Yesterday I went to our local theater to see "The Big Short", a fascinating and very entertaining adaptation of Michael Lewis' excellent book (by the same name) about the 2008 financial crisis. And today I listened to Dr. Michael Burry's commencement speech to the graduating class of 2012 at UCLA. In the movie, Dr. Burry is the eccentric math genius who was among the first to recognize the early signs of the sub-prime mortgage crisis that eventually served as the catalyst for the collapse of the financial markets in 2008 and early 2009. His financial success in capitalizing on his groundbreaking research is well documented in the movie, but not before he experienced the pain and suffering that almost always comes with being too early on major turns in any market.
Even though it's now more than 3 1/2 years since Dr. Burry spoke to the 2012 graduating class at UCLA, I still feel incredibly sorry for all those students in the audience at that time who had to listen to the most depressing commencement speech that has ever been written or given to any graduating class ever! For those who wish to slog through this 22-minute speech, here is the YouTube link
If we use the U.S. stock market as our guide, the "current" U.S. economic recovery dates back to March 2009 when the S&P 500 Index bottomed out at 666.80. However, according to my research, the incredible bull market that began in March 2009 actually ended in May 2015 when the S&P 500 topped out at 2134.71. While the Nasdaq Composite Index didn't top out until July 2015, most U.S. stocks posted their 52-week highs in the first half of 2015. Of course, there is a possibility (however remote) that my conclusion regarding the ultimate top of the bull market that began in 2009 is flawed and that the final peak has yet to be set.
In the interest of full disclosure, I currently have no short position in the U.S. stock market. In fact 90% of the funds that I have under management at this time are in cash. The remaining 10% is in relatively liquid "blue chip" corporate bonds that I have held for many years (some from late 2008 when yields surged on almost everything except Treasury securities following the Lehman bankruptcy). 2015 was among my best years ever as defined by the rate of return on funds under my management. My taxable investment funds earned 42.55% and non-taxable IRA funds earned 2.31%, which resulted in a "blended weighted average" of +17.57%. While I wish I could tell you that I have found the "keys to the kingdom" for superior money management, my computer trading system (which I personally crafted about 8 years ago based upon more than 30 years market experience) is designed to maximize profits by identifying variance-based turning points and then by using "regression to the mean" analysis to enter and exit trades. While the S&P 500 Index is basically "flat" on the year right now, there have been meaningful swings in almost every market (stocks, bonds, commodities, precious metals, and foreign currencies). In 2015, I was able to capitalize on several extraordinary price moves among mining stocks (especially in the precious metals mining sector).
My plan for 2016 is fairly straightforward: "more of the same" for my investment accounts, I hope. However, like Dr. Michael Burry in 2007, I am now extremely worried about the global economy generally and the U.S. economy specifically. I feel certain that a major liquidity squeeze is about to unfold that will inevitably lead to a greater-than-average bear market in U.S. and global equity prices. It almost looks to me as though no lessons were learned from the last financial crisis, which sets the stage for history to repeat once again.
 |
| S&P 500 Index Weekly Chart with Computer-generated Buy & Sell Signals (as of 12/25/15) |
 |
| S&P 500 Index Monthly Chart with Computer-generated Buy & Sell Signals (as of 12/25/15) |
