"Excesses in one direction will lead to an opposite excess in the other direction." --Bob Farrell (Rule #2)

THE FORGOTTEN BUBBLE (July 28, 2026): I have discussed numerous assets which reached bubble status during the past year and which have entered what will become some of the most severe bear markets ever recorded. Cryptocurrencies reached all-time highs less than one year ago, including Bitcoin on October 6, 2025 and Ethereum earlier on August 24, 2025, with nearly all cryptocurrencies since declining by half or more from their peaks. High-yield corporate bonds mostly topped out in the early autumn of 2025 or the early winter of 2026 or both, with many of them sporting all-time low spreads relative to U.S. Treasuries of equivalent maturities. Most commodity producers and emerging-market securities achieved multi-decade zeniths during the first quarter of 2026 and have been forming several or more lower highs, not coincidentally around the same time that the U.S. dollar index touched a four-year bottom of 95.551 on January 27, 2026 and which has since begun a powerful bull market. I expect the U.S. dollar index to reach its highest point since 1985 within a few years.

We can endlessly debate whether or not U.S. stocks have or have not yet begun bear markets, and which sectors are more vulnerable than others. In general, the biggest winners of recent years have been among the most recent percentage losers, partly since those gains had far outpaced earnings and thus left many large-cap and other trendy U.S. stocks at their most elevated levels in the history of any global stock market.

What is discussed far less frequently is that real estate in many parts of the world, including the U.S. and Canada, reached all-time overpricings in real terms. Just as stocks can be compared with earnings to determine whether they are underpriced or overpriced, real estate in any neighborhood can be compared with the average household income in that neighborhood. While many U.S. residents remember the real-estate bubble of 2005-2006 when prices climbed to roughly double their average historic levels, we quietly reached even more elevated overall valuations in the first quarter of 2022. Since then, U.S. prices in real terms have been mostly flat. Thus, residential U.S. housing is vulnerable to a drop of roughly half in real terms. Of course this percentage will end up varying considerably from top to bottom depending upon which part of the country you are looking at, just as it had done from 2005-2006 through 2010-2012.

Any price that is far too low or too high relative to fair value must eventually trade near fair value--with real estate just as with stocks, bonds, and all other assets.

MOST PEOPLE COULD NOT AFFORD TO BUY THEIR OWN HOUSES: I had a friend who was one of the few people to publicly state in 2005 and 2006 that U.S. housing prices would have to fall by about one third overall, which was just about exactly their nationwide average decline from 2005-2006 to 2010-2012 if you don't adjust for inflation. Sadly he passed away in 2006 just before his forecast was set to be proven true. He pointed out to me that he wouldn't have been able to afford to purchase his own home if he had to buy it at the price it was supposedly worth near the end of 2005. That comment stayed in my mind over the next several years. U.S. housing prices today, adjusted for inflation, are more overpriced now than they had been at their 2005-2006 highs with a few exceptions for those cities where housing prices had been especially elevated two decades ago. Here is the proof from the U.S. Federal Reserve which has been maintaining meticulous records:

U.S. Real Housing Prices Since 1970

Canadian Real Housing Prices Since 1970

CANADA HOUSING REACHED TRIPLE FAIR VALUE INSTEAD OF DOUBLE: The media have had all kinds of explanations about why housing prices in Toronto, Vancouver, and some other Canadian cities overall had far surpassed their ratios to household incomes that they have seen during the past several years in the United States. Since February 2022, when both Canadian and U.S. housing prices had mostly peaked in real terms, prices overall for homes in Canada have also declined far more significantly. A simple explanation is that U.S. residents experienced housing prices dropping an average of one third (not adjusting for inflation) from their 2005-2006 peaks to their 2010-2012 bottoms, while in Canada the average pullback was less than 10%. Therefore, people in Canada mostly concluded that Canadian housing prices "couldn't go down." I actually heard a large number of Canadians stating this belief. It is similar to the way that prices for the most popular big U.S. stocks have recently become so overpriced, largely since it has been such a long time since U.S. stock prices had suffered substantial percentage losses. Extreme overconfidence or extreme lack of confidence will almost always lead to unusually overvalued or undervalued price levels respectively.

U.S. HOUSING PRICES FALL TO HISTORIC LOWS EVERY 18 YEARS: I looked back at those times when U.S. housing prices ranged from moderately inexpensive to absurdly cheap. If we go backward from the present, we see that the last bottom for U.S. residential real estate on average had been in 2011. Prior to that, there were even lower lows in inflation-adjusted terms in 1993, while some of the lowest levels since 1950 occurred in the year 1975. It is interesting to observe that these bottoms were separated by 18 years. Continuing the 18-year pattern going backward, 1957 was not as depressed as 1993 or 1975; 1939 and 1903 were both notably undervalued; 1921 was the lowest point in history for U.S. residential real estate when you adjust for inflation. For purposes of this research, I used many of the charts and data compiled by the early and revised editions by Case and Shiller dating back to 1890 that are summarized here:

Case-Shiller U.S. Real Residential Real Estate, 1890-2006

If we now extrapolate forward then we may conclude that 2029 is the next year in the 18-year cycle of bottoms and is only three years away. Since the year 2029 corresponds with similar potential lows for many other assets including popular U.S. stocks and high-yield corporate bonds, and perhaps other assets such as cryptocurrencies, it fits the pattern of previous bottoms. Notice the correspondence between U.S. stock bear-market bottoms and U.S. real estate being depressed; 1921 was one of the lowest points in history for the U.S. stock market, as was 1939, while U.S. stocks had been especially depressed in December 1974 which of course is very close to 1975.

THERE WILL BE VARIATIONS FROM CITY TO CITY DURING HOUSING'S BEAR MARKET: From their 2005-2006 peaks to their 2010-2012 bottoms, there were wide regional variations in the percentage losses for U.S. residential real estate. In many cities in Ohio, Arizona, Nevada, and Florida, prices fell by roughly two thirds if you don't adjust for inflation which is roughly double the nationwide average over that time period. I have studied this phenomenon to determine if there was any way to know in advance which neighborhoods would experience the largest percentage losses. It would be useful to know that the most overvalued real estate fell by the most, or that prices had dropped the most where there was the highest level of overbuilding, or that there was some other repeatable pattern, but unfortunately I couldn't find any consistent behavior. It will probably be the case that the current decline will similarly feature greater or lesser regional losses than the nationwide average, just as it has already done in Canada where Toronto real estate has so far retreated substantially more than Montreal real estate.

In places where real estate fell by more than the nationwide average during its 2006-2011 bear market, it was often much more than the average rather than modestly more. Partly this could be due to the fact that if a family has purchased a house with a modest down payment and its price has fallen by 15% or 20%, then that family will probably conclude that prices will rebound eventually and will keep making all necessary mortgage and other payments. However, if prices are down 40% or 45% and the remaining mortgage balance is considerably higher than the current value of the property, then the chance of that family deciding to stop making payments and default, eventually probably being foreclosed and evicted, is many times greater. A higher rate of default also tends to lead to a surge in the inventory of properties for sale in any given area, thus adding to supply relative to demand and often depressing prices further especially in the short run. This problem could be exacerbated with the dramatic rise in the percentage of properties worldwide which are owned by investors rather than being owner-occupied. Investors have no emotional attachment to anything, whereas owners occupying their own homes are much more likely to hold onto their properties into multi-year adversity.

THE NEARLY SIDEWAYS MOVE IN U.S. REAL ESTATE IN REAL TERMS SINCE FEBRUARY 2022 IS PROBABLY MOSTLY DUE TO THE VERY STRONG PERFORMANCE OF U.S. LARGE-CAP INDEX FUNDS: Probably the main reason that U.S. housing prices in inflation-adjusted terms have been nearly exactly flat for the past 4-1/2 years is that a buoyant U.S. stock market has made it very easy to borrow money and to sustain the illusion that assets of all kinds will keep indefinitely rising in price. As a result, fewer people so far have sold their houses out of a need to raise money or out of concern that falling prices for stocks and high-yield corporate bonds could spread to residential real estate.

THE INVENTORY OF NEW U.S. HOUSES HAS SOARED TO ITS HIGHEST POINT SINCE 2009, WITH LIMITED MEDIA COVERAGE: Have you read the headlines about the inventory of new U.S. housing climbing to its most elevated point since 2009, which was 17 years ago? I thought not. While this is an important story and has ample supporting data from reliable sources, it doesn't fit the media's narrative about an alleged "permanent shortage" of U.S. residential housing. In early 2022 we actually had a real inventory shortage which by some measures was the lowest on record since the start of the baby boom around 1950, when hardly any homes had been built since the 1920s due to the Great Depression and very depressed prices for houses and many other assets, thereby making it uneconomic to build throughout the 1930s and 1940s.

I don't usually go to Crypto Briefing to get information about U.S. housing prices, but they ran a valuable article on this topic at the end of June which was passed over by most of the mainstream media:

US [New] Housing Market Sees Inventory Rise to 10.3 Months, Highest Since 2009

THE INVENTORY OF EXISTING U.S. HOUSES HAS RISEN, BUT REMAINS WELL BELOW THE DISTRESSED LEVELS OF 2009-2012: If I walk around where I live, there are a lot more houses for sale now as there had been four years ago, although there are far fewer houses for sale than I remember from 2009-2012. As the above article stated, the inventory of existing [just as for Treasuries, people don't like the word "used"] homes is a much more modest 4.5 months of supply. I expect existing home inventory to first rise sharply before the biggest percentage losses occur for U.S. residential real estate.

Just as a multi-decade low for housing inventory led to record prices in both 2005 and 2022, multi-decade highs for inventory are consistently followed by dramatically lower housing prices. A few years ago the Covid crisis and stay-at-home popularity led to multi-decade inventory highs for office building rental space, which not surprisingly soon led to a nationwide decline of about half for office rents. I have no doubt that after housing prices fall by large percentages and the inventory of existing homes becomes much greater, the media will mention how "obvious" it was that prices would have to drop due to the record inventory that they have so far refused to report. The media are expert at telling you anything after it is too late to benefit from it.

U.S. LONG-DATED TIPS HAVE BECOME UNUSUALLY COMPELLING FOR PURCHASE: In other financial developments, long-dated U.S. Treasuries continued to form higher lows, while long-dated U.S. Tips yielded over 2.99% fixed during part of last week, meaning that when you add a CPI rate of 3% then you get a 6% total return. This return will fluctuate with the CPI for the next three decades, but even if there is deflation you will get 2.99% guaranteed with this yield free of state and local income taxes.

Here is a very recent article explaining the little-appreciated advantages of Tips whenever they are especially undervalued:

A Generational Buying Opportunity Guarantees Inflation Plus 3% a Year, Says This Hedge-Fund Manager

The end of the above article states an important point about the internet bubble in 2000 which applies even more strongly to the AI bubble in 2026:

In the decade from June 2000, the Vanguard Inflation-Protected Securities Fund VIPSX doubled your money, while the S&P 500 SPX lost you 15% - before inflation.

MARGIN DEBT REACHED 1.5 TRILLION U.S. DOLLARS, FAR EXCEEDING PREVIOUS TOPS EVEN IF YOU ADJUST GENEROUSLY FOR INFLATION:

S&P 500 PRICE-TO-SALES ON JUNE 5, 2026 FAR EXCEEDED COMPARABLE DATA FOR ALL GLOBAL STOCK MARKET TOPS EVER RECORDED:

INVESTORS ARE WILLING TO ACCEPT CORPORATE BOND YIELDS THAT ARE FAR TOO LOW RELATIVE TO GUARANTEED U.S. TREASURIES:

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Tuesday, July 28, 2026. Each position is listed as its percentage of my total liquid net worth. The long positions should add up to just about exactly 100%, while the short positions all use U.S. Treasury bills as collateral since those count as 99% cash.

As recently as last week, I added to TLT, PSQ, EDV, and LTPZ, in addition to purchasing the TIPS which mature on February 15, 2053 with cusip 912810TP3, whenever each of these was at or near a multi-decade low. TLT is heavily shorted, pays just about exactly 5% in annualized dividends, and has been forming marginally higher lows since it had touched 81.92 on October 23, 2023 at 5:40 and 5:41 a.m. Eastern Time.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) individual U.S.-listed stocks.

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: 27.12%;

TLT/VGLT long: 17.25%;

VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 15.37%;

EDV long: 5.33%;

LTPZ long: 4.84%;

I Bonds long: 3.86%;

PMM long: 0.01%;

XLK short: 28.88%;

QQQ short: 24.31%;

GDXJ short: 1.40%;

SMH short: 1.38%;

PSQ long: 10.65%;

Gold/silver/platinum coins: 11.21%;

UTZ long: 3.04%;

CAG long: 0.73%;

GPK long: 0.42%;

WEN long: 0.17%.

"With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices." --Benjamin Graham

BUY TLT AND EDV (May 18, 2026): TLT is a fund which invests in U.S. Treasuries and which consists of U.S. government debt averaging 25.70 years to maturity. Generally long-term U.S. government debt pays interest every six months. EDV is a fund consisting of zero-coupon U.S. Treasuries averaging 24.5 years to maturity. Zero-coupon bonds, unlike other U.S. Treasuries of 2 years or longer, don't pay semiannual interest. This causes these "stripped" Treasuries to be more volatile than their underlying securities. Therefore, EDV is riskier than TLT, going up more when this sector is in favor and dropping more when it is unpopular.

Long-dated U.S. Treasuries and Tips were among the biggest percentage winners of the first two major bear markets of the 21st century (1999-2003 and 2007-2009). TLT, EDV, and other U.S. Treasury exchange-traded funds did not even exist in 1999 or 2000, because investors at that time, just like in 2026, were far more excited about purchasing wildly overvalued popular tech stocks than seeking safe havens. Many funds of U.S. Treasuries weren't created until their gains during the internet bubble collapse had almost been completed. Not surprisingly, long-term U.S. Treasuries and Tips far outperformed collapsing U.S. stocks by late 2002 and early 2003, when finally the powerful outperformance by U.S. Treasuries encouraged the introduction of numerous exchange-traded funds in this sector.

If you were invested in QQQ near its March 10, 2000 peak then you ended up losing more than 5 out of 6 dollars including all reinvested dividends by the time it had bottomed on October 10, 2002. In contrast, if you were invested in VUSTX or a similar fund of long-dated U.S. Treasuries or Tips in the same year when their yields had exceeded 6%, then you would have roughly doubled your money over the same period of time.

INVESTORS DON'T WANT SAFE HAVENS WHEN STOCKS ARE SO POPULAR DUE TO THEIR OUTPERFORMANCE IN RECENT YEARS

The investing world has made as complete a transition as has ever occurred from value to momentum. Almost everyone wants to own what has gone up the most in recent years, rather than whatever presents the most worthwhile current valuations. This has resulted in the highest-ever allocation and overpricing for most popular U.S. stocks, while U.S. government debt had been trading near multi-decade lows with proportional multi-decade highs in yields. No one can say when or how much more extreme this disparity will become, but its unavoidable resolution will lead to unexpectedly large losses from their latest levels for the most widely-own U.S. stocks and a total return of more than 100% for allegedly boring long-term U.S. government debt compared with their current prices. As you will see from the second chart later in this update, most valuations measures for popular U.S. stocks during the AI bubble are moderately to considerably more extreme than their most lopsided levels of the internet bubble about 26 years ago, so their subsequent percentage losses over the next few years could generally be greater.

When stocks are highly trendy, as they have been recently, investors are not interested in alternatives where safety and guarantee of principal are major considerations. This is the main reason that many U.S. Treasuries and Tips have been trading near their highest yields since 2001. Once investors realize that U.S. stocks are not as safe as most people believe they are, investors will become far more concerned with maintaining their net worth rather than making windfall profits. When this happens, there will be such a sharp surge into U.S. government debt that current yields exceeding 5% for long-term Treasuries and Tips will drop to 2.5% and possibly lower. Investors will discover that, just like an American football team, sometimes you have to play defense instead of putting the offensive team on the field.

DOUBLE YOUR MONEY IN A FEW YEARS VIA U.S. GOVERNMENT DEBT

Most investors might think of U.S. Treasuries as "boring" but their historic record shows otherwise. Their prices can fluctuate dramatically in both directions. Because they are paying yields of almost exactly 5%, by the rule of 72 their interest alone would cause them to double in value in fourteen to fifteen years assuming zero price change. However, funds like TLT and EDV can actually result in one dollar invested to be worth two dollars or more within a few years, rather than having to wait 14 or 15 years for the 5% annualized yield to compound sufficiently for a doubling. That is because, if you lock in a yield of 5% for 25 years, and yields drop to 2.5%, then everyone is going to want your 5% yield that is guaranteed by the U.S. government for a quarter century. You will therefore end up with the ability to sell your long-term Treasuries at a much higher price than you had paid for them, where the total return including all reinvested dividends could surpass 100%.

Of course this mathematical reality works both ways: if long-term U.S. Treasury yields rise to 7% or higher instead of dropping to 3% or lower, then if you sell your U.S. 5% 25-year government debt it will be worth much less than what you had paid for it. There's no free lunch.

U.S. GOVERNMENT DEBT PERFORMS MOST STRONGLY WHENEVER U.S. STOCKS ARE MOST VOLATILE IN BOTH DIRECTIONS

Whenever the U.S. stock market disappoints most investors by being both increasingly volatile and more likely to produce losses instead of gains, U.S. investors will turn to U.S. government debt as a safe haven. This shift doesn't always happen simultaneously. In 2008, when U.S. stocks were especially jumpy and unpredictable, U.S. government debt generally moved only slightly higher overall until the final quarter of 2008 when government debt surged in price and yields plummeted. This pattern of U.S. government debt responding to increased U.S. stock-market volatility after a delay of several months is common.

Some investors become disappointed when their holdings don't quickly go up in price. Often this is a blessing in disguise. If funds including TLT and EDV don't immediately surge higher when the most popular U.S. stocks are slumping, then this gives you additional opportunities to purchase more TLT and EDV at bargain prices before everyone else thinks of the idea.

THERE ARE TAX ADVANTAGES TO U.S. GOVERNMENT DEBT

All interest on direct U.S. debt obligations, as well as on funds of direct U.S. debt obligations including TLT and EDV, are free of state and local income taxes by U.S. law. In addition, in some states including New Jersey, you pay no income tax on capital gains for funds including TLT and EDV which consist primarily of U.S. government debt.

U.S. GOVERNMENT DEBT IS BEING HEAVILY SOLD SHORT BY MANAGED MONEY

Hedge funds and other pools of managed money have been aggressively selling short TLT and other popular funds of U.S. Treasuries, Tips, and other U.S. government debt. Ironically, these funds weren't aggressively shorting TLT when it was dropping in price and shorting it would have been profitable. Almost all of the short positions were accumulated since October 2023 when the price of TLT has been moving mostly sideways while paying 5% dividends. If you short anything which yields 5% then you have to pay this amount in dividends, making the vast majority of hedge fund shorts in this sector losing positions even with TLT trading not far above multi-decade lows.

Hedge funds who are long or short will often close out their positions whenever those positions move against them by about 25% or 30%. Thus, whenever TLT eventually climbs by 25% or 30% for any reason, it will likely rise another 25% or 30% as hedge funds nearly simultaneously close out their short positions. We saw what happened when hedge funds closed out their shorts in precious metals and emerging markets during the past year: these mostly ended up surging higher in price.

EXCHANGE-TRADED FUNDS OF U.S. GOVERNMENT DEBT MOSTLY FEATURE ONE-CENT BID/ASK SPREADS, MAKING THEM FAVORABLE TO TRADE WITH MINIMAL FRICTION

In 2008, when zero-coupon long-dated U.S. Treasury funds including EDV and ZROZ were among the biggest percentage winners of all exchange-traded funds, there was a spread of several cents between their bid and ask prices and relatively low average daily volumes, making it difficult to accumulate a substantial position without friction. Fortunately this has changed primarily due to a more serious commitment by market makers in these funds. The bid-ask spread nowadays is usually one cent during regular trading hours. TLT remains by far the most liquid fund in the U.S. government debt sector, often sporting narrow bid-ask spreads both during and outside of regular trading hours.

THERE ARE SIMILAR FUNDS TO TLT AND EDV

If you don't prefer TLT, or you don't want to pay its 0.15% management fee, then alternatives with lower annualized management fees are available including SPTL (0.03%), VGLT (0.03%), and SCHQ (0.03%). Funds which are similar to EDV include ZROZ, although EDV has the lowest annualized management fee of all zero-coupon bond funds at just 0.05%. If you live in Europe then your best choice in this sector is probably IS04. It is headquartered in Germany and has an expense ratio of 0.07%. IS04 is very similar to TLT and related funds of U.S. government bonds averaging roughly 25 years to maturity.

WE HAVE ALL-TIME RECORD EQUITY NET INFLOWS WITH INVESTORS PUTTING OVER 55% OF THEIR TOTAL HOUSEHOLD NET WORTH INTO POPULAR U.S. STOCKS AND STOCK ETFS

Both the above and below charts use data as of 4 p.m. on April 20, 2026:

INVESTORS NO LONGER SEEM TO CARE ABOUT DIVIDENDS OR YIELDS

With U.S. Treasuries and Tips approaching or surpassing their highest yields in both nominal and real terms since either 2001, 1990, or the early 1980s, the yield on VOO, a fund based upon the S&P 500 Index with a very low expense ratio, recently yielded less than 1.1% for the first time in history. Most investors have either forgotten or pretended to forget that more than half of the total return in the U.S. stock market since its inception has been from dividends, not from capital gains. This is also the highest ever ratio of the return on risk-free U.S. government debt to the dividends on the most popular U.S. stocks.

The above chart by Mark Hulbert highlights the overvaluations for U.S. stocks measured by price-to-earnings, price-to-sales, price-to-book, price-to-GDP, and other reliable fundamental valuations. Assets at extremes can become even more extreme, but they must inevitably regress toward the mean to a nearly opposite extreme. The following chart from Bloomberg is on a similar theme, comparing today's valuations with the entire period since 1995:

THE MOST EXPERIENCED INVESTORS HAVE GENERALLY BEEN SIGNIFICANTLY LESS FAVORABLE TOWARD STOCKS AND EAGER TO OWN U.S. GOVERNMENT DEBT; THE LEAST-EXPERIENCED INVESTORS HAVE BEEN TAKING MONEY OUT OF SAFE INVESTMENTS TO BUY THE MOST POPULAR U.S. STOCKS

As a general principle, those investors with the longest and more relevant experience including top corporate insiders and Warren Buffett have been the most conservative in recent months, selling stocks while purchasing U.S. government debt. Those investors who have the least familiarity with the financial markets have been among the biggest net buyers of stocks over the same time period. Whenever the most experienced participants in any field have been doing the opposite of the newest players, it should be pretty obvious what must occur afterward.

THE MEDIA AND ANALYSTS REMAIN FAR TOO BULLISH ON ENERGY AND MOST COMMODITY PRODUCERS, AS WELL AS MOST EMERGING MARKETS

In my last posting I cited the all-time record selling by top executives in the energy sector. This has somewhat subsided, but prices have been making lower highs as they have been doing for several weeks to months for most commodity producers and emerging markets. Hardly anyone wanted to purchase shares of emerging-market securities in April 2025 because they had underperformed, and almost everyone was recommending them in early 2026 after they had outperformed; naturally these assets surged when they were hated and have been slumping now that they are loved.

We are certain to achieve worthwhile purchasing points for both commodities and emerging markets at some point in the not-too-distant future. If you see the U.S. dollar index reaching a multi-year high and then starting to form lower highs, this is often signaling an ideal entry point for both of these asset classes.

ALMOST EVERYONE IS STILL SAYING GOLD 6000, ALMOST NO ONE IS FORECASTING 4000 (OR LOWER)

As I had described in my previous post, when gold was near five thousand U.S. dollars per troy ounce the number of analysts and brokerages anticipating six thousand outnumbered those expecting four thousand by a huge ratio. Even with gold recently dropping to around 4500, those who are expecting 6000 still far outnumber those forecasting 4000 which makes no sense mathematically. Meanwhile, gold and silver commercials have been increasing their short-to-long ratios into price weakness rather than becoming less bearish. Whenever commercials sell into price declines it usually sends a bearish signal about where the market is going.

Gold mining and silver mining shares become compelling bargains usually a few times per decade and will do so again, but don't expect this to happen soon. Whenever silver commercials are net long, it is probably an ideal time to start once again buying funds such as GDX and GDXJ.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Monday, May 18, 2026. Each position is listed as its percentage of my total liquid net worth. The long positions should add up to just about exactly 100%, while the short positions all use U.S. Treasury bills as collateral since those count as 99% cash.

I recently added to TLT, PSQ, EDV, LTPZ, and WEN, in that order, whenever each of these was near a multi-decade low, while reducing shorts for GDX and GDXJ into recent weakness. TLT is heavily shorted, pays almost exactly 5% in annualized dividends, and has been forming marginally higher lows since it had touched 81.92 on October 23, 2023 at 5:40 and 5:41 a.m. Eastern Time.

The order is as follows: 1) U.S. government bonds; 2) shorts; 3) bear funds; 4) precious metals; 5) individual U.S.-listed stocks.

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: 26.95%;

VMFXX/TIAA Traditional, TIAA money market/bank CDs/FZDXX/FZFXX/SPRXX/SPAXX/BPRXX/Savings/Checking long: 26.22%;

TLT long: 14.08%;

I Bonds long: 3.89%;

EDV long: 3.17%;

LTPZ long: 1.84%;

PMM long: 0.01%;

XLK short: 32.93%;

QQQ short: 27.04%;

SMH short: 1.64%;

GDXJ short: 1.54%;

PSQ long: 8.33%;

Gold/silver/platinum coins: 12.88%;

UTZ long: 1.28%;

CAG long: 0.76%;

GPK long: 0.41%;

WEN long: 0.17%.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are the traders' commitments for palladium and platinum:

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

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

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

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

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

Disclosure of current holdings:

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

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

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

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

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

TLT long: 11.54%;

I Bonds long: 11.23%;

PMM long: 0.01%;

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

QQQ short: 24.50%;

SMH short: 1.53%;

AAPL short: 0.15%;

GDXJ short: 0.11%;

SARK long: 0.83%;

PSQ long: 0.04%;

PALL long: 1.44%;

Gold/silver/platinum coins: 7.64%;

FXY long: 0.72%.

"At some price, an asset is a buy, at another it's a hold, and at another it's a sell." --Seth A. Klarman

2023 ALL-TIME DANGER (May 3, 2023): In 2021 we achieved especially dangerous all-time record unprecedented investor behavior. In the U.S. we had greater net inflows into U.S. equity funds in 2021 than in 2001 through 2020 combined. We also experienced all of the following all-time record extremes from early 2021 through early 2022: 1) the ratio of the total dollar volume of insider selling divided by the total dollar volume of insider buying; 2) the ratio of the top 50 U.S. companies by market capitalization relative to the entire U.S. stock market; 3) the ratio of the total market capitalization of the top 50 U.S. companies relative to the total U.S. GDP; 4) the overall valuation of the top 50 U.S. companies relative to the total market capitalization of the the rest of the world; 5) the total volume of call buying; 6) the average daily net inflow into U.S. passive large-cap equity funds; 7) the divergence in behavior between the most-experienced investors who had never been heavier net sellers especially of the biggest U.S. company shares, versus the least-experienced participants who had never been more aggressive net buyers of U.S. equities.

This article on Bloomberg from November 25, 2021, which doesn't even include the huge net inflows from the past several weeks of that year, highlights how investors became far too heavily committed to U.S. stocks at the worst possible time in history:

Stock Funds Took in More Cash in 2021 Than Two Decades Combined

2023 has smashed all previous U.S. large-cap stock-market extremes including those of 2021 and 2022.

It was truly amazing to have all of the previous extremes surpassed for all previous U.S. large-cap equity bubbles including 1837, 1873, 1929, 1973, and 2000. I was convinced that we might never see such overenthusiasm, overinvesting, and overcommitment to the biggest U.S. stocks for another century or more. However, it didn't take a century to revisit these all-time distortions, as every single one of the above all-time records from 2021-2022 was surpassed in 2023.

Practically every week we get a new all-time record or two: 1) the lowest VIX (15.53) during a bear market; 2) the longest rebound from an intermediate-term bottom during a bear market (nearly 7 months); 3) frequent record ratios of the biggest U.S. megacap shares relative to the rest of the S&P 500 or relative to other indices of small- and mid-cap U.S. shares. The last statistic is especially ominous, since the degree of overcrowding into the biggest U.S. companies has consistently been proportional to the subsequent total percentage losses for the best-known U.S. equity indices and funds. The following three charts highlight the astonishing enthusiasm for the biggest U.S. companies in recent weeks:

If U.S. Treasuries are paying over 5% guaranteed with the interest exempt from state and local income taxes, how can other investments compete?

The simple answer is that on a rational or analytical basis there is no reason to purchase U.S. stocks, real estate, art, collectibles, or anything else if you can get 5% or more on U.S. Treasury bills. Only emotional reasons would justify purchasing fluctuating assets, especially since so many of those are trading near all-time record overvaluations and as described earlier in this update have rarely been more popular.

The 17-week U.S. Treasury bill usually sports among the highest yields of all U.S. Treasuries since it has only existed since October 2022 and many institutions aren't aware of it. This is a far more intelligent choice than putting money into absurdly-overpriced U.S. large-cap equity funds including QQQ, XLK, and SPY.

The U.S. Federal Reserve is trying to slow the U.S. economy. Do you really think they'll fail in that pursuit?

The U.S. Federal Reserve has just raised both of its key overnight lending rates by a total of five percent over a relatively short time period in order to slow the U.S. economy. Regardless of whether there is a soft landing or not, current valuations especially for the largest U.S. stocks aren't compatible with contracting economic growth. We don't need to have a recession in order to have a stock-market crash, since merely returning to fair value will produce massive percentage losses. Moreover, bear markets almost always bottom at a 30% to 50% discount to fair value.

Gold mining and silver mining shares are often among the earliest assets to complete both tops and bottoms in any cycle. History always repeats itself with minor variations.

Even though the price of spot gold almost exactly revisited its all-time high from August 2020, the prices of gold mining and silver mining shares remained dramatically below their peaks from that month. This served as an important negative divergence to warn us that, even though this sector is traditionally one of the strongest bear-market performers, for some period of weeks or months we are going to experience a meaningful correction in this sector which has been underway since April 13, 2023.

Funds including GDXJ and GDX are likely to complete their bottoms ahead of nearly all other risk assets over the next several months. Gold has repeatedly failed to remain above 2050 U.S. dollars per troy ounce, including a failed attempt on Wednesday, May 3, 2023, and will likely drop below 1800 before resuming its long-term uptrend which has been in effect since the beginning of this century. After gold mining and silver mining shares complete their pullbacks and begin to rebound, the clock will be ticking for most other stocks which will fall to multi-year lows over the subsequent several weeks or months.

The biggest losses for U.S. stocks will be in 2024-2025, not in 2023. However, we are going to drop a lot more in 2023 than even many bearish analysts are anticipating.

In 2024-2025 U.S. stocks are likely to return to their levels of 2013 and perhaps even 2012. In 2023 we generally won't approach or drop below most of the March 2020 bottoms, because it's not yet timely for such an event to occur. Bear markets are like avalanches: they start out slowly and build up momentum on the way down. All pullbacks are followed by powerful recoveries, each of which convinces most investors that the bear market is over and we're in a new bull market. If you don't believe this then check how many times during the past 1-1/2 years Jim Cramer has insisted that the bear market has ended. Each time he and many other analysts became convinced that "the bear market is over", a renewed, ferocious downturn ensued.

A reasonable 2023 downside target for QQQ would be 200 or 190, and I think we will go lower than that before the end of this calendar year. This should be followed by a rebound of perhaps 40% over a period of several months, after which we will begin a much more severe downtrend.

U.S. equity indices keep making upward spikes as is characteristic of an intermediate-term topping pattern in a bear market.

QQQ briefly surged to intraday highs of 323.63 on May 1, 2023 and 322.47 on May 3, 2023. Topping patterns within bear markets feature repeated attempts to stage upside breakouts, just as bottoming patterns within bear markets are accompanied by repeated sharp downward moves. Investors tend to be easily fooled into believing that repeated upward intraday surges are bullish when they are profoundly bearish.

VIX fell to 15.53 at 11:02 and 11:03 a.m. on Monday, May 1, 2023 for the first time since November 5, 2021.

In past bear markets, multi-month low extremes for VIX were an important sell signal. Similarly, when VIX climbs to a multi-year high and then begins to form lower highs, as I think will be the case much later in 2023, this is a useful buy signal for U.S. equities and their funds.

Investors are repeating the same recency-bias mistake as the Fed had done in 2020.

Why did the Fed wait so long before starting to increase overnight lending rates? Didn't they notice that the U.S. stock market was approaching record bubble levels near the end of 2020? Of course they did, but the deciding factor in not raising rates at that time or in early 2021 was because we hadn't experienced a true inflationary binge since the early 1980s which was forty years earlier. If something hasn't happened for a long time, you start to believe that it's highly unlikely to reoccur even if it is by far the most probable outcome.

Investors are making the same serious mistake today. They're not putting most of their money into U.S. Treasury bills, in most cases not because they aren't aware how overpriced megacap U.S. shares are today (although some are simply ignorant), but because we haven't experienced a crushing bear market since early March 2009 which was more than 14 years ago. Anything which is that far in the past seems psychologically as though it can't happen again, even though it is by far the most likely outcome.

The U.S. dollar index has been making higher lows since early 2021. The correction from the last week of September 2022 essentially ended at the beginning of February 2023 and we have been experiencing higher lows in preparation for a dramatic move higher for the greenback over the next several months.

I keep reading about how I should invest in anticipation of a falling U.S. dollar. As with most media coverage this is badly misguided. One of the major risks to the global economy is that the U.S. dollar, which reached its highest point in September 2022 in more than twenty years, is likely to achieve a 40-year zenith within two or three years. Bet on a rising U.S. dollar, not a falling one.

Investors are overly concerned about commercial real estate and are not nearly concerned enough about residential real estate.

Work-at-home popularity in recent years, encouraging companies to lease significantly less office space, has become widely broadcast and Charlie Munger was recently featured as highlighting this point. This phenomenon is probably more than built into current valuations for commercial real estate and associated REITs. Investors are ignoring the far more dangerous all-time record ratios of residential real estate in most neighborhoods to the average household incomes in those neighborhoods. Eventually residential real estate, like all other assets, must regress to fair value as measured by the average long-term ratios of housing prices to household incomes. This implies a 50% average decline for houses in most U.S. cities over the next few years if you don't adjust for inflation. If U.S. stocks end up mostly completing historic nadirs in 2025 then real estate might complete its bottoming process in 2025-2027 as residential housing prices tend to retreat to important lows a year or two later than the equity market.

The bottom line: 2023 has experienced even more dangerous extremes than 2021 or 2022, and those had been among the most-overvalued episodes in U.S. history for large-cap U.S. equities.

We can debate how much lower QQQ, XLK, and similar assets are likely to drop over the next 1-1/2 to 2-1/2 years. I feel pretty confident that QQQ will eventually trade below 80 which would not even be as large a total percentage decline as its 83.6% collapse from its March 10, 2000 top to its October 10, 2002 bottom. This would represent a slide of 75% for QQQ from its current level. Other funds which are laden with heavy weightings in the largest U.S. companies will suffer proportional declines.

Disclosure of current holdings:

Below is my current asset allocation as of 4:00 p.m. on Monday, May 1, 2023.

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

TIAA(Traditional)/VMFXX/FZDXX/Savings/Checking long: 26.44%;

26-Week/17-Week/52-Week/2-Year/8-Week/3-Year/5,10-Year TIPS long: 13.02%;

I Bonds long: 9.35%;

TLT long: 9.04%;

XLK short (all shorts are currently unhedged): 21.45%;

QQQ short: 8.74%;

XLE short: 4.59%;

XLI short: 2.37%;

XLV short: 1.62%;

SMH short: 0.69%;

GDXJ long: 11.45%;

ASA long: 7.33%;

GDX long: 3.25%;

BGEIX long: 1.59%;

Gold/silver/platinum coins: 6.10%;

HBI long: 0.31%;

EWZ long: 0.20%;

EWZS long: 0.08%;

PAK long: 0.02%;

EGPT long: 0.01%.

The numbers add up to more than 100% because short positions only require 25% to 30% collateral in stocks/funds and less than that in U.S. Treasuries (by SEC regulations; some brokers require more) to hold them with no margin required.

"In a world in which most investors appear interested in figuring out how to make money every second and chase the idea du jour, there's also something validating about the message that it's okay to do nothing and wait for opportunities to present themselves or to pay off. That's lonely and contrary a lot of the time, but reminding yourself that that's what it takes is quite helpful." --Seth A. Klarman

CALDRON BUBBLE (January 17, 2023): We are in the second year of the collapse of the "everything bubble." Unless you are in your 90s or over 100 years old and you were trading during the Great Depression, or you're in kindergarten and you could be trading into the 22nd century, this will end up being the biggest bubble collapse of your lifetime.

U.S. stocks, high-yield corporate bonds, real estate, art, used autos, baseball cards, and of course cryptocurrencies are all declining almost the same way that they did following a similar bubble in Japan which had peaked at the end of 1989. As for the U.S. stock market, there are many parallels in 2022-2025 with 2000-2003 which we will discuss in more detail later in this essay.

The most important characteristics of bubbles is that regardless of how or why they form, they all collapse nearly identically. This was first chronicled in detail by Charles Mackay in his 1841 classic publication, "Extraordinary Popular Delusions and the Madness of Crowds."

2023 will likely have a very different shape from 2022 although it will also primarily be a bear-market year.

Bear markets for all assets usually feature the most sharp rebounds within the context of dramatic long-term declines.

The lion's share of the market's losses in 2022 occurring in the most overvalued shares. High-P/E large-cap technology shares in 2022, just as in 1973 and 2000, were among the biggest percentage losers. From its March 10, 2000 intraday top to its October 10, 2002 intraday bottom, QQQ, a fund of the top 100 Nasdaq companies, lost 83.6% of its value which is more than 5 dollars out of 6. It is likely that a similar percentage decline is in progress following QQQ's all-time zenith in November 2021, with the losses for QQQ ending up twice or thrice as much as many other U.S. equity index funds.

We could get a much higher VIX and a much deeper pullback for U.S. equities in 2023 as compared with 2022.

I expect the S&P 500 Index to probably drop below three thousand at some point during 2023. If this occurs around mid-year rather than near the end of the calendar year, and if it is accompanied by the highest level for VIX since March 2000, massive investor outflows, and heavy insider buying, then this could provide our first opportunity to actually close out short positions and go heavily net long many deeply-undervalued securities. This would not be because the bear market will be over, as 2024 will almost surely feature the greatest percentage losses of the entire bear market. However, it could be possible to make numerous diversified purchases of washed-out securities around the middle of 2023 which could be huge winners within several months at which time most of them should be sold.

Even in the most severe bear markets, you can often make more money by going long prior to the bounces following deeply-oversold bottoms than from going short into the declines themselves.

Remember your favorite kindergarten story: Goldilocks and the Three Bears.

If March 2020 through January 2022 was Goldilocks, then 2022-2025 will feature the inevitable starring roles for the Three Bears. Baby Bear is an apt description of 2022, with numerous equity pullbacks each followed by a sharp rebound. Mama Bear should be an apt description of 2023 with a much more severe parental punishment, followed by a motherly strong rebound. This still leaves Papa Bear's powerfully destructive grip for 2024, of which we will talk more in future updates.

Investors on the equivalent of the Titanic prefer to upgrade their cabins rather than to head for the lifeboats.

In early 2001 investors had been migrating away from slumping large-cap tech shares and moving into energy, industrials, healthcare, and whatever else had been outperforming in 2000. Similar behavior has been occurring recently, with funds including XLI (industrials), XLV (healthcare), and XLF (financials) only modestly below their all-time tops. Last week XLI had the biggest net inflow of all exchange-traded funds. Just as in 2001, investors in early 2023 are unwilling to accept that we could be in a bear market and that they should therefore purchase something safe like 26-week U.S. Treasuries yielding between 4.8% and 4.9%. Instead, they think they are immune to losing money if they are in the "right" sectors.

As in all bear markets, most analysts are emphasizing "looking for quality" instead of diversifying into safer assets. The problem is that they're looking for quality in all the wrong places.

Bogleheads will be Bogleheads.

Near the end of 1999 I was working for a company in Manhattan which offered 401(k) options to its employees. Two of these choices were entirely invested in Nasdaq shares, one with large-caps and one which was more diversified but still highly speculative. The custodian of these assets sent a representative to "educate" (i.e., brainwash) employees on their options, failing to mention that these Nasdaq funds featured fees which were triple those of more conservative bond funds in the plan. They also did typical Boglehead tricks like showing charts of how these funds had performed--but going back to 1982 rather than some other year. I was upset enough to write a written complaint to the head of human resources and copy the CEO, and also to point out that they were subjecting themselves to potential legal action in a future year. They dismissed my complaints as being absurd.

In response, I organized a meeting of my co-workers in which I arranged to give a lecture about how the financial markets work. I was already teaching a class in the financial markets to new employees, so people were familiar with my experience. I gave one of my most eloquent explanations of how the Nasdaq and its funds were very dangerously overpriced. Many people commented that they had no plans to change their allocations since "the market always goes up in the long run" and this kind of commonly-heard nonsense, but over the next few years quite a few people came up to me privately and told me that they paid attention to my advice and reduced their risk.

The most reliable bear-market signals are ringing loudly of further losses.

VIX, an important signal of investor fear, hasn't even approached 40 so far in the current bear market. VIX slid to an intraday low of 18.01 on January 13, 2023, a one-year bottom. VVIX, also known as the VIX of VIX, has recently been rebounding from a multi-year nadir. We haven't had anywhere near the typical heavy net outflows that have characterized every bear-market bottom in history, nor the intense levels of buying by top corporate executives which had featured so prominently at major bottoms including March 2009 and March 2020 and were far more prevalent at minor bottoms such as December 2018. The failure by average investors to be worried about additional losses, and the indifference by insiders in accumulating shares near recent lows, are both clear signs that additional substantial losses still lie ahead.

In 2021 we had greater net exchange-traded fund inflows than during the entire twenty-year period from 2001 through 2020 combined. In 2022, even with notable declines for equity valuations, we had the second-highest total after 2021.

Stock Funds Took in More Cash in 2021 Than Two Decades Combined

Inflows for Globally Listed ETFs Reach Second-Largest Tally Ever in 2022

Fundamental valuations for most assets remain enormously above long-term historic averages.

QQQ and the S&P 500 have dropped from all-time record overvaluations a year ago but are still both trading at more than double their average ratios relative to the profits of their components. Real estate has fallen modestly from its all-time highs in recent months, but is about 75% overpriced on average in U.S. cities and more than that in many parts of the world. Assets in true bear markets don't just retreat somewhat and then resume their uptrends. They usually bottom well below fair value as we had seen for stocks in late 2002 and early 2003 as well as late 2008 and early 2009. For real estate we had many deeply undervalued neighborhoods at various points from 2010 through 2012.

After experiencing an extended correction since its September 28, 2022 two-decade high, the U.S. dollar index could be ready for its next multi-month uptrend.

Some undervalued assets including U.S. Treasuries have probably begun multi-year bull markets.

U.S. Treasuries, including their funds like TLT, fell to multi-decade lows in the autumn of 2022 and have begun forming several higher lows. Each week I have been buying 26-week U.S. Treasury bills along with other short-term Treasury securities as they have been enjoying their highest yields in 15-1/2 years. One consistent winner in bear markets going back to the late 1700s has been U.S. Treasuries of nearly all maturities.

Gold mining and silver mining shares likely resumed their bull markets in September 2022, right on schedule.

In March 2000 the S&P 500 completed its top and initiated a huge bear market which didn't end until October 2002. Gold mining and silver mining shares, as measured by $HUI and other reliable indices and funds, bottomed in mid-November 2000 which was eight months later. Fast forward to 2022. The S&P 500 completed its top on January 4, 2022 while GDXJ and related funds slid to multi-year lows (although remaining well above their March 2020 bottoms) in September 2022, once again eight months following the S&P 500 top. Looking back at 2000, gold/silver mining shares were among the top-performing sectors over the next three years and over the next decade. This is likely to be the case over the next several years also.

Gold mining and silver mining shares will dramatically outperform in the upcoming decade with periodic pullbacks of 15% to 25%. Only buy them after such pullbacks.

I have been maintaining my long positions in gold mining and silver mining funds including GDXJ, ASA, GDX, and BGEIX in that order. These consistently outperform following the collapse of U.S. growth bubbles, although they will periodically suffer moderate pullbacks of 15% to 25% just as they had done during November 2000 through December 2003.

I have been steadily adding to my short positions and reducing my long positions in preparation for the next downward trend for U.S. equities.

While I have been maintaining my short positions in XLK and QQQ, in recent months I have been adding to short positions in XLI, XLV, and SMH whenever VIX is below 20 and in XLE whenever insiders are heavily selling energy shares.

We had an all-time record level of insider selling of the largest global energy companies in recent months, so I began selling short XLE near 93 and 94 and have been continuing to add to this short position into its recent lower highs near 90 and 91. XLE has been one of the biggest outperformers since its March 2020 bottom and is therefore likely to be one of the biggest losers until insiders are once again heavy buyers. During several periods in 2020, including the spring and early autumn, we had the heaviest-ever insider buying of energy shares. Energy insiders seem to be especially astute in buying low and selling high.

Here are some useful charts which illustrate the above points.

The following chart highlights that the 2022 U.S. housing bubble surpassed the previous dangerous bubble peak of 2005-2006:

The Nasdaq in recent years has very closely tracked the Nikkei in the late 1980s as all true bubbles collapse identically:

The S&P 500 Index is its most overvalued in its entire history relative to risk-free U.S. government bonds:

Measured using price-to-sales, the S&P 500 has been far more overpriced recently than at any time in recent decades including 1999-2000:

Commercials, the equivalent of insiders for futures trading, have approached multi-year highs in accumulating the 30-year U.S. Treasury bond:

Lengthy bull markets from August 1921 through September 1929 and October 1990 through March 2000 were both followed by bear markets which lasted over 2-1/2 years apiece, therefore likely setting the stage for a repeat:

The bottom line: expect two more bear-market years through late 2024 or perhaps 2025.

Numerous analysts have declared that "the bear market is over" and use as "evidence" the hilarious proclamation that down years are followed by up years a large percentage of the time. This is like concluding that you don't need to take an umbrella when you go outside, since it will usually not be raining--except when it is. Checking the weather forecast or actually going outdoors to see for yourself is much more reliable than going by irrelevant long-term statistics, and there can be no doubt that stormy weather in the financial markets will be with us for roughly another two years. If you're very conservative then put all of your money in U.S. Treasury bills up to 52 weeks while emphasizing the weekly 26-week auctions. If you're willing to assume greater risk than gradually sell short the most-overvalued large-cap U.S. equity funds including XLI, XLE, XLV, and SMH.

Disclosure of current holdings:

Here is my current asset allocation as of the close on Tuesday, January 17, 2023:

TIAA(Traditional)/VMFXX/FZDXX/SPRXX/Savings/Checking long: 34.54%;

XLK short (all shorts currently unhedged): 17.52%;

QQQ short: 6.23%;

XLE short: 4.61%;

XLI short: 2.24%;

XLV short: 1.53%;

SMH short: 0.06%;

GDXJ long: 10.84%;

ASA long: 6.77%;

GDX long: 2.88%;

BGEIX long: 1.48%;

2-Year/3-Year/52-Week/26-Week/13-Week/5-Year TIPS long: 10.04%;

I Bonds long: 9.19%;

TLT long: 8.65%;

Gold/silver/platinum coins: 5.55%;

HBI long: 0.30%;

WBD long: 0.25%;

EWZ long: 0.08%;

EWZS long: 0.04%;

The numbers add up to more than 100% because short positions only require 30% collateral (by SEC regulations; some brokers require more) to hold them with no margin required.

"Here's how to know if you have the makeup to be an investor. How would you handle the following situation? Let's say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you're an investor. If you don't, you're not an investor, you're a speculator, and you shouldn't be in the stock market in the first place." --Seth A. Klarman

MAMA BEAR (August 9, 2022): Throughout 2021 some analysts compared the U.S. stock market with Goldilocks and her porridge: not too hot, not too cold, but just right. Unfortunately many of them played hooky in kindergarten so they never learned that Goldilocks is always followed by the three bears. This truancy has come home to haunt analysts and investors in 2022 which featured the appearance of Baby Bear throughout the first half of this year.

Far too many analysts have recently rushed to declare that "the bear market is over" but, alas, we haven't seen either Mama or Papa so far. Mama Bear is about to surprise many with her dramatic entrance. Unlike Baby Bear, Mama needs a lot to keep her well fed, so she's going to be around for a year or two. Once she's had her fill, Papa Bear will bring the proceedings to a thunderous grand finale.

The U.S. equity bear market has a long way to go, with QQQ facing additional losses of 75% or 80%.

On November 22, 2021 at 10:16:19 a.m., just after Jerome Powell was reappointed as Fed chair, QQQ completed its all-time record zenith at 408.71. After making lower highs through January 4, 2022, it didn't take long for QQQ to lose one-third of its value by June 15, 2022. Since then it has been generally rebounding for several weeks which has encouraged a surprising number of people, especially those who haven't studied market history, to conclude loudly that "the bear market is over." Often they'll mention something about inflation receding or a recession not being imminent or something equally irrelevant as justification for their outlook.

Quite a few of these folks declared in both late March and more recently that "the bear market is over," probably on the way to doing so several more times.

The bear market of 2021-2025 has almost nothing to do with inflation, recession, Ukraine, or energy. It has everything to do with all-time record overvaluations, insider selling, net inflows, and public participation in 2021.

The media have been completely clueless about why we're in a bear market and why it must continue for at least two more years. We had the highest overpricings in history last year combined with by far the most intense insider selling and greater total net inflows for 2021 than we had for 2001 through 2020 combined. The market has to reward insiders for bailing out and punish the average investor in a way which will be unforgettable, at least until the next bear market comes along and no one respects it either.

The two previous longest bull markets in history were followed by bear markets of 34 and 31 months respectively.

Some analysts would have you believe that the bull market from March 2009 through January 2022, almost 13 years altogether and by far the longest in U.S. history, ended with a 5-1/2-month mild bear market. If we look at the second- and third-longest bull markets then this is what we find: the powerful uptrend from August 1921 through September 1929 was followed by the most severe bear market ever recorded which terminated in July 1932, 34 months later. The bull market from October 1990 through March 2000 was followed by a bear market which ended in the U.S. in October 2002 after 31 months and in most of Europe in March 2003 which was three years (36 months) altogether.

If this pattern repeats itself then the current bear market won't end until either the second half of 2024 or sometime in 2025.

Bear markets aren't "healthy corrections." They destroy an average of one decade's worth of investors' total accumulation.

In any bear market a major index like the S&P 500 will return to its top from the bull market prior to the previous one. In this case that means going back to its October 11, 2007 top of 1576.09 which had been the previous all-time intraday record prior to the 2007-2009 collapse. Since the S&P 500 on January 4, 2022 had reached 4,818.62 this means a loss of more than two-thirds from top to bottom and it could be significantly higher than that.

From its top of March 10, 2000 through its bottom of October 10, 2002, QQQ dropped 83.6%. Not many investors have prepared their portfolios for a repeat performance.

U.S. government bonds are irrationally underappreciated.

As I have discussed in previous essays, the best deal you can get is to put up to 65K each calendar year into I Bonds per couple or 35K if you are single. These are currently paying 9.62% free of state and local income taxes, and possibly free of federal income taxes if the money is eventually used for someone's college education. Once you have maxed out your I Bonds you can still get the highest guaranteed yields since October 2007 by purchasing U.S. Treasuries at each auction at TreasuryDirect.gov. The 52-week, 1-year, 2-year, and 3-year Treasuries are auctioned once per month, while the 26-week Treasuries are issued each week. I have recently been buying all of the above including the auctions on August 8 and August 9, 2022. Recent yields include 3.325% on today's 52-week auction and 3.202% for the 3-year U.S. Treasuries. Yesterday's 26-week auction yielded 3.130% which is much higher than you will get from any bank, plus the interest is free of state and local income taxes.

Bogleheads would do much better getting 3.2% guaranteed by the U.S. government than continuing to pile into U.S. equity index funds which are near double or triple fair value and which could still be behind after adjusting for inflation a half century from now.

Here is the official U.S. government link for the results of recent U.S. Treasury auctions:

U.S. Treasury Auction Results

Sell short in any bear market whenever VIX drops below 20.

Huge insider selling combined with massive net fund inflows are two clear signals that U.S. equities are headed much lower regardless of what they do in the short run. If you're uncertain about when to sell short, a useful guideline in a bear market is to track VIX. Whenever this measure of the average implied volatility of a basket of options on the S&P 500 Index goes below 20 it is safe to add to your short positions. The lower VIX goes below 20, the more aggressively you can add to your shorts, although always continue to do so gradually into extended equity strength.

Partially balance your short positions with long positions.

While funds including QQQ and XLK remain near triple fair value, other sectors tend to perform strongly during bear markets which follow growth-stock bubble tops. Gold mining shares consistently rally strongly following Nasdaq-style bubble peaks after an eight-month delay as we saw after September 1929, January 1973, and March 2000. For example, QQQ completed a key zenith on March 10, 2000; $HUI which is a long-running index of gold mining shares began a huge uptrend starting on November 15, 2000. In the current cycle QQQ peaked on November 22, 2021, so it is possible that the recent lows for gold mining shares eight months later may be following a similar pattern.

GDXJ is an ideal fund to hold during the current U.S. equity bear market. Other funds will likely become compelling over the next several months if they retreat irrationally during the next major downward phase for QQQ and SPY.

Not counting TLT and other funds of U.S. Treasuries, my equity short-to-long ratio is currently about 9:8. In other words, my combined short equity positions are modestly greater than my combined long equity positions, constantly adjusting both sides by buying into extended weakness and selling into extended strength.

Probably we will soon retest the upside a few more times for QQQ and SPY before we suffer their severe plunges.

It's somewhat unlikely that August will be the month where the U.S. equity bear market accelerates. Looking back at similar bear-market years including 1929, 1937, 1973, 2000, and 2008, it is probable that equity indices will periodically try to rally on "good news," especially near the opening bell, before we experience a more sustained decline after Labor Day to what will likely be the lowest points this autumn since April-May 2020.

A likely downside target for QQQ in the next phase of the bear market will be 215. We could bottom slightly higher and potentially much lower. Right now I expect this to occur before the end of 2022 although there exists a smaller chance of a slower descent into early 2023. If VIX suddenly spikes above 60 then expect this intermediate-term bottom to occur sooner rather than later.

Here are three useful charts.

Top corporate executives set new all-time records of insider selling to insider buying in 2021 and have recently been selling at their most intense pace since the beginning of 2022:

It's not just stocks which are overpriced; new homes under construction set a new all-time record as housing inventory is being transformed from a record shortage to a record surplus:

Among the few undervalued assets are precious metals, with silver's traders' commitments demonstrating the 99th percentile of its historic range. When commercials aren't hedging it's because they expect a substantial price increase in coming years:

The bottom line: the bear market is far from over as Mama Bear is about to make her appearance. An ideal way to ride out the current bear market is to keep a substantial percentage of your money in U.S. Treasury bills averaging 3.2% guaranteed which is free of state and local income taxes.

Disclosure of current holdings:

Here is my asset allocation in order from largest to smallest position: U.S. I Bonds along with 26-week, 52-week, 1-year, 2-year, and 3-year Treasuries, VMFXX, and similar cash reserves; short XLK; short QQQ; long TLT; long GDXJ (some bought in July); long GDX (some bought in July); short TSLA; long ASA (many bought in July); long GEO; long KWEB; long EWZ; long XBI; long TEI (many bought in July); long INTC (many bought recently including today); long TKC (many bought in July); long EPOL (some bought in July); long LEMB (many bought in July); long PCY (many bought in July); long TUR; short AAPL; long T; long ECH; short XLU; short XLE; long VZ (many bought in July); long FXF (some bought in July); long FXY (many bought in July); long FXB (many bought in July); short IWF; short SMH; long WBD; long VMBS; long EGPT (many bought in July); long PAK (many bought in July); long UGP; long ITUB; long BBD; long TIMB.