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Silicon Valley’s Illiquid Bubble Cracks Begin To Widen

Daily Chart September 9 InvestWithAlex

9/9/2015 – A down day with the Dow Jones down 237 points (-1.44%) and the Nasdaq down 55 points (-1.15%) 

Today, most investors in the stock market subscribe to the “Buy The Dip” mentality. After all, it has worked for close to 7 years and there is no apparent need to change. Now, the same mentality is making an appearance in Silicon Valley.

Silicon Valley feels the aftershocks of Wall Street’s turbulence

“For venture capital investors, it’s a great opportunity to pick up some interesting assets on the startup side,” he said. “As an example, in 2008, 2009 downturn, we made investments in companies such as New Relic (NEWR), Zulily (ZU), T-Mobile (TMUS), all of whom have gone public and they were terrific investments for us, all made during the downturn.”

That sounds wonderful, but there is one big problem. Thus far, the Dow has corrected 16% off of its May 19th top. Between 2007-2009 the Dow declined 55%. Most of the high flying tech stocks and illiquid start-ups proceeded to collapse to the tune of 80-95% at the same time.

I am confused, did Uber’s valuation collapse over the last few weeks? 

And since the answer is no, I continue to maintain my view. Mark Cuban is dead on in identifying Silicon Valley’s Tech Bubble 2.0: Why This Tech Bubble is Worse Than the Tech Bubble of 2000.  At the end of the day, Silicon Valley has about as mush liquidity as California’s dried up reservoirs. Something that Angel investors, venture capitalists and stock option millionaires are about to find out.

How big is this bubble? Consider the following. Uber’s valuation went from $60 Million in 2011 to $50 Billion today(not a typo).  They must be making a ton of money…..right?WRONG. Bloomberg estimates that Uber showed $470 million in operating losses with $415 million in revenue last year. Plus, the company was set a major legal blow in California by requiring their drivers to be classified as employees. And as far as I am concerned, it is just a matter of time before other states and countries regulate Uber out of business to protect taxi drivers.

In other words, the valuation above is not only outrageous, it is, how should I put it, retardedly outrageous.

Back to Mark Cuban. It is now evident that most market pundits out there are dismissing Mark’s view. And while Mark talks about Angel Investors and illiquidity in that market, his analysis can just as easily be applied to today’s stock market. More about that in a second.

First, here is what most people don’t realize about Mark Cuban. After selling his first business Mark became a heck of a trader and investor in the 1990’s. His returns were so good at the time that Goldman Sachs tried to bring him in order to figure out what he was doing. This same ability helped him unload Broadcast.com for $5.7 Billion to Yahoo right at the top of the tech bubble. Here is what he thinks.

I have absolutely not doubt in my mind that most of these individual Angels and crowd funders are currently under water in their investments. Absolutely none. I say most. The percentage could be higher. Why? Because there is ZERO liquidity for any of those investments. None. Zero. Zip.

So why is this bubble far worse than the tech bubble of 2000 ?

Because the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity. If stock in a company is worth what somebody will pay for it, what is the stock of a company worth when there is no place to sell it ?

We often talk about the stock market, but we rarely look at this side of the equation. Mark is absolutely right. If you are an Angel Investors, good luck getting your money out. Especially when today’s Silicon Valley’s bubble bursts. Plus, the chances of hitting a good exit in tech are about as good as winning a lottery.

What’s more, the bubble Mark Cuban has identified in the tech industry is the same bubble I see in the stock market. The drivers behind both are the same. The only difference is the amount of liquidity available.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. September 9th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Silicon Valley’s Illiquid Bubble Cracks Begin To Widen  Google

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An Interesting Market Fact

1-b

I am following this development with great interest as I have never seen anything like this before. At the very least, I don’t recall seeing this before.  The market has opened with either a massive up or down gap, 9 out of the last 10 trading days.

Further, we have had a substantial gap, up or down, in all of the last 7 trading days. In 6 of those instances, the market completed 75-80% of its entire daily move in the aftermarket. And unless you trade futures, it is very difficult to take a position.

What does any of that mean?

A few things. First, we are definitely operating at a higher energy level. Second, this is a very dangerous market. And whether you are long or short, your profitable position can be very easily retraced by the time we open the following day. Finally, short-term trading positions are unlikely to work if such an environment continues. In other words, it would be wise to pick a long-term directional move here and stick with it.

Just make sure you get the direction right.

Z31

An Interesting Market Fact  Google

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Is A Bear Market Impossible Without The FED Tightening?

At lease that is the argument made by the fellow in the video below. And he is right. Most of the previous bear markets have been ushered in by the FED tightening. For instance, 2000 and 2007 bear legs are a good example.

With that in mind, it is really different this time. The stakes are much higher. The FED has maxed out its capability to wage war on recession through QE and keeping interest rates at zero over the last 8 years. We now live in the world where a fear of a laughable 25 bps rate hike can send the Dow down 2,000 points in 2 trading days. Plus, when the economists begin to warn that the health of the World Economy is dependent on the FED not raising interest rates, Fed should wait with raising rates: World Bank economist, we are in trouble. Bit time.

In other words, don’t for a second think that we are in a normal business cycle or macro environment here. We are not. The FED went all in. The only question is……will the bet pay off or will this house of cards come crashing down……fast? We should know soon.

Z30

Is A Bear Market Impossible Without FED Tightening? Google

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Why Warren Buffett Is No Longer A Value Investor

Daily Chart September 8 InvestWithAlex

9/8/2015 – A big up day with the Dow Jones up 391 points (+2.43%) and the Nasdaq is up128 points (+2.73%) 

While this will upset quite a few of Mr.Buffett’s disciples, I no longer believe that Warren is following his own advice.  Advice such as, “Be greedy when others are fearful, fearful when others are greedy, buy $1 bills for .50 cents, etc…” Here is why….

Warren Buffett plans to invest $32 billion, soon

Warren Buffett said Tuesday the U.S. economy is growing at about 2 percent, and he’s planning to invest $32 billion in the next four to five months.The previous time the Oracle of Omaha spoke with CNBC in early August, he discussed the conglomerate’s $37.2 billion acquisition of Precision Castparts (NYSE: PCP), an aircraft equipment maker, saying “This a very high multiple for us to pay.”

There you go, even Mr.Buffett thinks he is paying a “A Very HIGH Multiple”.

My question is……..why? 

As my previous posts here clearly illustrate, I believe we are in an overvaluation bubble of epic proportions. In the past, Mr. Buffett didn’t have a problem with sitting on the sideline while waiting for the market to crater. Then picking up wonderful investment opportunities at give away prices. That is how he has made his fortune.

It is unclear why Berkshire Hathaway is trying to get rid of its cash by investing right in the middle of this overvaluation bubble. Could it be due to the fact that Warren Buffett has fallen into a trap frequented by most other investors. Particularly today. A cult like believe in the FED and their ability to backstop any market decline? A believe that we are in the early stages of a 16-18 year bull run? A believe that our economy will improve and not slide back into a recession?

Sure, the investments he is making today will pay off over the next 15-20 years. Short-term, I believe this to be a very dumb decision. Something Mr. Buffett will surely write about in his 2017 Annual Letter To Shareholders. Mark my words.

This conclusion is further supported by my mathematical and timing work. It clearly shows a severe bear market between 2015-2017. In fact, when it starts it will very quickly retrace most of the gains accrued over the last few years.  If you would be interested in learning when the bear market of 2015-2017 will start (to the day) and its internal composition, please CLICK HERE.

(***Please Note: A bear market might have started already, I am simply not disclosing this information. Due to my obligations to my Subscribers I am unable to provide you with more exact forecasts. In fact, I am being “Wishy Washy” at best with my FREE daily updates here. If you would be interested in exact forecasts, dates, times and precise daily coverage, please Click Here). Daily Stock Market Update. September 8th, 2015  InvestWithAlex.com

Did you enjoy this article? If so, please share our blog with your friends as we try to get traction. Gratitude!!!

Why Warren Buffett Is No Longer A Value Investor Google

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Buying Opportunity Of A Lifetime or A Bull Trap?

Dow short term

On Monday, August 24th, the Dow futures flashed -400, then -600, -800 and by the time we opened, we were down 1,000 points. In my weekly update to my premium subscribers two days earlier, I have suggested that the market is likely to bottom within the first 60 minutes of trading on Monday. However, due to the extent of the decline, I had to recalculate all of my price targets.

Five minutes before we opened I presented a new target to my subscribers…Dow 15,365. Which typically entails 15,365 (+/- 25 points). The Dow bottomed at 15,370 in the first 5 minutes of trading and then ripped 200 points higher in a matter of about 30 seconds. In other words, even though I have identified the exact bottom, I wasn’t able to take advantage of it. The market moved too fast…

Here are the two most important things you have to understand about that bottom……

  1. It Was Untradable:  First, there was a massive discrepancy between all primary indices and associated ETF’s. For instance, DIA opened $4 lower than the Dow Jones. It was the same story for QQQ/NDX, SPY/SPX and quite a few other high volume stocks…FB, AAPL, etc…I couldn’t buy and by the time I finished typing the number of shares to buy into my terminal and looked up, the Dow was up 200 points. Why is this important? Based on my research work, such “untrabable” bottoms or spike downs get retraced about 90-95% of the time. At the very least. In other words, expect to see those levels again.
  2. Anecdotal: I tend to hang out with well to do professionals (lawyers, doctors, bankers, etc…) As we were having breakfast a week ago, 100% of them agreed that this was a “buying opportunity of a lifetime”. They couldn’t stop boasting about how many shares of this and of that they have bought right at the bottom….RIGHT?!?! Anyway, when I brought up the possibility of this being just the first leg down in a multi-year bear market, I was immediately dismissed as being “always too bearish”. Even though I haven’t been this bearish since 2007.

So, did I just miss a buying opportunity of a lifetime or a this a bull trap? I think the analysis above speaks for itself.

z32

Buying Opportunity Of A Lifetime or A Bull Trap?  Google

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Investment Grin Of The Day

Best financial analysis you will get on what has actually transpired during my summer blogging hiatus or over the last two weeks. z23

Z31

Investment Grin Of The Day  Google

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COT Reports & Weekly Market Calendar – September 8th, 2015

I am back. There were some major and interesting changes in COT Reports over the last two weeks. Let’s take a look at that first. 

COT Reports: If you are not familiar, the Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions. In other words, it gives us a preview of what commercial interests are buying or selling. As the theory goes, we want to be on the same side of the trade as the big guys.

While not a good timing tool, currencies, commodities and the stock market (to a lesser extent) tend to move in the direction of the bets made by the commercial players. Not always, but often enough.

Latest data, as of September 1st, 2015

Currencies: 

  • USD:  3K Long Vs. 63K Short – Significant decrease in net short position. Substantial short interest remains.
  • Canadian Dollar: 77K Long Vs. 4K Short – Slight net decrease in commercials net long position. Significant long interest remains.
  • British Pound: 61K Long Vs. 11K Short – Slight increase in net long interest. British pound is now bullish.
  • Japanese Yen: 125K Long Vs. 90K Short – Massive net increase in short interest. Japanese Yen is now neutral.
  • Euro: 124K Long Vs. 64K Short – Slight decrease in net long exposure. Significant long position remains. No changes.
  • Australian Dollar: 139K Long Vs. 1K Short-  Slight increase in net long position. Significant long position remains.

Conclusion: Based on the information above, commercial interests expect the US Dollar to decline while Canadian Dollar, British Pound, Euro and Australian Dollar rally. Japanese Yen is  now net neutral. 

Markets/Commodities/Volatility: 

  • E-Mini S&P 500: 545K Long Vs. 572K Short – Big swing from large net short position to neutral. Commercials took profit after later August sell-off.
  • VIX: 54K Long Vs. 70K Short – Massive swing from a large long position to net neutral.  Commercials took profit after late August sell-off.
  • Gold: 69K Long Vs. 73K Short – Slight increase in net long exposure. Still neutral.

Conclusion: Based on the information above, commercial interests are now net neutral. This is consistent with the market remaining in a tight, relatively speaking, trading range. Gold is likely to remain within its trading range. 

Next Week’s Market Calendar: 

  • No major market news this week in the US. Only in Asia/EU.

Z30

COT Reports & Weekly Market Calendar – September 8th, 2015 Google

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COT Reports & Weekly Market Calendar – August 21th, 2015

COT Reports: If you are not familiar, the Commitments of Traders (COT) reports provide a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions. In other words, it gives us a preview of what commercial interests are buying or selling. As the theory goes, we want to be on the same side of the trade as the big guys.

While not a good timing tool, currencies, commodities and the stock market (to a lesser extent) tend to move in the direction of the bets made by the commercial players. Not always, but often enough.

Latest data, as of August 18th, 2015

Currencies: 

  • USD:  3K Long Vs. 83K Short – Significant short interest remains. No major changes.
  • Canadian Dollar: 88K Long Vs. 3K Short – Slight net decrease in commercials net long position. Significant long interest remains.
  • British Pound: 46K Long Vs. 34K Short – Slight increase in net short interest, but remains neutral.
  • Japanese Yen: 134K Long Vs. 8K Short – Slight decrease in net long exposure. Quite a large long position in Yen remains.
  • Euro: 117K Long Vs. 40K Short – Slight decrease in net long exposure. Significant long position remains. No changes.
  • Australian Dollar: 131K Long Vs. 1K Short- Significant long position remains.

Conclusion: Based on the information above, commercial interests expect the US Dollar to decline while Canadian Dollar, Euro, Yen and Australian Dollar rally. British pound is neutral. 

Markets/Commodities/Volatility: 

  • E-Mini S&P 500: 309K Long Vs. 586K Short – Few changes. A substantial short position remains.
  • VIX: 85K Long Vs. 16K Short – No changes. A substantial long position suggests market turbulence ahead.
  • Gold: 83K Long Vs. 65K Short – Slight increase in net long exposure. Still neutral.

Conclusion: Based on the information above, commercial interests expect the stock market to decline as volatility surges higher. Gold is likely to remain within its trading range. 

Next Week’s Market Calendar: 

  • Wednesday – US Durable Goods
  • Thursday – GDP Data.
  • Wed.-Friday – Jackson Hole Symposium

Z30

COT Reports & Weekly Market Calendar – August 14th, 2015 Google

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Jim Rogers Explains Why Central Bankers Are About To Panic

There is only a handful of people worth listening to when it comes to investing. Jim Rogers is one of them. Below is the podcast he did a few weeks ago and it is definitely worth a few minutes of your time.

Jim talks about equity markets, Russia, China, Greece, oil and gold. Plus, bureaucratic idiots in Washington. I’ll tell you one thing, it is nice when Jim’s views match my own.

In short, Jim anticipates major….major problems in the US Equity markets. Should you?

z32

Jim Rogers Explains Why Central Bankers Are About To Panic Google