Skip to main content

"Irrational Exuberance" - Time to be careful !

Nasdaq is at 10 year high. Almost all "pundits" on markets are way too optimistic. It's almost feel like 1995-1996 when Fed Chairman at that time Alan Greenspan famously quoted about "Irrational Exuberance" in markets. It was another matter than markets keep on drinking the "new Internet age" cool-aid for another 3 and 1/2 years before bubble burst. Greenspan was 3 years earlier in his prediction. One of the reason was his own policies at fed which caused this bubble. IMO we are seeing similar signs of "Irrational Exuberance" in markets at least for last few weeks. However it is not clear if this would go on for another month, year or week. To be frank, at this time, I cannot predict short-term move by markets. Markets can be insane longer than one think (both on upside and downside) !
Here are the reasons I feel markets are due for correction:

  • Geo-political risks in Middle-east which could cause oil to jump
  • European debt problem - two (Ireland and Greece) have been handled for short-term. Now it's Portugal's turn
  • Inflation rising not only in emerging countries but also in developed countries like UK. Even in US, it is inching towards 2%
  • China's rate increases to slow down its economy
  • Upcoming end of QEII (it could come earlier than currently anticipated by markets) and eventual Fed rate increases (most likely in Q3 of this year)
  • Stubbornly high unemployment rate in US (would be between 8-9% in 2011)
  • Year-over-year comparisons for earnings becoming difficult in starting in Apr earnings season
Normally "smart money" start anticipating all these events 3-6 months in advance and start positioning their bets accordingly. So what should average investor like us do ?

Here are some tips:
  • Follow Warren Buffet's two rules:
    1. Never lose money 
    2. Never forget first rule
  • Protect your gains
    1. Sell them and sit on cash or
    2. Sell "in-money" covered calls
    3. Buy downside risk protection by buying "puts"
  • Stop paying attention to markets so it won't bother if they down from here: If you can tolerate upcoming "volatility", then sit tight because markets would eventually end higher for 2011 (S&P around 1400)

So if markets are in "irrational exuberance", are there any stocks worth buying ? There are always "value" stocks in any market. Here are few to watch out - mostly based on demographic shifts in US

  • FVE ($6.7)
  • SRZ ($8)
  • AMED ($34)
  • SEM ($7)
Have a great President's Day Weekend !

/Shyam


Comments

Post a Comment

Popular posts from this blog

2025 = Is it going to be 1997 or 2000?

Happy Holidays... After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?  To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed. 1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic. 1990s also saw many inventions - the key being launch of Netscape in 1...
Post a Comment
Read more

And the Oscar goes to...

It's Oscar Sunday and time for predictions for few categories - before I digress into talking about drama in DC or markets.  First of all, I want to recognize the damage LA fires have done to the beloved areas of Los Angeles and impacted families across all spectrums. My heart goes out to them and wish them recovery and rebuilding of their lives... This year's Oscar nominees and post nomination period had been interesting to say the least. Due to this, the field is wide open in almost all categories and that's what makes prediction game so interesting. Just to set expectations, I would consider a win if I get even 50% predictions correct given the dynamics of nominees this year. So here are my predictions - "And the Oscar goes to..." Best Picture - Anora (surprise could be "The Brutalist") Best Director - Sean Baker for "Anora" (Surprise could be Brady Corbet for "The Brutalist") Best Actor - Adrien Brody for "The Brutalist"...
Post a Comment
Read more

The Politics and Gamesmanship of TikTok!

TikTok is less than 3 hours from going dark on USA's east coast if TikTok owner Bytedance (and Chinese Government) follows thru its "bluff" to honor the law " Protecting Americans from Foreign Adversary Controlled Applications Act" which goes into effect on Jan 19, 2025. And suddenly there is lots of politics and gamesmanship around TikTok.. Let's look at the players and their positions US Congress: The " TikTok Ban" law was passed by congress with bipartisan support and coincidently it goes into effect one day before new administration takes charge. Everyone knew the exact date and time of oath taking ceremony of new President...but maybe the congress did not think that there would be change of President and did not bother to put effective date post new government taking charge...that created a window of 36 hours of "law being in effect" unless... President Biden: Biden himself did not think that he won't be President for 2nd term. S...
Post a Comment
Read more