FOMO culture

 There was a notable bullish shift in sentiment the last couple of weeks as per fund flows and sentiment. We're also seeing a sizable spike in bond yields. I've said it here many times before that notable pullbacks/corrections have been preceded by a surge in bond yields like this.

One of the biggest newsworthy events of late is the revelation of Tesla having bought $1.5B worth of BTC while  other "whales" are joining the party or are strongly considering it despite probably not truly understanding BTC or what they are getting into.  Tesla, buy the way, effectively used debt to buy BTC given the bonds they issued in the past couple of years. Whether they want to admit it or not, this newfound institutional inflow into BTC is purely monkey see monkey do and FOMO behavior. They can try to rationalize it all they want, but that's what it is. It's no different than the retail meme stock mania. My theory has been that BTC is being driven purely by greater fool buying which can only be sustained by a steady inflow of new fools and now because of Tesla and others, institutional money flow is providing a fresh source of inflows to keep the BTC party going, There is also now a BTC ETF which will also suck in every last retail investor and momo trader who was always tempted to buy BTC but didn't know how or were afraid to. With the BTC ETF it's now easy to buy BTC.  A buddy of mine asked for help to set up a Questrade account so that he can buy $2500 of this ETF. Do you think he has a clue about what BTC is or how it works? Of course not. Just like the "GME to the moon" reddit "investors" had no clue or how Hertz "investors" had no clue what they doing last summer.

Given these recent developments we are fast approaching the all in scenario for BTC where the bubble will be ripe for bursting and this time for good because there will be no more greater fools to get in. As institutional flows pour into BTC, systematic risk from a BTC crash rises along with it.  I should look into this more because we all know what happened the last time there was widespread exposure of toxic assets held by so called smart money institutional investors (yes I'm talking about MBS in 2008).  

I've seen people including Tyler Winklevoss say "if you don't own BTC you are short BTC". What a fucking crock of shit statement. They are basically saying if you don't own BTC you're a loser. I quoted Cameron Winklevoss at the height of the GME mania tweeting "If you don't like the suits buy GME and AMC, if you don't like the bankers buy BTC".  Just shameless, baseless pumping from these clowns but because they are such "influencers" people blindly follow them. Same goes for Elon. Elon seems to be going off the rails lately. He's been pumping Dogecoin like a fiend - a crypto currency (if you want to use that word) which was created as a joke and now has market cap of over $7 Billion thanks to his pumping. Remember Elon was also pumping the "revolution" stocks.  

We've never had a time like this whereby people are willing to pile into just about anything  as either an expression of their opinions, or sheer  FOMO ignorance. Clever contrarians who bet against these moves too early only add fuel to the fire as they get ran over  while momentum type traders who are programed to chase strength add even more fuel to the fire.  But ultimately it ends in disaster once you run out of buyers and the fundamentals assert themselves. To me it's as clear as day that the true underlying driver of the BTC price is greater fool buying and that can only take you so far. Eventually reality hits and hits hard and fast. The ridiculous assent of  Hertz, Signal, GME, AMC, blockbuster and all the other junk stocks ultimately ended in disaster because the fundamentals said so. BTC will end the same way, but sure, it can keep going higher first as this newfound institutional love continues to pay out.  After resisting for so long, you're seeing a lot of advisors/market strategists capitulate and now say t's a good idea to add 5-10% of BTC to portfolios as an inflation hedge to replace gold. Even though these strategists still can't rationalize why the BTC is worth what it is, they've basically shrugged their shoulders and drank the koolaid. Have you noticed that gold has been in decline while pretty much every other commodity has been on the rise as of late? That's got to be mainly due to the BTC displacement effect. 

I will leave you with this consideration. Right now the Elon's, Winklevoss's and Cathy Wood's of  today are being worshiped but one thing I've learned over the years is that today's geniuses are often tomorrow's goats. It wasn't too long ago when permabears such as Roubini and Schiff where looked at as geniuses because they were big bears prior to the 2008 meltdown. Meredith Whitney was another name.  Remember her? She made a great bearish call on the banks.   But these folks remained bearish all throughout the bull market that followed and eventually turned out to be goats which I predicted would be case. Back in April 2009 I wrote this "A comment on analysts Whiteny and Roubini who have recently achieved super star status: From my experience anytime an analyst or strategist or whoever become market sages they inevitably will fall from grace usually shortly after the point when everyone worships their every word (we could be at that point already with these 2). These 2 will WITHOUT A DOUBT one day become goats. Mark my words.""

Abbey Joseph Cohen was the permabull star strategist for Goldman Sachs who gained notoriety in the 90's for her permabull outlooks. She reminds me a lot of Cathy Wood today. When the tech bubble burst in 2000 Cohen stayed bullish all throughout the bear market that followed and her star had fallen. So, beware of blindly following gurus just because they've had a hot hand. That's one of the things I've learned over many years. Along the same lines, what I've also learned is this: respect price action but don't defer to it. Just because the price of something is either rising or falling doesn't necessarily validate the respective bullish or bearish narrative that accompanies it. It's easy to be convinced by the bull case when price is rising and likewise in the bear case when price is declining. Always keep an objective perspective to the best of your ability and always remember the motto of this blog. Once everyone starts to worship someone or some particular narrative that's when you need to be on guard for things going in the opposite direction. 

Random thoughts

First off, a few comments about recent market action. To no surprise the "revolution" aka "meme" stocks crashed and burned. While there's lots of finger pointing going on, the true culprit are the "revolutionists" themselves for being such naïve fools, not the brokerages, hedge funds or whatever. But I will say this, nobody is pointing any fingers at  Cameron Winklevoss or Elon Musk who were cheerleading this "revolution". God knows how many people jumped in because of them and now they get to hold the bag while Winklevoss and Musk still hold onto their billions 

While the "revolution" was happening there was an acute deleveraging by hedge funds late last week as there was great fear that all short positions would be targeted for squeezes. As such, the market had a sharp but short lived dip and is now hitting all time highs as I type this. Lots of people were bracing for "the big one"  as the VIX spiked to near 40 but once again Mr. Market said no dice. You could hear the collective groans from the permabears and all the rest who have been bracing for a big drop for so long. ST sentiment conditions are back to neutral after having shown some exuberance a couple weeks back. When you have such conditions while the market is grinding to new highs, the market either keeps going higher or any dips that do happen tend to be relatively modest i.e. less than 5%. 

Coming into this year there is a clear consensus call for reflation. That would be bearish for bonds, bullish for the market in general with commodities, deep cyclicals outperforming.  Now as I mentioned in a recent post, you need to be careful to not be contrarian just for contrarians sake and automatically take the opposite view of the consensus. However, with this consensus view the market is clearly going to be vulnerable to a repricing of expectations should reflation fail to take place. I feel much more confident in being bullish when the market is making new highs while the consensus view is one of pessimism or very cautious optimism. That's a low hanging fruit type situation. Right now I would say the fruit is high hanging - not out of reach, but more difficult and dangerous to pick, so be alert.

Switching gears now to talk about some personal stuff. It's been about 7 years since the Greenstar fiasco whereby I took a devastating loss.  I was naive and foolish for putting myself in a position to get badly hurt like that especially given all my years of experience. I was ashamed of myself.  It was one of the lowest points in my life. I would say that the only time I felt worse was when this girl I knew who I had a huge crush on in high school found a boyfriend just as I was getting the courage to make a move on her. I remember how my heart just sank to the floor when I first found out and the agonizing weeks that followed. To this day I still carry that scar. There's 2 main ways people deal with huge setbacks like this. One way is to be consumed by the misery whereby your loss of confidence and sense of self-worth becomes permanent. The other way is to learn from the setback and to fight back with everything you got . Doing so can not only make up for the set back but put you in an ever strong position than ever before. I've always been one to fight and bounce back from major setbacks, but there's no guarantee that if you have a big set back you will be able to recover from it. In some situations you simply can't no matter how hard you try. Luck can be a big factor. 

The loss I incurred from Greenstar led to a series of events which actually ended up making me better off than had I not experienced the loss.  In fact, I'm easily in the best spot I've ever been in. I remember the dark place I was in after the full effect of the Greenstar loss sunk in mentally. I wrote about it here http://bulls-bears-pigs.blogspot.com/2014/11/still-alive.html.  I felt like I was walking around with a big hole in my chest.  I had to essentially rejoin the workforce to get a "regular job", one that was well below my qualifications. It was a 45-60 minute drive each way to work too but I knew I had to start somewhere. From there I climbed my way up which also had its own ups and downs. I was really, really fortunate. I was lucky to have met the right people and be given great opportunities. Of course, I made the best of those opportunities and so I'll give myself some credit  but without this good fortune, things would not have turned out  as good as it did.  There's a good book I read a few years ago called Outliers which describes what made super successful people so successful. The basic conclusion is that their success was due to part skill, part hard work and part luck such as being born at the right place or the right time or to the right family which allowed them to get unique opportunities. Without having the opportunity one's potential can easily go to waste. Of course, you have to try your best to create opportunities but it's often the case that you can't and you get them by luck. 

I admit that I am one lucky SOB to be where I am right now. especially during this pandemic. I just need to make sure now that I don't become complacent or reckless. As such, I have a sticky note taped to my desk which says "DFIU" as a reminder. Can you guess what it stands for?