Bubbles popping?

[Cardboard]

It is now happening in almost every area:

 

Bitcoin is down over 50% since its peak. Actually my timing to warn people on this site was near perfect in December. You can thank me later if you got out then.  8)

 

Canadian pots stocks hit their peak in January and have fallen very hard today.

 

U.S. treasuries are now coming down with the 30 year having reached 3%. The chart looks pretty bad.

 

The S&P was in a near perfect parabolic ascent and it is now breaking. QQQ, FXI (China), it is all looking broken. The VIX has gone back up a bit or getting closer to 15.

 

The last bubble that has not popped yet seems to be the Amazon and Facebook of the world. However, they don't seem too confident with a drop of 4.2% for AMZN heading into the close, followed by some relief hoorah with the earnings, or lack thereof, or up 6.3% in the after-hour. Will it last?

 

While I have no crystal ball, the history books are pretty clear: almost all (if not all?) parabolic ascents end up in tears. At the very least, I think that we are due for some sideways action. Many people have now been hurt and this is not typically conducive to more greed.

 

Cardboard

[beerbaron]

Don't claim victory yet, this is round one.

 

BeerBaron

[Cardboard]

If you mean the market sure but, the coins???

 

It was really really frothy back in December. The sky was the limit. Everything eventually pulls back and it sure did. Those who got out after a 19 bagger during the year can now get back in at $9,000 or less than half price. That is real dough. Amazing volatility.

 

However, for those who did get out, I am not sure that they are that inclined to get back in yet. And that is how bear market typically happen or a return of skepticism.

 

The fear of missing out or FOMO, as described this week in their letter by pretty good fund managers in Canada from the Dark Horse Fund, has been all the rage. Valuation, yardsticks, dividends, discounted cash flow analysis, who cares? Is it going up and fast? I want some! If not I will miss out on some juicy, easy money :(

 

Cardboard 

[LC]

I agree, The real test will be if the people selling out for millions will be buying back in.

[rb]

I would be careful with all of this.

 

I don't think much (if any) of bitcoin. But it has a history of big spikes and big crashes and then bigger spikes. Whatever, if people want to play with their 1s and 0s they can go ahead.

 

When it comes to stocks, a 2% drop in the S&P does not a bubble pop make. I agree that pretty much every company appears to be overvalued. However some of this was also true in 1997. That didn't prevent the market to have a crazy ride into 99/00.

 

Only time will tell. But I think we have some interesting times ahead of us.

[SharperDingaan]

Bitcoin crossed USD 8,600 today - we would suggest that it will not be long before it falls < USD 2,500.

 

Tether isn't going away, as price falls to what Joe Average paid - selling should accelerate, and there are limits to the 'never sell' attitude of the early stage developers. It's easy to boast at 15,000; not so much when it's below 5,000 - and still falling. We don't see any near or medium term positives.

 

The only real question now is how low it ultimately goes, and how long it takes to get there.

History being made before our eyes.

 

SD

 

 

 

[abyli]

It is now happening in almost every area:

 

Bitcoin is down over 50% since its peak. Actually my timing to warn people on this site was near perfect in December. You can thank me later if you got out then.  8)

 

Canadian pots stocks hit their peak in January and have fallen very hard today.

 

U.S. treasuries are now coming down with the 30 year having reached 3%. The chart looks pretty bad.

 

The S&P was in a near perfect parabolic ascent and it is now breaking. QQQ, FXI (China), it is all looking broken. The VIX has gone back up a bit or getting closer to 15.

 

The last bubble that has not popped yet seems to be the Amazon and Facebook of the world. However, they don't seem too confident with a drop of 4.2% for AMZN heading into the close, followed by some relief hoorah with the earnings, or lack thereof, or up 6.3% in the after-hour. Will it last?

 

While I have no crystal ball, the history books are pretty clear: almost all (if not all?) parabolic ascents end up in tears. At the very least, I think that we are due for some sideways action. Many people have now been hurt and this is not typically conducive to more greed.

 

Cardboard

 

Why do you think Facebook is a bubble? Have you checked Facebook's P/E ratio?

 

In yesterday's Q4 2017 report, Facebook made $2.21 per share a quarter, revenue grew 47% last year. It does not need to be a genius to know Facebook was trading at  teen multiples yesterday, very high profit margin, almost a monopoly. Where is bubble?

[Gamecock-YT]

How did you go bankrupt? Two ways. Gradually, then suddenly.

 

We're still gradual.

[rb]

How did you go bankrupt? Two ways. Gradually, then suddenly.

 

We're still gradual.

Love it. I'll steal that!  ;D

[Parsad]

Bitcoin crossed USD 8,600 today - we would suggest that it will not be long before it falls < USD 2,500.

 

Tether isn't going away, as price falls to what Joe Average paid - selling should accelerate, and there are limits to the 'never sell' attitude of the early stage developers. It's easy to boast at 15,000; not so much when it's below 5,000 - and still falling. We don't see any near or medium term positives.

 

The only real question now is how low it ultimately goes, and how long it takes to get there.

History being made before our eyes.

 

SD

 

Who knows what will happen, but I have a feeling Joe Average hasn't even started selling yet.  Buying and ultimately selling bitcoin, isn't as easy as the advocates would have you believe.  So there is a lag between when the larger players sell, and the small average investor's get to sell.  The smaller players, especially the ones buying last at the higher valuations, will be left holding the bag.  Cheers!

[petec]

In mid December at 18k I bet a friend bitcoin would be below 12k by year end. Precisely wrong, but roughly right. I'm not so sure about the S&P - I feel we are only partway through the transition from the "climbing a wall of worry" stage to the "euphoria" stage. Everything is expensive, but maybe it takes euphoria to make a real bubble. We are still a long way from the CAPE peak of 44, which is arguably what real euphoria looks like in an easy-money world. I liked Grantham's "melt-up" piece as a framework for what euphoria might look like - specifically, well over 3000 on the S&P.

 

Obviously all this is said with minimal confidence and I wouldn't invest a cent on the back of it.

[Guest]

I'm agnostic about the market but will say that euphoria does not need to be in place for a market crash to happen. Euphoria was not evident in 2007, for the market in general, and we still dropped 55%.  If there was euphoria (in certain parts) then I'd say it was either in emerging markets, real estate and/or energy.

[JRM]

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

[gfp]

Exact same thing here.  Constant texts and calls from financially unsophisticated folks for two straight weeks right at the recent top.

 

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

[sleepydragon]

Exact same thing here.  Constant texts and calls from financially unsophisticated folks for two straight weeks right at the recent top.

 

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

 

Same here. I had a coworker who paid off his mortgage and keep the rest of his money in cash for last few years, and was telling me he is planning to buy some bitcoins

[DTEJD1997]

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

I have a hobby selling physical gold & silver.  I will sell bars & coins and stuff like that.

 

I have established clients and am always getting new ones.

 

I can tell you WITHOUT A DOUBT that more people are interested in precious metals when the price is going up and the price is HIGH.

 

Most people WILL NOT buy when the price is low...they are too scared it is going lower.

 

They want to buy when it is high & going higher.  I also suspect that this is the same in most markets. 

 

Perhaps it is because Jane Blow heard about Joe Blow making a killing in XYZ market.  That peaks her interest and she wants to be like "Joe Blow".  At the bottom of markets, you aren't hearing about how people made a killing...you are hearing about how they LOST MONEY.  Nobody wants to lose, so nobody is interested.

 

At market tops (or near) you hear plenty of stories about people getting rich, paying off houses, how "it is different this time" and so on.  Thus, more people get interested, get involved and the market(s) go higher.  A self reinforcing loop?

[Travis Wiedower]

Why do you think Amazon is a bubble? Seems like it's in the ballpark of fairly valued to me.

[rkbabang]

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

I have a hobby selling physical gold & silver.  I will sell bars & coins and stuff like that.

 

I have established clients and am always getting new ones.

 

I can tell you WITHOUT A DOUBT that more people are interested in precious metals when the price is going up and the price is HIGH.

 

Most people WILL NOT buy when the price is low...they are too scared it is going lower.

 

They want to buy when it is high & going higher.  I also suspect that this is the same in most markets. 

 

Perhaps it is because Jane Blow heard about Joe Blow making a killing in XYZ market.  That peaks her interest and she wants to be like "Joe Blow".  At the bottom of markets, you aren't hearing about how people made a killing...you are hearing about how they LOST MONEY.  Nobody wants to lose, so nobody is interested.

 

At market tops (or near) you hear plenty of stories about people getting rich, paying off houses, how "it is different this time" and so on.  Thus, more people get interested, get involved and the market(s) go higher.  A self reinforcing loop?

 

 

I'm buying more.  I bought very little in 2017, most of my buying was in 2015-16.  I started buying again when it first went bellow $12K this month and I am buying more today.  If it drops from here I'll be buying more still.

 

[mcliu]

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

I have a hobby selling physical gold & silver.  I will sell bars & coins and stuff like that.

 

I have established clients and am always getting new ones.

 

I can tell you WITHOUT A DOUBT that more people are interested in precious metals when the price is going up and the price is HIGH.

 

Most people WILL NOT buy when the price is low...they are too scared it is going lower.

 

They want to buy when it is high & going higher.  I also suspect that this is the same in most markets. 

 

Perhaps it is because Jane Blow heard about Joe Blow making a killing in XYZ market.  That peaks her interest and she wants to be like "Joe Blow".  At the bottom of markets, you aren't hearing about how people made a killing...you are hearing about how they LOST MONEY.  Nobody wants to lose, so nobody is interested.

 

At market tops (or near) you hear plenty of stories about people getting rich, paying off houses, how "it is different this time" and so on.  Thus, more people get interested, get involved and the market(s) go higher.  A self reinforcing loop?

 

 

I'm buying more.  I bought very little in 2017, most of my buying was in 2015-16.  I started buying again when it first went bellow $12K this month and I am buying more today.  If it drops from here I'll be buying more still.

 

What % of your portfolio are you allocating to this?

[rkbabang]

I had many friends and coworkers asking my opinion on crypto-currencies when is was above $15k.  My answer was I didn't have an opinion and don't invest in things I don't understand.

 

Now that the price has dropped all I hear is crickets.  If my favorite stocks dropped 50% (from fairly valued or undervalued basis) I would be backing up the truck and telling everyone who will listen what good deals there are to be had.

 

This has been an interesting behavioral experiment.

I have a hobby selling physical gold & silver.  I will sell bars & coins and stuff like that.

 

I have established clients and am always getting new ones.

 

I can tell you WITHOUT A DOUBT that more people are interested in precious metals when the price is going up and the price is HIGH.

 

Most people WILL NOT buy when the price is low...they are too scared it is going lower.

 

They want to buy when it is high & going higher.  I also suspect that this is the same in most markets. 

 

Perhaps it is because Jane Blow heard about Joe Blow making a killing in XYZ market.  That peaks her interest and she wants to be like "Joe Blow".  At the bottom of markets, you aren't hearing about how people made a killing...you are hearing about how they LOST MONEY.  Nobody wants to lose, so nobody is interested.

 

At market tops (or near) you hear plenty of stories about people getting rich, paying off houses, how "it is different this time" and so on.  Thus, more people get interested, get involved and the market(s) go higher.  A self reinforcing loop?

 

 

I'm buying more.  I bought very little in 2017, most of my buying was in 2015-16.  I started buying again when it first went bellow $12K this month and I am buying more today.  If it drops from here I'll be buying more still.

 

What % of your portfolio are you allocating to this?

 

It depends on how you look at it. What I have invested or what it has grown to.  Lets look at what I have invested.  The amount I invested before 2018 is around 1% of my portfolio.  The amount I added in my two buys in 2018 is about 0.5% of my portfolio.  So my total cost basis is about 1.5% of my portfolio.  Looking at it this way I have increased my investment by almost 50% in 2018.

 

So I haven't put all that much in, but if you look at what it has grown to.  Off the top of my head, it was as high as 65-70% of my portfolio at one point in December and is now somewhere around 40-45% of my portfolio.  So you can see that the new money I have allocated in 2018 barely moved the needle.

 

[Valuebo]

It depends on how you look at it. What I have invested or what it has grown to.  Lets look at what I have invested.  The amount I invested before 2018 is around 1% of my portfolio.  The amount I added in my two buys in 2018 is about 0.5% of my portfolio.  So my total cost basis is about 1.5% of my portfolio.  Looking at it this way I have increased my investment by almost 50% in 2018.

 

So I haven't put all that much in, but if you look at what it has grown to.  Off the top of my head, it was as high as 65-70% of my portfolio at one point in December and is now somewhere around 40-45% of my portfolio.  So you can see that the new money I have allocated in 2018 barely moved the needle.

 

 

Why would anyone ever look at it from another point than "what it has grown to"? You still risk the same amount, regardless of where the wealth initially came from or what amount you invested versus your total wealth. Depending on where money comes from (income, inheritance, investment returns, bonus, windfalls, etc.) people tend to invest differently. This is completely irrational behavior. I do it too of course but try to be at least aware of it.

 

And if you decide to hold your current positions, you are effectively making the decision to buy them now at current prices. Ask yourself if you would hold the same positions if you were to start over with a new portfolio. Specifically ask yourself this: If I were to restart with 100% in cash and the same knowledge, would I invest 40-45% in crypto's today? More power to you if you would. Just make sure that it is a conscious decision.

 

[SharperDingaan]

Bitcoin crossed USD 8,600 today - we would suggest that it will not be long before it falls < USD 2,500.

 

Tether isn't going away, as price falls to what Joe Average paid - selling should accelerate, and there are limits to the 'never sell' attitude of the early stage developers. It's easy to boast at 15,000; not so much when it's below 5,000 - and still falling. We don't see any near or medium term positives.

 

The only real question now is how low it ultimately goes, and how long it takes to get there.

History being made before our eyes.

 

SD

 

Who knows what will happen, but I have a feeling Joe Average hasn't even started selling yet.  Buying and ultimately selling bitcoin, isn't as easy as the advocates would have you believe.  So there is a lag between when the larger players sell, and the small average investor's get to sell.  The smaller players, especially the ones buying last at the higher valuations, will be left holding the bag.  Cheers!

 

Like everyone else, I had all kinds of students/recent grads asking 'how do I get in' around Nov/Dec of last year. The prevailing attitude at the time was max out the credit cards, buy Bitcoin, and just pay the minimum every month. As is our custom; when we sold, we also disclosed our exit. About 1 in 4 sold shortly thereafter.

 

Every value investor has to learn how to 'recognize thesis change, and sell '; and as we've all learnt, it's a painful but essential lesson that isn't in the text books. I understand that a lot of the credit card buyers are underwater, and many just want out at the price they paid. I expect that maybe 1 in 3 have the fortitude to 'tough it out', the rest are going to cave as they get further into the red.

 

This suggests heavy selling into the rallies, and rising selling as price descends. Systemic downward price spirals.

Notable is that it's the same behaviour we see with novice day traders - and the stocks they tend to follow.

 

The clampdowns, regulatory actions, & CB interest rate raises; infer that 'moral hazard' is back in fashion.

And we know from US prosecution practice that it's the 'little fish' first; then you move up.

 

It doesn't look good for the token.

 

SD

 

 

 

 

[SharperDingaan]

It depends on how you look at it. What I have invested or what it has grown to.  Lets look at what I have invested.  The amount I invested before 2018 is around 1% of my portfolio.  The amount I added in my two buys in 2018 is about 0.5% of my portfolio.  So my total cost basis is about 1.5% of my portfolio.  Looking at it this way I have increased my investment by almost 50% in 2018.

 

So I haven't put all that much in, but if you look at what it has grown to.  Off the top of my head, it was as high as 65-70% of my portfolio at one point in December and is now somewhere around 40-45% of my portfolio.  So you can see that the new money I have allocated in 2018 barely moved the needle.

 

 

Why would anyone ever look at it from another point than "what it has grown to"? You still risk the same amount, regardless of where the wealth initially came from or what amount you invested versus your total wealth. Depending on where money comes from (income, inheritance, investment returns, bonus, windfalls, etc.) people tend to invest differently. This is completely irrational behavior. I do it too of course but try to be at least aware of it.

 

And if you decide to hold your current positions, you are effectively making the decision to buy them now at current prices. Ask yourself if you would hold the same positions if you were to start over with a new portfolio. Specifically ask yourself this: If I were to restart with 100% in cash and the same knowledge, would I invest 40-45% in crypto's today? More power to you if you would. Just make sure that it is a conscious decision.

 

This is the 'casino' effect, and why it's helpful to have 'rules of thumb' when you're getting material portfolio distortion.

Ultimately there is a need to periodically take $ off the table, but everyone will make their own decisions.

 

SD

 

 

[rkbabang]

It depends on how you look at it. What I have invested or what it has grown to.  Lets look at what I have invested.  The amount I invested before 2018 is around 1% of my portfolio.  The amount I added in my two buys in 2018 is about 0.5% of my portfolio.  So my total cost basis is about 1.5% of my portfolio.  Looking at it this way I have increased my investment by almost 50% in 2018.

 

So I haven't put all that much in, but if you look at what it has grown to.  Off the top of my head, it was as high as 65-70% of my portfolio at one point in December and is now somewhere around 40-45% of my portfolio.  So you can see that the new money I have allocated in 2018 barely moved the needle.

 

 

Why would anyone ever look at it from another point than "what it has grown to"? You still risk the same amount, regardless of where the wealth initially came from or what amount you invested versus your total wealth. Depending on where money comes from (income, inheritance, investment returns, bonus, windfalls, etc.) people tend to invest differently. This is completely irrational behavior. I do it too of course but try to be at least aware of it.

 

And if you decide to hold your current positions, you are effectively making the decision to buy them now at current prices. Ask yourself if you would hold the same positions if you were to start over with a new portfolio. Specifically ask yourself this: If I were to restart with 100% in cash and the same knowledge, would I invest 40-45% in crypto's today? More power to you if you would. Just make sure that it is a conscious decision.

 

Of course I understand that, but it is easier said than done.  I do this all the time even with stocks.  For instance I recently sold half of my long time Overstock.com position in the high $40s.  Of course it is now trading at $63, which I consider highly overvalued into the speculative range.  I would not buy Overstock at these prices, but I am not selling, because I think of those shares as "free" since I made multiples of my original investment when I sold the other half.    It isn't rational, I know, but it is a very difficult way of thinking to overcome.

 

[Gamecock-YT]

How did you go bankrupt? Two ways. Gradually, then suddenly.

 

We're still gradual.

Love it. I'll steal that!  ;D

 

Ernest Hemingway,The Sun Also Rises