poirot: There's nothing new under the sun, Hastings.

Dr. Watson: I personally experienced violent conflicts in the days of the British Empire but I couldn't have imagined this strange Brexit phenomenon. What's next? Is Scotland going to break away from the United Kingdom?

Sherlock Holmes: Actually that is a distinct possibility, my dear Watson, as regrettable as that would be. More relevantly, we must stop thinking about the future as an extension of the recent past. If the stock market on the other side of the Atlantic regresses to its average bear-market bottom then this will imply a loss of more than 70% from top to bottom for the S&P 500 Index.

Dr. Watson: I don't know that index, Holmes. I always heard about the Dow Jones Industrial Average.

Sherlock Holmes: Indeed the antiquated Dow Jones index, idiosyncratically modified, remains with us, Holmes, for better or for worse. That one will probably also drop 70% from its recent top, as unlikely as that would seem to most investors who have not studied history. There is a lesser-known index called the Russell 2000 consisting of U.S. companies 1001 through 3000 by market capitalization; in spite of large-cap indices frequently setting new highs since August 31, 2018, the Russell 2000 and the S&P 5mallCap 600 have never surpassed their zeniths from that day.

Dr. Watson: Is there a reason that would be meaningful, Holmes?

Sherlock Holmes: The worst American bear markets have always begun that way.

Hercule Poirot: Plus ça change, plus c'est la même chose, eh, Holmes? Our thoughts are very much alike on this subject.

Inspector Clouseau: I am searching for the clues in the room. Where is the scene of the crime?

Sam Spade: So sorry, sweetheart. I think you missed your train a long time ago. It's a tough world out there and there's no room for sugarcoating the truth. The assets everyone loves are going down, hard. My pals and I are buying up what no one seems to want, because they have no idea what they should be looking for.

Dr. Watson: I don't believe we've been formally introduced. Call me Watson. What is it that your "pals" are buying?

Sam Spade: I keep it simple. Energy. Mining. Base-metals production. Emerging-market government bonds. With a martini chaser and a broad.

Captain Hastings: I still don't see what you all have against technology. What's wrong with investing in something I can't possibly understand?

Hercule Poirot: It's not technology that's the problem, per se, but the fact that investors are willing to pay far too much for each dollar of technology earnings. I can't bring myself to say "euro" without blanching. Energy's share of the S&P 500 is below 4%--it was above 16% in the summer of 2008. Except for gold mining and silver mining shares which have been strong for over four years, and a few environmentally-trendy companies, most commodity-related assets have been given up as hopeless. Sensationnel.

Lieutenant Columbo: Mrs. Columbo was telling me just the other day that so many people we know seem to have their money in U.S. index funds these days. We're boring--we have everything in bank CDs and money-market funds.

Sam Spade: Boring is underrated.

Lieutenant Columbo: Maybe when everyone else asks me about how much interest we're getting, it will be time to buy some of those stock index funds.

Captain Hastings: You can hang up your raincoat near the door, sir. Usually everyone agrees with me--I'm not used to so much contrarianism.

Hercule Poirot: Indeed we live in a world of many Hastings and few Poirots. Tel est le monde. I am enjoying the challenge. Épatant.

Lieutenant Columbo: [whistling "This Old Man"] Come here, dog, and meet all these nice detectives.

Captain Hastings: Keep your raincoat, then. Don't you think technology shares have unlimited potential?

Lieutenant Columbo: Does that include the potential to drop in value? No one seems to be thinking about that these days. All I hear is about fear of missing out. Seems to me that was a familiar tune from 2000 and 2007.

Hercule Poirot: With all due respect, I am probably the greatest detective in the world. But I, Poirot, have been so stupid. If I purchase some of these gas and oil shares then I won't have to spend so much time chasing these perplexing clues. Tres bien, that is what I will do.

Inspector Clouseau: I have found the clues. They are here. No, they are there. They are somewhere.

Lieutenant Columbo: Just one more thing. Where were all of you at the opening bell on Friday, January 24, 2020? That is when the latest stock-market murder occurred.

How will the bear market end? Tune in next week to find out--same contrarian time, same contrarian channel.

If we're in a true bear market for U.S. equities then we'll continue to enjoy numerous sharp short-term rallies. Don't be fooled: within a few years the S&P 500 will eventually trade 70% or more below its recent zenith which means below one thousand. Along the way commodity-related assets currently mostly sporting single-digit price-earnings ratios will likely be among the few outperformers while technology favorites with triple-digit price-earnings multiples will be among the biggest losers. Bear markets usually consist of numerous corrections interrupted by powerful rebound attempts, so intermediate-term buying opportunities may occur at various points in 2020-2021 for unknown sectors.

Investing Tip #2: when you are opening any position, gradually accumulate risk using ladders of good-until-canceled orders, not with lump-sum lucky strikes.

There is no way to know in advance how extreme any given asset will get when it is completing a topping or a bottoming process, nor is it possible to determine when the ultimate zenith or nadir will occur. Therefore you must avoid dangerously accumulating risk with lump-sum opening positions. Occasionally you will get lucky, but if you buy too much at once and underpriced assets become even more absurdly undervalued--as they usually do--then you won't have enough cash to keep steadily buying. In addition, once any security completes a major bottom it usually forms several higher lows before it rallies strongly. These higher lows should be used as opportunities to keep adding to your position. Think of investing as adding one grain of sand at a time to each pile, not a whole bag at once, and to keep gradually adding until prices become too expensive.

Perhaps the simplest way to accomplish this objective is to place a ladder of small orders, with each rung in the ladder consisting of roughly 1/1000 (one-thousandth) of your total liquid net worth. Each order can be placed roughly 1% apart from each other order. If an asset worth buying keeps dropping in price, you will buy more of it each time it falls another 1%. If the security rebounds, then you can replace orders which were already filled with identical orders at the same prices and quantities, so that if there is another pullback then you will gradually buy more of it into weakness. This is how many top corporate insiders and market makers accumulate their positions.

The basic idea is that a topping or bottoming pattern is usually a process, not an event. Instead of trying to use magic market timing or mystically guessing when a top or bottom is occurring, gradually scale into any position in which you are increasing your risk.

Summary: a surprising number of assets are either far below or far above fair value.

Today we have numerous energy and related commodity securities trading at less than half fair value while many other assets including U.S. equity indices and coastal real estate remain at roughly double fair value. Mean regressions are often unexpected and especially disruptive events because too many investors are anticipating that the trends of recent years will continue even though they have already been reversing.

The bottom line: keep buying commodity-related securities into extended weakness and keep selling overpriced assets into strength.

The next two or three years will likely be accompanied by a massive shift away from the biggest winners of recent years into the most notable losers. This process is barely underway so there is plenty of time to double or triple your money by capitalizing upon it.

Disclosure of current holdings:

From my largest to my smallest position I currently am long GDXJ, 4-week U.S. Treasuries yielding 1.573%, the TIAA-CREF Traditional Annuity Fund, SIL, XES (some new), ELD, FCG (some new), OIH (some new), PSCE (some new), bank CDs, money-market funds, GDX, I-Bonds, SCIF, MTDR (some new), URA (some new), PAK, EPOL, ECH, COPX, REMX, HDGE, LIT (most sold), EZA (most sold), GXG (most sold), ASHS (most sold), ASHR (most sold), SEA (most sold), VNM (most sold), TUR (most sold), FXF, EGPT, GOEX, BGEIX, NGE, FXB, EWM, RGLD, WPM, SAND, SILJ, AA (brand new), SLX (most sold), FM (most sold), ARGT (most sold), EWW (most sold), RSXJ (most sold), GREK (most sold), and CHK. I am completely sold out of EWU, EWG, EWI, EWD, EWQ, EWK, EWN, WOOD, EPHE, JOF, AFK, and IDX.

I have a significant short position in XLI, a slightly larger short position in SMH, and a moderate short position in CLOU. As always, my short positions are notably smaller than my more meaningful long positions. My cash and cash equivalents including bank CDs and stable-value funds (fixed principal, variable interest) comprise 33.5% of my total liquid net worth, continuing to retreat from a two-year high as I have been persistently purchasing energy shares especially into early morning weakness.

"Those who cannot remember the past are condemned to repeat it" (George Santayana). "Those who can remember the past but insist that it's different this time deserve to repeat it" (Steven Jon Kaplan).

I expect the S&P 500 to eventually lose more than 70% of its value from its all-time top, whether that level has or hasn't already been reached, with its next bottoming pattern occurring with frequent sharp downward spikes perhaps during the second half of 2022. During the 2007-2009 bear market, most investors by Labor Day of 2008 still didn't realize that we were in a crushing collapse, and I expect that by early 2022 many Boglehead investors will stubbornly persist in believing that the U.S. equity bull market is alive and well. After reaching its all-time zenith on August 31, 2018, the Russell 2000 Index and most other small- and mid-cap U.S. equity funds have persistently underperformed their large-cap counterparts except before sharp rebounds and have never surpassed their zeniths from that day; similar behavior had ushered in the major bear markets of 1929-1932, 1973-1974, 2000-2002, and 2007-2009. The Nasdaq has completed a historic double top with its March 10, 2000 zenith in inflation-adjusted terms. A 70% loss from its recent zenith would put the S&P 500 near one thousand and I expect it to go even lower than that by some unknowable percentage. Eventual widespread fear over how much further prices will drop is likely to be accompanied by all-time record investor outflows from most U.S. equity index funds and U.S. high-yield corporate bond funds before we eventually and energetically begin the next bull market. Far too many conservative investors took their money out of safe time deposits in recent years; the incredibly long bull market has left them completely unprepared for a bear market. The behavior of the global financial markets since August 31, 2018 has been incredibly similar to the behavior in the early stages of nearly all major U.S. equity bear markets going back to the 1790s. In general, U.S. equity bear markets are far more alike than U.S. equity bull markets. Die-hard Bogleheads will probably resist selling until we are approaching the next historic bottom, but when they are perceived to be blockheads and become disillusioned by their method they will become some of the biggest net sellers of passive equity funds. Because so much money exists today in exchange-traded and open-end funds, as they decline in value their fund managers will be forced to destroy shares which will compel them to sell their components, thus depressing prices further and creating more share destruction in a dangerous domino effect. The Boglehead foolishness is especially ironic since Jack Bogle himself aggressively sold U.S. equities in 2000 and again in 2018 shortly before his passing.

Here is the rationale between my timing guess of the next bear-market bottom for U.S. equity indices: the two previous longest bull markets in U.S. history occurred in 1921-1929 which was followed by a bear market of over 34 months from September 1929 through July 1932. The other long bull market was from October 1990 through March 2000 which was followed by a bear market of 30-31 months in duration (exactly 31 for the Nasdaq). The current lengthy bull market which began for the S&P 500 on March 6, 2009 and which may have ended for that index on January 22, 2020 might therefore last for 30-36 months, implying a bottom around the second half of 2022.