I honestly don't think it was directly tariffs or rate hikes that tanked the market

It's the overvalued market that keep giving premium/excessive valuation to stocks.

It's like the AMD bubble in Aug when it popped 8%-15% every single time an analyst upgraded it, driving it all the way from $19 post earnings to a staggering $34. It was totally crazy and irrational and pure greed.

The turning point was Intel. It announced 10nm was still on track. AMD crashed like 7% on that single day, and started to descend from there. Then came the Oct tech rout, and then AMD earnings. AMD kept going down.

Now can we really say, Intel's announcement caused AMD's fall from $34? Nah. Because it should have NEVER went to $34 in the first place. Intel announcement was a catalyst, but not really the cause.

Another example is momentum bubble stocks in the past like HMNY and others. A single twitt from short sellers like Citron research tanked HMNY after the insane runup to $38, resulting in a crash immediately. But can you really say Andrew Left caused it by the twit? OR, was it a huge bubble in the first place and Andrew Left simply changed the sentiment and induced fear and the stock fell?

When it was Aug and Sep, I didn't really think the trade wars would be a big deal. The reason is 10% tariff while not good, was already offset by China's currency devaluation. If Trump raises it to 25%, China would just devaluate more.

And the rate hikes... it was supposed to be already priced in. So it came as a total shock in Oct 3 when stock routed that hard.

Now I think about it, I think Trump's retardation and his trade wars, and the fed rate hike, did instill fear in the market, and the SENTIMENT changed, somehow, and this caused the bubble to deflate. People simply have become pessimistic. Everyone is predicting because of trade wars and tariffs economy gonna have a recession in 1-2 years and nobody wants to hold the bag then, and want to reduce exposure before others, and this led to a vicious feedback loop, and resulted in the stampede in Oct and Nov and we are still in sideways market in Dec.

This revelation I think has multiple implications. I believe next few years gonna be painful. The upside is limited at this point. You can basically say, the difficulty settings have been increased significantly. Right stock picking is now extremely important. FORGET about indexing, because it will go flat, you HAVE to pick individual stocks or sector to gain an edge.

I see high valuation stocks to go down or flat. Like the gaming stocks, Adobe, Netflix, Amazon, will all be volatile and no longer will you see 50%-70% per year in SP increase. A good pick in a tech stock might yield you 20-30% a year, max. More and more stocks gonna result in being flat or losses.

Submitted December 08, 2018 at 11:29PM by nocehr https://ift.tt/2rqexsZ