As an analyst, I am continually looking for rogue waves and black swan events. In my experience, it is the crisis we do not see coming that hurts us most. Over the last few months, I have seen and heard some things that now have me concerned. I will describe them below, and you can decide for yourself if they are worth considering.
THE ROBINHOOD CRAZE: Buying and selling stocks has never been easier. Through Robinhood, investors (primarily millennials) buy and sell stocks commission-free with ease. Users are encouraged to sign up friends and family to receive free stocks. I believe this craze has triggered a bubble in stocks like Tesla and other Electric Vehicle plays.
TRADING IS EASY: Since August, I have had multiple conversations with people (mostly younger) regarding stocks – the majority have never talked markets before. I found out one is actively day trading from his phone; he buys popular stocks, and when he makes $1000, he sells. Another was bragging about a 50%+ profit on Cruise lines. Some went as far as to show me their phones and how much they have made. One family member went on to described how he wanted to learn options.
Virtually anyone that bought stocks after March is wildly profitable. People that have never traded before are doing so actively. Retail traders are entering the options market like never before – this has me greatly concerned. Either all these people are financial geniuses, or they are about to get wiped out from an unexpected market event.
BULLISH SENTIMENT: Even the professionals are bullish. According to thedailyshot.com, the Financial Twitter Sentiment Index is experiencing notable bullishness…even perma-bears have turned bullish! Is everyone right, or should we view this as a contrary indicator?
MARTIN ARMSTRONG WARNING: Well-respected analyst, Martin Armstrong of Armstrong Economics, noted in a recent interview the potential for revolution, civil war, and a global depression by 2022. The interview titled We’re Headed for Revolution, aired November 19, 2020, on Financial Sense. Note – you will need premium access if you want to hear the interview.
To Paraphrase Mr. Armstrong: He sees the potential for violent protests and blood in the streets by April or May 2021, possibly over continued lockdowns. That is correct – he thinks lockdowns may continue in 2021, over a different (perhaps evolving coronavirus). From there, we could see the beginnings of revolution in some countries. By 2022, he thinks global GDP could be down by 50%, from the pre-COVID high. I have been listening to Mr. Armstrong for years. He is right more than he is wrong, in my opinion.
Under this frightful scenario, precious metals would likely explode higher (me talking). The dollar could rise as a flight to safety, especially if revolution begins overseas first. Big money will park in blue-chip stocks. And cryptocurrencies could rally as investors attempt to move money out of their respective countries.
In summary, multiple warning signs have my attention. Maybe there is nothing to worry about, and the economy will continue to recover. But what we are in the eye of a storm, and things get worse in 2021? How many people are expecting that? Whatever the case, I think it is worth considering the potential for a tumultuous 2021 and 2022 – at least think about it.
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