Is There a New Dotcom Bubble?

[Ed209]

I honestly do not understand why governments do not raise rates. Most of the debt issued during the last 10 years is at fixed rates, so whatever the interest rates are in the future that debt will not be affected. Mortgage holders, people who took up fixed-rate mortgages in the last 7 years approximately will not be affected either.

At this point, I'm not sure if you understand the economic reasons as to why? We've already been over this. Why do you think they are not raising the rates? Do you think they want runaway inflation and are doing it on purpose?

The bond market is cracking at the seams, and the FED is tapering their QE by just $10b a month (They buy $80 billion of Treasury securities and $40 billion of agency mortgage-backed securities each month). This is nothing. They are doing this because the economy is slowing down and is not in great shape; they are trying to boost economic output (but failing).

The Treasury market is swinging all over the place, and some are shorting it. This is because US Treasury notes are turning into junk. When you have volatility in the price of Treasuries it has a big effect on everything because their yields are used to value more than $50 trillion in assets around the world. Trading off-the-run securities are difficult when the liquidity dries up. Nobody wants bonds anymore, so that begs the question: what would you raise the rates to? I agree they need to be raised, but I can also see how bad this predicament is. I get the feeling that you think you can just raise the rates and everything will get back on track, but it's not as simple as that.

As for mortgages, you are conveniently forgetting that fixed rates run out at short intervals. Many will need renewing this year and next, and then you have millions of people who just want to get on the property ladder. What about them? What about businesses that can't afford high-interest loans? That's why I keep repeating that there is no easy solution to this mess. Raising the rates is needed, but they will likely need to be raised to double digits to contain the inflation and that can't be done in this economic climate. It will cause absolute chaos. They will try to raise it really slowly, but the damage is already done, let's face it. The cat's out of the bag now.

From reading your posts, it seems your main problem is with tech companies not paying their fair share of tax, as that's what you always come back to. I 100% agree with you that they should pay their taxes, no question. I think this pisses everybody off, but that's the system the government have built. They use loopholes and it's the government's job to close them. It's also a double-edged sword, because a lot of these companies create thousands if not millions of jobs worldwide.

 

[Ed209]

Let's use the old common sense: when someone is peddling something to you non-stop, advertising it 24/7, it's because they are selling you shit, or trying to take your money, and this is exactly what is happening with crypto.

It's market freedom. People should be free to make their own choices. That's what I believe. A lot of people don't want to hold lots of fiat anymore, and who can blame them? I don't care what people do with their money as it's a free world at the end of the day, but holding large sums of cash in a bank is a bad idea, in my opinion (it's not financial advice, lol).

The reason for this is simple: people who are holding money in a savings account have a certain amount of buying power locked up in their capital, but the average person only looks at the number. Let's say someone's got $20k and in 2021 that can buy you a fixed asset like a particular model of car, or let's say it's enough for a 20% deposit on an apartment. Let's say this person holds this money for six years: the number with added interest would come to approximately $20,120, but what is the buying power? If inflation continues at or above 10% on fixed assets for each year, then they are losing around $2000 a year, so this means their buying power would be the equivalent of having $8000 in 2021. They just lost $12,000 in this scenario. Now multiply that to a larger number and you'll see the problem.

If someone invested some of that money instead, then they would offset some of that risk considerably. Many don't understand this, though.

 

[Juan]

As for mortgages, you are conveniently forgetting that fixed rates run out at short intervals.

What do you mean with "short intervals" if people are and have been taken up 30-year fixed mortgages?

People do not buy more property because they cannot afford the down payments! The real estate bubble is huge and the only way to control the inflation spiral, including the out of control inflation that affects property prices, is raising interest rates.

 

[Juan]

If someone invested some of that money instead, then they would offset some of that risk considerably. Many don't understand this, though.

The problem is more complex than that, as you sure know... I was holding cash last year and that allowed me to purchase stocks at ridiculous prices, very low prices.

So holding cash is a way to be able to choose when there is an opportunity.

I know people who belong to the "let's be always invested" school and some of them are faring well and others are doing pretty bad. It depends on what they bought, the stocks they picked, their ability (or inability) to be calm when things go wrong or there is a market downturn.

 

[Juan]

Now stocks are again overvalued, so managing cash is important, having some spare money in reserve.

If there is ever a regulatory shift regarding Big Tech the NASDAQ, and specially FAANG will suffer.

In a context of economic crisis and very high taxes government are going to have limited space to raise taxes to those who already pay lots of tax. However, Big Tech is paying nothing. There is plenty of space to raise tax for Big Tech, and also to threaten them with regulation or with withdrawing access to a certain market if they do not comply, if they continue failing to pay tax.

China has done it, have barred American Tech companies from China, with very good results. The EU can go down that avenue too, telling American Tech companies to pay tax or leave Europe.

 

[Ed209]

The problem is more complex than that, as you sure know... I was holding cash last year and that allowed me to purchase stocks at ridiculous prices, very low prices.

So holding cash is a way to be able to choose when there is an opportunity.

That's why I believe this stuff should be a fundamental part of everyone's education. There are always opportunities to do something with a percentage of your cash. Do you think the banks hold their cash in a savings account?

I'm not saying one should go all in on something. That would also be stupid. One should always have cash or stablecoins ready for when an opportunity presents itself, and if one believes the markets are going to crash, well, they can also short various stocks, indexes, and cryptocurrencies as well. You could back your convictions and go short on Bitcoin, for example, and capitalise from it. That's also a part of investing. One can always do something with their money by putting it to work. By only using a savings account, one is guaranteed to lose in this economic climate, so you might as well hedge a percentage of your funds as you've got nothing to lose.

I know people who belong to the "let's be always invested" school and some of them are faring well and others are doing pretty bad. It depends on what they bought, the stocks they picked, their ability (or inability) to be calm when things go wrong or there is a market downturn.

This is why it's worth learning how to invest from an early age. Learn the right strategies and understand how the markets work. This takes time and commitment, but it's worth it.

 

[Ed209]

Now stocks are again overvalued, so managing cash is important, having some spare money in reserve.

If you think they are overvalued, you can short them.

If there is ever a regulatory shift regarding Big Tech the NASDAQ, and specially FAANG will suffer.

In a context of economic crisis and very high taxes government are going to have limited space to raise taxes to those who already pay lots of tax. However, Big Tech is paying nothing. There is plenty of space to raise tax for Big Tech, and also to threaten them with regulation or with withdrawing access to a certain market if they do not comply if they continue failing to pay tax.

You've come back to tech stocks again. Did you once lose on a Facebook investment or something? Look, I get your frustration regarding the tax issue, I think we all do. However, there's another side to this. Although they use loopholes (that's the governments' fault in the countries they are operating in), they also employee thousands of people who pay tax as well. For an economy to expand, you need industrial growth of some kind, and tech companies provide this. Raising taxes across the board doesn't work to stimulate growth in an economy; it has the opposite effect. Even though I'm saying this, I still think that they should pay their fair share of tax, but this is ultimately the governments' fault. You could argue they do it to create more jobs for people.

Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity.

The question you need to ask yourself is whether the government would use the taxed money any better than the tech companies do?

 

[Juan]

If you think they are overvalued, you can short them.

That's what I am doing now, shorting NASDAQ.

Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity.

Fine. Then I do not want to pay any tax either. This way I would be able to use my new disposable income.

Either we all pay tax or no one pays. That's a fair game, isn't it?

 

[Juan]

I think Facebook has its own problems, as it is perceived as the most sinister company out there, stealing data, manipulating data and trying to manipulate people.

Remember the Cambridge Analytica scandal and how Facebook tried to manipulate people to influence the 2016 Brexit poll and the 2016 US presidential election.

 

[Ed209]

Fine. Then I do not want to pay any tax either. This way I would be able to use my new disposable income.

I agree that everyone should pay their fair share.

Either we all pay tax or no one pays. That's a fair game, isn't it?

I think the problem lies with the tax laws. Anyone on a high income can legally reduce their obligations.

I don't think comparing yourself to a tech giant is a fair comparison. Do you employ over 150,000 people, for example? That alone creates new wealth and taxable income.

What are you using to read and type these messages? Is it a phone or a computer by any chance? You then have to ponder how technological advances can help advance society from a medical viewpoint, to transport, and everything in-between.

I think Facebook has its own problems, as it is perceived as the most sinister company out there, stealing data, manipulating data and trying to manipulate people.

Remember the Cambridge Analytica scandal and how Facebook tried to manipulate people to influence the 2016 Brexit poll and the 2016 US presidential election.

I'm not a huge fan of Facebook.

 

[Juan]

@Ed209, as you can see now live my short futures on NASDAQ are already making money. I will close them today, and then re-enter short again. This is what has to be done when valuations are insane and absolutely irrational.

Uber = taxi through an app

Uber Eats = my local pizza place (doing delivery since like the 70s)

I don't think comparing yourself to a tech giant is a fair comparison. Do you employ over 150,000 people, for example? That alone creates new wealth and taxable income.

You are wrong. If I did not pay any tax like them I would be able to employ at least 2 people and still would be saving taxes; 2 more jobs plus net money saved for me (= more consumption).

Why should I pay taxes if Big Tech does not pay?

How can a democratic society allow Big Tech NOT to pay taxes?

 

[Jack Straw]

@Ed209, as you can see now live my short futures on NASDAQ are already making money. I will close them today, and then re-enter short again. This is what has to be done when valuations are insane and absolutely irrational.

Uber = taxi through an app

Uber Eats = my local pizza place (doing delivery since like the 70s)

You are wrong. If I did not pay any tax like them I would be able to employ at least 2 people and still would be saving taxes; 2 more jobs plus net money saved for me (= more consumption).

Why should I pay taxes if Big Tech does not pay?

How can a democratic society allow Big Tech NOT to pay taxes?

It is always interesting to see people who think the end is near. If you truly have a short position open since you believe the market is going to crash, please post proof of that position. Block out all identifying information besides the position title, current date, position expiration date, and value of original investment into said position. Otherwise, you are just guessing and don't really have a strong conviction about this.

I usually don't care about people saying this kind of stuff, but you talk about it so strongly I want to see your money where your mouth is.

 

[Juan]

If you truly have a short position open since you believe the market is going to crash, please post proof of that position. Block out all identifying information besides the position title, current date, position expiration date, and value of original investment into said position.

I do not usually keep futures opened, let alone on something as speculative as the NASDAQ index, as I told before.

I buy and sell futures over indexes with the objective of making a few points every time. Today I was able to make 50 points shorting the NASDAQ.

As you can see, I posted my message and afterwards the NASDAQ index fell. Just check today's market info. NASDAQ is at historical highs and stocks are trading at insane prices.

 

[Jack Straw]

I do not usually keep futures opened, let alone on something as speculative as the NASDAQ index, as I told before.

I buy and sell futures over indexes with the objective of making a few points every time. Today I was able to make 50 points shorting the NASDAQ.

As you can see, I posted my message and afterwards the NASDAQ index fell. Just check today's market info. NASDAQ is at historical highs and stocks are trading at insane prices.

What is your total investment in your shorts?

Day trading options is insanely risky.

 

[Juan]

What is your total investment in your shorts?

Day trading options is insanely risky.

It's 20 USD per NASDAQ point. So the contract is worth NASDAQ x 20 USD. For instance, right now that future's nominal value is 16222 x 20 = 324,440 USD.

50 points are worth 1,000 USD.

In order to enter this contract, which expires on 17 December 2021 I have to deposit 17,000 USD. So my margin is 17,000 USD and the contract size now is 324,440 USD.

 

[Jack Straw]

It's 20 USD per NASDAQ point. So the contract is worth NASDAQ x 20 USD. For instance, right now that future's nominal value is 16222 x 20 = 324,440 USD.

50 points are worth 1,000 USD.

In order to enter this contract, which expires on 17 December 2021 I have to deposit 17,000 USD. So my margin is 17,000 USD and the contract size now is 324,440 USD.

Why use margin when you already have $17k deposited? You open yourself up to a margin call for no reason.

 

[Juan]

Why use margin when you already have $17k deposited? You open yourself up to a margin call for no reason.

I think I did not phrase it well, as English is not my native language. $17k is the deposit and only that sum is required to trade.

When I said "my margin" I meant "my deposit", the sum I have to deposit to trade.

 

[Ed209]

It's 20 USD per NASDAQ point. So the contract is worth NASDAQ x 20 USD. For instance, right now that future's nominal value is 16222 x 20 = 324,440 USD.

50 points are worth 1,000 USD.

In order to enter this contract, which expires on 17 December 2021 I have to deposit 17,000 USD. So my margin is 17,000 USD and the contract size now is 324,440 USD.

It would make more sense to use a put in your situation as there's a lot less risk involved. If this is genuine, then good luck to you, but you are shorting this during a particular bullish part of the year as we have what's known as the Halloween effect, and soon there will be the Santa Clause effect.

I think there's a good chance of a crash next summer as everything is becoming over-extended.

 

[Juan]

what's known as the Halloween effect, and soon there will be the Santa Clause effect.

Are you kidding me?

There's also the possibility of using less leverage to short NASDAQ. It's at historical highs, a true nonsense...

People invest or trade in the stock market through platforms that have made the whole thing look like a game, but this is no game, this is real money, and it makes no sense at all to go long at historical highs, at PER ratios that are insane.

 

[Ed209]

Are you kidding me?

There's also the possibility of using less leverage to short NASDAQ. It's at historical highs, a true nonsense...

You obviously haven't invested or traded in the markets for long if you've only just noticed this. The markets are driven almost entirely by human psychology, and maybe a touch of manipulation from Wall Street here and there. They are largely detached from reality, so if you're expecting them to behave in a predicable manner based entirely on economic drivers, then you're going to be in for a surprise. The Halloween effect is well known amongst investors and traders; I didn't just make it up

People invest or trade in the stock market through platforms that have made the whole thing look like a game, but this is no game, this is real money, and it makes no sense at all to go long at historical highs, at PER ratios that are insane.

Define what real money is? Maybe you should tell that to the FED and other central banks, as they've been treating the economy like it's a game since at least 1971. People haven't had a meaningful wage rise for decades. What I don't understand is that you criticise the banks, but then you defend them? You're like a paradox. You contradict yourself.

The major US indexes are smashing into historical highs all over the place, this is true. There are indicators that are showing major warning signs, so I wouldn't buy at this point, but there's more chance of a rally than a crash at this time in the year. That's just how it is. You also have to factor in all the inflation when comparing to past prices. They've been running their printers quite a lot lately.

What doesn't make sense to me is that you've gone from being risk averse to shorting the NASDAQ within two posts.

 

[Juan]

You obviously haven't invested or traded in the markets for long if you've only just noticed this. The markets are driven almost entirely by human psychology, and maybe a touch of manipulation from Wall Street here and there.

I have been trading for over 15 years

Markets may be irrational for some time, even for some years, but at the end of the day they end up reflecting what's going on with the real economy

So taking short positions (managing leverage) on overvalued stocks and indexes may be a winning strategy.

 

[Ed209]

So taking short positions (managing leverage) on overvalued stocks and indexes may be a winning strategy.

Using leverage to short the Nasdaq is a dangerous combination. People lose everything by over-leveraging themselves on short and long positions. Please be careful.

Markets may be irrational for some time, even for some years, but at the end of the day they end up reflecting what's going on with the real economy

You think the markets pumping to new highs reflects the current economic situation? The markets do whatever they want and have done for years. Sure, they will crash based on a serious economic scare (such as the COVID-19 outbreak or a major terrorist incident, etc), but this comes right back to human psychology and panic selling. Strong fundamentals don't always move good stocks, which can be frustrating for anyone that holds stock in an undervalued company. The flip side is also true. You see countless overvalued companies where you scratch your head in wonderment trying to figure out how the company has such a high market cap. It's usually just based on good marketing and/or brand awareness. Then you have social followings where people get tribal about certain stocks and buy for the hell of it.

I analyse things I buy based upon many indicators, from the price action in the chart, the fundamentals, and many other metrics such as social engagement. I also look for correlations between charts such as the S&P 500 and the Dow transports. When the stars align and I see a good opportunity, I build a position.

 

[Ed209]

Further to my previous post.

Here are the last 50 years of the S&P:

And here's the last 50 years of debt-to-GDP in the USA (the first column is national debt in billions, and the second is the debt-to-GDP ratio):

Where is the correlation other than the obvious crises like 9/11 and the subprime mortgage fiasco, etc? I see a constant rise in debt-to-GDP. Where is this reflected in the indexes, other than taking inflation into consideration?

This is the worst year for the USA, economically speaking, and the stock market is at its ATH. Look at the impact the banks' recklessness caused in 2008, and that rippled across the world. The taxpayers paid for that mess and they act as if nothing happened. Also take note of how they conveniently raised the debt ceiling. They will keep doing this because there isn't one.

 

[PeteJ]

I have been trading for over 15 years

Markets may be irrational for some time, even for some years, but at the end of the day they end up reflecting what's going on with the real economy

So taking short positions (managing leverage) on overvalued stocks and indexes may be a winning strategy.

Value of diminishing returns. At some point, they will crash the economy - globally. People with a brain invest in metals, gold, silver etc. but some people think governments will seize assets like gold and make it illegal for common citizens to hold (then reverse that law).

Anyone with common sense can see they are being careless with the economy while helping to further enrich the already-wealthy.

 

[Juan]

Anyone with common sense can see they are being careless with the economy while helping to further enrich the already-wealthy.

In Spain people are already striking for higher salaries. Last month there was a national strike of railway workers. Today metal workers are striking. Next month lorry drivers will go on strike.

Soon there will be a general strike here.

Central banks are ignoring people and everyone is sick of that. They've all had enough.

 

[Juan]

Using leverage to short the Nasdaq is a dangerous combination. People lose everything by over-leveraging themselves on short and long positions. Please be careful.

I have experience with leverage, so I know how to manage the risk.

 

[Ed209]

People with a brain invest in metals, gold, silver etc. but some people think governments will seize assets like gold and make it illegal for common citizens to hold (then reverse that law).

People with a brain invest in good opportunities whatever that may be.

Anyone with common sense can see they are being careless with the economy while helping to further enrich the already-wealthy.

There will always be rich and poor people. I don't think the world can become a utopia where there aren't any economic problems anymore. You are right, however: the rich/poor divide has been expanding every year.

Imagine if Jeff Bezos and/or Elon Musk suddenly decided to make everyone a millionaire by airdropping every US citizen a couple of million dollars each overnight. Now everyone is rich, right? What you would actually have is hyperinflation as the cost of everything would skyrocket. That's why there will always be a rich/poor divide, but our goal should be to reduce it to the point that we eliminate poverty.

 

[Ed209]

The US are getting dangerously close to having to default, but as predicted, they will raise the debt ceiling again for the second time this year.

The Treasury Department could run out of resources to fund the federal government as early as December 15, almost two weeks later than expected, Treasury Secretary Janet Yellen said Tuesday — giving Congress a deadline to raise the debt ceiling for the second time this year and stave off a first-ever default on U.S. obligations.

Yellen has a "high degree of confidence" the Treasury can fund the government through mid-December, but "there are scenarios" in which the Treasury could run out of funds after that, she said in a Tuesday letter to House Speaker Nancy Pelosi

Yellen urged congressional leaders to prevent a default by raising or suspending the debt ceiling — a cap on total federal borrowing — "as soon as possible."

Congress passed a short-term debt ceiling increase last month, and the Treasury Department initially told lawmakers the measure may only keep government operations funded until December 3, so Tuesday's prediction gives congressional leaders slightly more time to strike a longer-term deal on hiking or suspending the debt ceiling.

TANGENT

The Treasury needs to transfer $118 billion into the Highway Trust Fund by December 15, part of a massive infrastructure package signed by President Joe Biden on Monday. Yellen said Tuesday she's confident this investment can be made.

KEY BACKGROUND

The federal government's total debt exceeds $28.5 trillion, and Congress has voted to raise or suspend the debt ceiling dozens of times in recent decades. Yellen and other experts warn a failure to raise the debt limit would make it impossible for the government to meet all of its obligations and could lead to a default. The economy could plunge into recession, consumers could face higher borrowing costs, investors would question the reliability of Treasury bonds and some federal benefits may temporarily disappear, the Biden administration says. The last debt limit suspension ran out in early August, but the Treasury kept the lights on using "extraordinary measures," and following a tense standoff between Democrats and Republicans, Congress passed a short-term debt limit increase last month.

https://www.forbes.com/sites/joewal...-if-congress-doesnt-raise-debt-ceiling-again/​

It's very unlikely they'll default, but this highlights how preposterous the situation is becoming, as I've been saying. And people on this thread think I'm the crazy one. Maybe I am

 

[Ed209]

I have experience with leverage, so I know how to manage the risk.

I have a strict rule: never use leverage.

I personally think it's crazy to borrow money for the sake of investing. I stick to the simple rule of only investing what I can afford to lose.

If it works for you then good luck to you.

 

[Juan]

I have a strict rule: never use leverage.

I personally think it's crazy to borrow money for the sake of investing. I stick to the simple rule of only investing what I can afford to lose.

If it works for you then good luck to you.

The product is leveraged but I hold enough cash to back those contracts, so I am just commiting less money, just the deposit.