If Billionaires and Insiders Are Nervous About Markets, Should You Be?
If Billionaires and Insiders Are Nervous About Markets, Should You Be?
Tim Staermose admin@sovereignman.com Tue, May 25 at 1:10 PM
Markets are frothy. Billionaires are bailing. But opportunities exist… for the right investor.
What do billionaires and company insiders know that you don’t?
So far in 2021, they have sold $24.4 BILLION worth of stocks.
Since November 2020, Facebook’s Mark Zuckerberg and his charity have sold $1.87 billion. Amazon’s Jeff Bezos has sold $6.7 billion in 2021. A couple of weeks ago, Larry Ellison of Oracle sold (only) $552 million of Oracle stock. Small investors are piling into overvalued markets.
But the smart guys are heading for the exits. And they may be correct to sell right now...
The average Price/Earnings ratio in the S&P 500 is 44, which is about 3x the historic average. It’s only been higher two other times — just before the 2000 crash, and just before the 2008 crash.
(As the name suggests, a company’s Price/Earnings (P/E) ratio measures its share price relative to its per-share earnings. Analysts and investors use P/E ratios to compare companies’ relative values.)
We’re not forecasting that a market crash is imminent. But at these valuations, it’s wise to exercise some caution.
Because financial markets are completely detached from reality…
In the United States alone, almost 10 million people remain unemployed. Thousands of small businesses are forever shuttered. Rising capital costs and labor shortages may close thousands more in the coming months.
And it’s not just small businesses that are in trouble…
Before COVID-19 struck, out of 3,000 large, publicly traded US companies, there were about 400 “zombies”. Zombie companies cannot generate enough operating income to cover their interest payments.
And the number of zombies has ballooned recently. Now, there are more than 600 zombie companies, with $2.6 TRILLION in total debt.
But again, most investors apparently don’t care about economic reality. Stock markets keep charging higher… with no regard for these clear risks.
Meanwhile, US Treasury bonds are no longer the “risk-free” investment that they once were.
Last year, when markets melted down, foreign investors and central banks didn’t rush into US Treasurys. Actually, foreigners sold $1 trillion of US Treasurys overnight.
How about cryptocurrencies as an alternative to stocks and bonds?
Despite what the fanatics proclaim, cryptocurrencies are not yet a stable store of value. For example, in the past month, bitcoin plummeted over 40%. And then quickly rebounded 10%.
So, since…
Stock markets are beyond frothy;
Treasury bonds are fraught with risk (especially with higher inflation coming);
And cryptocurrencies are not a stable store of value…
Then, at times like these, where can the rational, cautious investor safely invest capital?
Fortunately, there are still pockets of value where you can make money. Minimal downside and big upside — 54%, 120%, 250%, and even 303% profits.
You just need to:
Be extremely disciplined - with both your capital and time horizon;
And know where to look (NOT in US markets);
Let’s be clear: This type of investing is not for everyone.
If you lack the patience for your stock prices to increase…
If you cannot imagine suffering 10%, 20%, 30% losses, even though they’re temporary…
If you’re constantly checking the value of your portfolio on your phone…
Then you’re not cut out for this type of investing strategy. We’ll save you some time. You can close this email, and you can ignore this week’s remaining emails.
But if you have a long-term investment horizon with a classic asset allocation, then the risk is minimal, and the rewards are potentially unlimited.
We know that it’s your vision, discipline, and hard work that will reap the rewards. And we understand that you will build something lasting for years to come — something with real value.
Stay tuned for tomorrow to see how you can invest in real value and create true long-lasting wealth.
To your investment success, Tim Staermose, Chief Investment Officer, SovereignMan.com