Okay folks, violence. we need to talk about where we are in the current cycle of this market. Financial astronomers see us about here, whereas financial astrologers see us about here. It's just the energy and the vibes.

Man, they say we can feel it. The market is a Capricorn, not an Aries who is right And what are some signs that indicate the part of the cycle that we're on? So this picture went viral over the weekend, and it showed that the Nasdaq raised 4.6 trillion dollars in the dot-com bubble, 2.3 trillion in the global financial crisis, and 4.4 trillion in the covet sell-off. And the current decline is how much? Well, about 7.6 trillion dollars. Which really has two different implications here.

Number one, it shows the insane amount of capital that has been pumped into our financial system over the last few years, but also the last couple of decades making it so easy to hit a new record in terms of dollars lost while also being very, very early in the process. And the second situation here is if you're looking at a balloon, the Fed and other responsible parties have pumped this balloon to insane degrees and they're now trying to sell us on this idea that if they just poke the balloon slowly, very very slowly that all of a sudden, we're not going to get a massive explosion As if popping a balloon quickly and popping it slowly don't have the same inevitable result. It's a total mess though, and if you really think about it, the Fed pumps as long as they can get away with it, and we, as market participants, have the goal of trying to write the trend of what the Fed creates because the Fed has such a huge impact on the market. But the minute the Fed doesn't get away with it anymore, they change course and all of a sudden asset prices get bludgeoned and of course investors have to pick up the tab.

And the Fed quite simply has a habit of inflating balloons and then popping the balloons and then restarting and inflating the balloons again. But when you see images like this, it really paints the picture of how insane the situation we are in right now is in terms of dollar volume. This has been the most devastating drop that we've ever seen. However, what this isn't telling us is the percentage down.

Dot com bus was 78 percent peaked to trough, Global Financial Crisis was down 56 percent peak to trough covet 19, The Nasdaq was down 29 peak to trough, and today it's down about 26.5 Which means that in effect this is the worst loss of Nasdaq value in terms of sheer dollar value of the last four major declines, but the smallest in terms of an actual percentage basis. You go over to Growth stocks. Specifically, Bloomberg Research compared this drop to the dot com bust. We've had the worst global growth stock under performance since 2000.

You look at the Red Benchmark line Here we are in spitting distance to making a new record. you go over to the broader market S P 500 It's been flirting little mick, flirty on the very very edge with officially breaking into a Bear Market and odds are strong and does in the next two to three weeks. But if you think about this in terms of probabilities and risk data pools that fund managers allocate capital based on. Well, once the S P 500 is officially in a Bear Market, the market looks at it much differently.

It then becomes part of a different probability pool. According to Yahoo Finance. since 1950, the average Bear Market lasted 338 days and saw the S P 500 fall an average of 30.2 percent. Wall Street thinks in terms of historical data.

they make decisions based on historical data, and while the market is teetering on the safe side of correction versus Bear Market, the market tends to find support again and again up until the point that you get declared a Bear Market. Once you break down into that emotional 20 down level in the S P 500 that officiates a Bear Market, you enter this completely new territory and completely new decisions take place with corrections of 10 or more. It makes sense historically to always buy the dip. With Bear Markets, it becomes a delayed dip.

That's the playbook way of thinking about it. The minute it becomes a beer market, the game changes. The minute that you enter an official Bear Market, The stats again show that the average Bear market lasts 338 days and takes you down 30.2 percent. So if you're a fund manager or really, uh, individual investor, you're thinking, okay, wait a second.

If the average Bear Market takes you down 30 to last 338 days, what's the point of buying in? When you first designate a Bear market, odds are strongly in your favor based on the historics that you're going to lose money and it becomes a self-fulfilling prophecy when everybody thinks that way and supports just start falling out. Especially considering if you look at the data. the first year of a bull market usually happens very soon after the bear trends and tends to average around 41.8 percent. So if you buy too early, right when you designate a Bear market, you end up eating into a lot of your potential returns.

On the other side, we could talk about technicals and probability tools and recession indicators. All we want. We can talk about them until the cows come home and go moo. But the way that I see it and the way that you probably see it deep down in your heart as well is that this is an intentional Fed induced bludgeon, and the Fed will continue to induce the overall downtrend and draining of liquidity from our economy and the market until a a recession forces their hand to bring rates back down and reverse policy or b Inflation cures itself mostly on its own.

Unfortunately, as I get older, I become less and less inclined to believe in fairy tales, and at this point you can get upset if you will, but the data does not suggest that we're going to fall into that second category. Worse yet, it may very well turn out that we're already in a recession because we had that first contractionary quarter. But the premature numbers of cooling down and contracting that we're seeing right now aren't enough to bring down inflation. You have to see something deeper and much more painful.

The minute that we start seeing obvious pain is the minute that the Fed decides to reverse course and the minute that the market can start rebuilding rallies. But as long as we're at this part of the process, I wouldn't trust any rally. To the upside, I would see them as trading opportunities I would look for Dip buys, but I would not trust the rally as something that's going to just go. And all of a sudden, you're going to get this nice recovery without the macro factors changing.

And I said that when we were at the top of the last Bear Market Rally cycle many, many times during the uptrend, the other important concept to know here is the reality of a weakening Bear Market trend cycle. In any market condition, you have an overall trend direction and then you have your day-to-day fluctuations. There comes a time where you look at the market and say, okay, despite the back and forth ups and downs, we are in an overall bull trend. And then there's a time where that bull trend starts becoming a little bit more mixed and the market is torn.

One side thinks you're in a bull trend, one side thinks you're reversing in the early stages of a downtrend. You get really big back and forth fluctuations and massive Bear market rallies because the market is torn on where the future direction of the market is, and one side that believes it's a correction believes it's an opportunity to buy hugely, because history shows that corrections tend to be some of the best dip buy opportunities and some of the most fast to come back or the fastest to come back. Whereas the Bear Market people think, oh, wait, no, this is going to be a lot more entrenched, We want to wait it out, we want to short, we want to take bearish possessions, want to buy those pull options baby, and you kind of get that back and forth without a clear direction. And then all of a sudden you get into the situation where the downtrend is so aggressive that the market sentiment switches to believing that we are now in a downtrend.

You get to a point where you punch somebody so much that all of a sudden they're like, okay, well, my nose is broken, my face is all bruised, and nobody wants to look at me in the eyes because they feel too bad for me. And all of a sudden I'm gonna admit, okay, the market's in a downtrend. All right, Alrighty, right. And the market says okay.

Well, despite the back and forth up and down days, and even the back and forth up and down weeks, we are now in an overall bearish trend. And that's what we believe and act on. For example, Obviously, all year was rough, but the last two weeks were so bad that I guarantee you that most people that saw this bounce on Friday, which was quite dramatic nearly 4 up in the Nasdaq 2.3 in the S P Some growth stocks up 10, 20, 30, 40, even 50 percent. A lot of people saw that they're like yawn.

That doesn't mean Jack nor Susan. We may have seen a huge update, but that doesn't mean anything in an overall bearish trend. You certainly saw people saying that at every step of the downtrend the last four months or so. But in terms of overall market sentiment, more and more people are saying that, and I think that you've seen a cascading of bearish sentiment.

In fact, the vast majority of people right now. That's partially because of the technicals and the stubborn trend, but it's mainly because the macro factors are just so heavy. People four months ago may have been like 400 points up. Ooh profit though now they think, damn it, that's just another 400 points that we can lose tomorrow.

And the reason that this actually becomes catastrophic is because the people that are willing to buy dips and allow markets to find support early on in a Bearish downturn start disappearing. and they start disappearing rapidly. All of a sudden, the folks that went head over heels in this area are like, you know what? I'm not trusting any more rebounds for me. What? shame on you? Fool me Twice, shame on me.

And as bear market rallies get eaten up, the less of them you get on average. But then eventually after the pain passes, you get to a point where there's no more buyers, but there's also no more sellers. People are so disillusioned to buy, but they're also not motivated to sell anymore. You get to that point where people are like, well, what are my other options to invest? Do I invest in stocks or hold stocks at all-time lows in an economy that I believe will eventually recover? Or do I transfer everything to cash and wait until the market recovers a lot to rebuy back in and a lot of people make the calculation at a certain point that it's like, well, I'm gonna stay invested But right now, unfortunately it doesn't look like we're at the end of this process and we know that number one because short sellers are still jumping the gun here and the market is checking them on that.

Take Carvana, for example, on Thursday it jumps from 28 to 45. The overall trend, though, has been from 376 in mid 2021 to 28. As of recent. Carvan is one of the freakiest companies right now.

I like them. I bought a car from them a couple years back and they were excellent. They deliver it right to your doorstep and the whole process is all online. but they are a company that profited massively off.

first, super low interest rates allowing people to afford more and more car than the stay-at-home trend where people wanted to buy cars from home and not go to the dealership, and then most importantly, they used Car Bubble which saw all of their inventory explode in value and saw profit margins expand wildly. But you're already starting to see used car and truck prices come down a little bit. one of the only line items that isn't exploding month over month, and in a couple quarters that trend is going to get severe demand for used cars and trucks is going to go down dramatically as rates go up, When you're starting to get into a situation where you double, triple or even fripple your interest rates all of a sudden, guess what? Well, the amount of crore you can afford goes down dramatically, and when you enter into a situation where you're also in an inflation crunch where people don't have as much money to spend on cars And also a recession where people might not have as much money at all. overall, well, guess what, People put their car purchases on hold, They're like, well, maybe we don't need that new car right now.

Demand is going to dry up Huge. I don't know that supply is going to recover as fast as we would have liked it to, but demand is definitely going down. So fundamentally, I get why short sellers and bears are betting against Carvana. It makes sense, but the problem is because they jumped the gun on this so aggressively before Carvana started reporting terrible numbers.

All of a sudden, you get the situation where the market's like, wait a second. That doesn't make sense and it's more prone to squeezes. This is something that happens mid-downtrend in a falling market. not something that happens at the last stages of one.

Why is that? Well, because at the last stages, people are like, okay, I don't have any faith in these companies. All of these are trash. The economy is trash. The equity markets.

No one trusts them anymore, so I'm not going to buy them. I'm not going to test these short sellers on this. But when you're still in a relatively strong economy and you're not actually seeing terrible numbers, yet, it's like, wait, how can this be down 90 You look at a firm. Another good case study.

Buy now and pay later. A company that clearly has a great business model when the economy is doing well and inflation is heating up and people want to continue spending and enhancing their lifestyle even if they can't afford it. which is really the American way. but a firm.

Great business model in good times. Terrible business model in bad times where people can't pay some of these lower, smaller and unsecured debts and their price has been destroyed as a result of of course, multiple crunching, expected liquidity drying up, and of course recessionary fears. But right now, they are still at a stage where they are reporting good numbers quarter over quarter year over year, and also good guidance. The Ceo literally said, hey, the Us consumer is alive and well, they're shopping, they're buying, They're paying their loans, at least to a firm quite well.

Generally speaking, things are going according to plan. The upheaval in stock markets does not seem to have an actual impact on our underlying business, which is performing really, really well and as a result, the market fought back last week and you got a near double, which is another example of short sellers jumping the gun on a trend that is likely inevitable if we do head into a recession. Markets are forward-looking. They're looking at what's going to be happening to a firm seven or eight months from now, based on where interest rate policy is going and what we know about the past and how employment numbers and overall ability to spend is going to be impacted, as well as projections on how many people are willing to take on debt for items that they don't need during periods of time where they're no longer secure about their job or financial health prospects in the future.

And right now, you're just not in a situation where consumers have extremely changed their behavior, Yet, you're at some of the early stages, right? and the Fed has only started tightening. People right now are still complaining about inflation, but people have jobs, People are quitting to get new jobs, Consumer confidence is down, but people are still spending a lot of money getting into the situation where hey, you're only in the early stages of the process so the market's like, okay, well, yeah, we factored in 8 to 12 months from now, but all of a sudden the firm's saying we're gonna have a good year short. Sellers are jumping the gun here. Doesn't mean they're wrong, but they're jumping the gun.

And that's another thing that suggests that we're not at the end of a downtrend here. But what I want to leave you with today is something peculiar that has been happening that also indicates where we are in the Trent. There's three major stages of loss of faith when it comes down to who is buying the dip. So you go through these first two stages where all of a sudden institutional investors stop investing, and then eventually retail investors stop investing and the overall market has gone extremely risk off.

But then finally you get to the deepest parts of the acquisition stage where stocks are down enough that it discourages broader institutional investors and retail from dip buying as they've lost faith. But industry leaders who know the industry that they're in start buying smaller companies at discounts. This is where you start seeing companies and billionaires from the last bull cycles that are now enriched say, okay, well, I'm gonna go shopping. I always wanted to buy this company or their technology and now it's down 75 percent.

Okay, let me write my check. This can range from a stake taking to a total acquisition. This is where you get your Ftx Ceo Sam Bakeman Freed randomly taking a 7.6 stake in Robin Hood, a platform that has 20 times the users of his and has been beaten down near book value. This is where you get your Elon Musk, find Twitter, which he looks to be trying to negotiate down at the moment? Who knows where that's going, But anyways, this is where you start getting these acquisitions.

Some smaller, less well-covered examples are Ride Aid, which just got a buyout offer a couple weeks back, Ubisoft, which is rumored to be seen. potential buyout offers Draft Kings and Golden Nugget, although this started during somewhat hotter times. Another smaller recent acquisition that comes to mind is Chicken Soup for the Soul and Red Box. Right now, I believe we're at the beginning of an explosion of acquisition talk, and history shows that acquisition talk happens until financial conditions get so tight that even the billionaires and wealthy companies are like, you know what? Maybe we don't want to buy anything else once markets get bad enough that they start bludgeoning some of the most powerful companies.

People are like, you know, Maybe I don't want to use my shares as secured assets for these loans that I'm using to buy new companies with. Maybe I don't want to use my extra cash on hand to acquire more and more of these small aspects. There's some evidence that that's already happening as well, too. For example, it was reported that Coinbase's talks to acquire 2m, a Brazilian Fintech that owns the largest crypto exchange in Latin America has fallen apart, which based on Coinbase's latest earnings in their financial situation, makes sense.

But as of right now, a lot of companies still have a lot of cash on hand and liquidity. So they're like, okay, well, hey, all these other companies that I wanted, they're down cheap. time to go shopping, right? You look at how many companies are trading below book value and even cash value. Right now, it's at like 20-year highs.

It makes sense that people are trying to acquire, they can buy the company, they add that cash on hand to their overall balance sheet, and they get all the intellectual property and customers of the company that they bought. Sounds great, sounds like a great deal, and during a downtrend, this is a stage that you inevitably go through. but you know you've gotten close to a bottom where this stops and it's not accelerating anymore and people are like, okay, I'm gonna be a little bit more careful. I'm not going to acquire this company.

I'm not going to acquire that company. I'm going to wait until conditions improve and I'm a little bit more on steady footing. I think number one: if you look at the macro trend, Number two: you look at the technicals, number three, you look at the short squeezes that we're seeing right now, and number four: you look at how acquisition talk is heating up, not cooling down. I think all of these things suggest that you're still not too close to a bottom.

I think we're certainly going to hit some more smaller and smaller bear market rallies that make us think that we're in a bottom and provide insane trading opportunities, which we're looking forward to. but I think the overall trend is, unfortunately not even halfway done. and that's just the way that I see it. I think it's going to be a lot of fun on the other end though, and I would continue to pay attention because some of the best opportunities are going to be present probably in the next couple of months anyways.

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