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Very dangerous game do not want to over stay welcome if we get phase transition. The Nikki is something like 40% below 1989 phase transition top. Time to exit buy & hold need hedging to protect
 

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  • ASHR: join the China rally. 22% one year return.
  • EEM: join the emerging markets rally, overlaps with China. 25% one year return.
  • SSO: leveraged S&P 500 index, not a bad vehicle actually. 47% one year return.
  • XIV/SVXY: bet on declining volatility. 186% one year return.

I think all of these will benefit from a market melt-up. Personally I think the S&P 500 index is ground zero for the equity mania, so if I wanted to play a melt-up, I'd probably use SSO or XIV (which are 1st and 2nd order derivatives of the S&P 500).
Just for fun - purely for entertainment - checking on these melt-up trades since this post,

ASHR +3.1%
EEM +2.1%
SSO +2.0%
XIV +4.1%

All are doing better than the S&P 500 and TSX index. Party on!
 

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What on earth is happening with Chinese stocks in the last few days?

The Shanghai Composite was up nearly 6% on Monday, several big up days in a row. ASHR (tracking the Chinese A-shares market) was up 11% on Monday. That's up 16% in three days.

Scanning some headlines, it seems that Chinese state media is encouraging stock buying, but I have trouble believing that this is all it takes to cause this kind of movement. Could this become a repeat of 2014-2015? During that time, ASHR went from $16 to $40 (more than doubled)

I would think that the Federal Reserve's money printing has a role here as well. It could be both Chinese domestic stock enthusiasm, plus foreign investors using things like ASHR to chase the next big bubble.

Maybe we'll get simultaneous bubbles in QQQ and ASHR? Boy would that be exciting.
 

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Here is the year-to-date return of a few things, all converted to CAD:

S&P 500 (using ZSP) ... 4%
ASHR, China index ... 22%
NASDAQ (using ZNQ) ... 27%
Canadian tech (XIT) ... 42%

Let me remind you, these ^ are just 2020 returns! As in, if you bought right before the pandemic, you'd now be up 22% for China, up 42% for Canadian tech.

Does anyone think that these might continue performing spectacularly through the rest of this year? This could be an amazing year for bubble areas.
 

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Here's Jim Cramer on a total high from Federal Reserve stimulus. It's not a bubble!

His argument: stimulus and low interest rates are great. Some inflation in assets is much better than a deflation spiral.

 

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For the interested - here's the related Rational Reminder from Ben and Cameron on the topic of "money printing". Just a bit longer and explained with more nuances.

 

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For the interested - here's the related Rational Reminder from Ben and Cameron on the topic of "money printing". Just a bit longer and explained with more nuances.
Great links, thanks.

Notice that Ben Felix says that current central bank stimulus programs are misunderstood, and we could be dealing with deflation (like Japan got).
 

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For the interested - here's the related Rational Reminder from Ben and Cameron on the topic of "money printing". Just a bit longer and explained with more nuances.
I watched the PWL videos. His main argument is that central bank stimulus doesn't cause inflation, though he does talk about how it boosts asset prices. He says that the central bank is not the main factor behind stock market gains, though.

I would argue (and I think Ben might agree) that the central bank is at least a significant force in the stock market. This new Bloomberg article recaps this by looking at the striking correlations between the Federal Reserve policy rate and the stock market. Since the financial crisis, the Fed has exhausted its policy rate and has moved on to QE, and those correlations are shown in this article as well.

The Fed’s Stocks Policy Is Exuberantly Asymmetric

They're showing the S&P 500 versus Federal Reserve stimulus measures going back to 1998. The correlations are very notable. For example, they zoom in on the March liquidity crunch. The rally in the S&P 500 begins as soon as the Federal Reserve starts buying bonds aggressively.

They point out that correlation is not the same as causation. Just because Fed actions correlate so well to the S&P 500 doesn't mean the Fed is driving the S&P 500 index.

There's new research that analyzes the stock movements and Federal Reserve balance sheet. This research appears to show the casual link. First stocks decline, then the Federal Reserve responds with balance sheet actions about a month later. The statistics in this study seem to show the causal linkage.

When it comes to explaining the amazing stocks rally, which continues as the world is ravaged by a miserable economy and a pandemic that refuses to be extinguished, Putnins was able to confirm that the Fed has had a lot to do with it (although not everything).
Thing is, analysts have known for quite a few years that the Federal Reserve "drives" the S&P 500 index. BMO had a research paper on this back in something like 2012. This new study further supports that theory. This one also shows that the Federal Reserve skews towards making asset prices go up. They respond strongly to drops in stocks, but the reverse is much weaker. They take actions that stimulate the market higher, on average.

I think it's clear at this point that the Federal Reserve manipulates the stock market upward. They respond to declines in stocks with policy actions which manipulate the market, and push the S&P 500 index higher. By repeatedly doing this, they help eliminate fear of prolonged stock declines, and also encourage bolder risk-taking since nobody fears consequences. Investors become accustomed to "buying the dip" and expect all corrections to be brief. Nobody is concerned about significant declines.
 

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There's a growing belief that for the last few months, institutions have used options to manipulate the market and drive this crazy rally

Options Traders Whipped Up Stock Boom With SoftBank Buying

Analysts believe that aggressive call buyers, like at Softbank, pushed the market higher with outlandish call positions -- 10s of billions $ of pure call options, without disclosures. This resulted in a feedback loop and more general buying.

If this is true than you should NOT want to join this rally as it means it's not based on fundamentals, or even on investor sentiment.
 

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Nobody is concerned about this Softbank options issue? It appears to be a major cause of the NASDAQ melt-up. I would be very worried if I was long tech.

It's not too often that you get market-moving manipulations of this magnitude which also influence the primary indexes.
 

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I am guessing we will see what next week brings. This could get interesting. As I don't hold any of the FAANGs I am primarily a spectator. If the rest of the market tumbles with it then I am a spectator who got hit watching the game.
 

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I was planning to buy some NASDAQ-indexing ETF at the end of the year, but only if its valuation cools off. I currently have "only" 25% tech and its all Canadian stocks and they were bought on their valuation trend. (I looked at their fundamentals too, obviously.)

And both of these graphs (short-term trend and long-term trend) of the valuation of NASDAQ are telling me to be patient and cautious. I stopped buying at the beginning of June. July was becoming dangerous and August even worse. We've seen a bit of a correction recently. I expect NASDAQ to drop around 10 500, which would be another -8% drop in total in the next weeks/months.

20601

20602
 

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There's a growing belief that for the last few months, institutions have used options to manipulate the market and drive this crazy rally

Options Traders Whipped Up Stock Boom With SoftBank Buying

Analysts believe that aggressive call buyers, like at Softbank, pushed the market higher with outlandish call positions -- 10s of billions $ of pure call options, without disclosures. This resulted in a feedback loop and more general buying.

If this is true than you should NOT want to join this rally as it means it's not based on fundamentals, or even on investor sentiment.
This something very interesting that I haven't been able to figure out. What is their strategy with this call buying frenzy? Are the LEAPs or short term options? With billions of dollars in investable funds, do they still need leverage?

How are they going to unwind those positions? The only way I can think of is if they exercise them. Otherwise dumping so many calls will crash the market and make a decent exit impossible.
 
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