The Bubble To End All Bubbles

| | | |

If you talk to people in the crypto space, and you tell them you’re 100% invested in Bitcoin, they think that you’re super-risk-averse. It’s like the boomer coin – Liz Young, Head of Investment Strategy, SoFi Technologies

[Bitcoin is] not going to give you the same return as if I were to invest in Shiba, which is like five decimals less than a penny – Ranae Arnette, 33, NFT & Crypto investor

Quotes from “Weird Finance” [Subscription Required], Jack Hough, Barron’s Cover Story, Saturday 11/6/21

Something important happened the last two weeks: Tesla (TSLA) and Nvidia (NVDA) started trading like meme stocks. The former added $351 billion in fully diluted market value and the latter $178 billion over that span.

It’s one thing for fringe assets to experience speculative froth. For example, there is a cryptocurrency called Shiba Inu that is all the rage and currently trades at $0.000059 despite being up almost 500,000% this year according to the Barron’s cover story. Obviously it is worthless but its failure poses no systemic risk.

It’s another when that kind of trading infects some of the most important stocks in the market like TSLA and NVDA, with valuations of $1.37 trillion and $750 billion, respectively.

While many people have their heads in the sand, it is incontrovertible that this is the bubble to end all bubbles.

That said, it doesn’t mean it’s going to end Monday. If it’s gone on this long, there’s no reason it can’t go on longer.

Nevertheless, the blow off moves in TSLA and NVDA are tells to me that we are close. It’s why I took a small, quick shot short into Friday’s intraday selloff – though it didn’t pick up speed as I hoped and I covered at the end of the day.

As I wrote yesterday morning, these mega cap Big Tech stocks are carrying the market and masking enormous weakness beneath the surface in stocks like Peloton (PTON) and Snapchat (SNAP). This narrowing of market leadership is exactly how bull markets top.

All the same, timing a market top – especially in the greatest bubble in financial history – is extraordinarily difficult. You absolutely do not want to go All In trying to do so. That’s a recipe for getting run over.

The advice of Jesse Livermore that the first and last eighths are the most expensive is apropos. If you’re long aggressive growth stocks, especially tech, now is the time to take some or all of your chips off the table. If you short, now is the time to start probing for a market top with very tight risk management. That is, small stabs that you cover quickly if they don’t start working almost immediately. You can always add to your shorts (i.e. pyramid) if they start working.

Market timing is an art, not a science, but I am as confident as you can be about this sort of thing that this is not only the last eighth, but probably the last few months, if not weeks, of the greatest bubble in history. The aftermath will be brutal and countless books will be written about it and the ensuing collapse.

Similar Posts