Is Michael Burry right?

Michael Burry has SOLD ALL his stocks.

Burry believes that while we are due for disinflation in the short-term due to inventory builds, higher-than-usual inflation will stick around for the long-term, powered by persistent commodity and labor shortages.   

Burry further believes that poor economic policies from the U.S. government will exacerbate the negative economic impacts of this elevated inflation. As a result, the U.S. economy will plunge into a deep recession. This deep recession, Burry reasons, will lead to a dramatic drop in corporate profits, which has yet to be priced into stocks.

As corporate profits drop over the next 12 months, Burry thinks stocks will collapse.

Burry’s saying that if inflation persists, stocks are doomed. We’re bullish, and we entirely agree with that thesis. If inflation persists, stocks and bonds, cryptos, and every other financial asset out there are doomed.

But the bulk of evidence today suggests inflation is meaningfully decelerating. Inventory levels are rising. Commodity prices are crashing. Energy costs are falling. Home prices are starting to drop. Wage growth is slowing.

All the core drivers of inflation are trending in the right direction. If these trends persist, stocks aren’t going to crash – they’re going to soar.

(adapted from Luke Lango)

Are bears wrong?

In late 2010, stocks were rebounding after some pretty lame economic data in the summer, and investors didn’t believe in the rally. Bets against that rally accelerated. But those bearish bets actually led to the rally’s acceleration. And consequently, the stock market rallied big into       mid-2011.

It happened again in late 2011. The market was rallying big as it tried to recover from the fallout of the European Debt Crisis. Lots of investors didn’t believe in it. Bearish bets rose. But from late 2011 to mid-2013, the market surged 50% higher.

Then it happened in late 2015 and early 2016. The market was rebounding from an oil price collapse. Investors weren’t buying it. Bearish bets rose. Stocks proceeded to surge higher in 2016 and 2017.

And, of course, it happened in early 2020. Stocks were on the rebound after the pandemic-induced market crash. Investors kept questioning the rally’s durability. Bearish bets rose. But stocks just keep powering higher. And the balance of 2020 into 2021 saw enormous stock market returns.

This happens time and time again. It’s a repeatable cycle.

• Stocks collapse after bad news.
• They start to rebound once the news starts to fade.
• Investors – still remembering the bad news – don’t fully believe in the rally and bet against stocks.
• But the bad news keeps fading, and stocks keep rising.
• Those shorts are forced to cover. The market rally kicks into a higher gear. Investors who buy the dip and stick with the rally make a ton of money.

Will it also repeat this year?

[adapted from: https://www.iqstock.news/n/big-short-squeeze-brewing-stocks-bullish-4392746/]

Investing at the top still turn out tops

 

Time to buy semicon?

There are good reasons to start considering the tech sector now. QQQ has never been a bad choice with its low fee, broad market representation, and excellent liquidity. However, more aggressive investors with a long timeframe might want to consider SOXX also given the valuation correction and the quieter volatility ahead. SOXX has historically enjoyed a valuation premium over the overall market. But its current is ~17% discounted from the S&P 500 and about 30% from the QQQ.

Adapted from:

https://seekingalpha.com/article/4530498-soxx-vs-qqq-time-to-consider-heavier-bets-on-tech

How to make BIG Money

 In short, buy at attractive prices and HODL.