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R.E.A.P. effect and the inflation

Discussion in 'Investing' started by the B & the S, Sep 17, 2020.

?

still bullish or turning bearish

  1. bullish for the coming season

    0 vote(s)
    0.0%
  2. bearish for the coming season

    100.0%
  1. the B & the S

    the B & the S New Member

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    It's more and more overt that we have left the Phase 1 and are entering the Phase 2.


    The following article is written in July 2020, with price info updated.


    R.E.A.P.


    Bulls have 4 legs, namely

    1. Reform of Major Economic/Political Policies

    2. Ease of monetary policy

    3. Alternatives in Paucity

    4. Profitability Rise

    These 4 legs prop up mass confidence, and mass confidence lift up the market. Without these 4 legs, the market will fall into fear mode.

    Thanks to the furious Fed and the government stimulus juggernaut, the upcoming vaccine will cure not only the pandemic but also the chronical stagnation of low inflation in the US. It’s seminal and seismic change in inflation. The market will run through 4 phases.


    SHORT TERM (Phase 1, 1-3 MONTHS): Go with the flow, but hedge the upcoming pull back

    Currently, we are in phase 1, the windows of non-negative news, but the sentiment has reached the plateau of optimism. More and more wherewithal (money market fund, fixed-income fund, etc.) will be poured into the market considering that the market participation rate is yet to peak. We lost in the reflation mirage created by the Fed. The market will be soaked in optimism and FOMO.

    Tickers: +UVXY ($20 Point of Writing), +UGL ($74 POW), holding on to the winning stocks on hand, -TSLA ($440 POW).


    MID TERM (Phase 2&3, 1-3 SEASONS): Buy deep dips (after 20% pull back) and ride with new bull, this time a value bull.

    Then we entered into the second phase, which is no news could be better. All news coming after could just make thing worse. By and large, the market sentiment will be more influenced by perceived negative news than the good ones coming along. Negative news incl. vaccine will not be inoculated quickly enough (herd immunity is actually the most likely outcome), pandemic worsens, election fissure, tension with China, unsuspected bankruptcy of a household famous company, the cut of the CARE act as well as the money printing slow down by the Fed. The major pull back could be -20% market wide.

    Tickers: +SQQQ ($25 POW), +SRTY ($8 POW), +YANG ($23 POW), +DRV ($12.5 POW), +UGL ($74 POW), liquidate all high-flied stocks on hand if not shorting them, -TSLA ($440 POW).


    Next, phase three, with the #2 and #3 bull legs prop up, the market could rise up again. But the trendline will be reversed, value will soar faster than growth.

    Tickers: +DIA, +VTV, +UGL, +VNM (wait for the steady but inevitable up-rise of the substitute of China manufacturing prowess), POTX (government will easy the restriction on weeds to raise tax), +TMF, and all the deep value stocks.

    However, if the phase 4 come up faster, there will probably be no phase 3 rebound at all.


    LONG TERM (Phase 4, 1-3 YEARS): AFTER THAT, THE FLOOD. FIND THE ARC.

    In Phase 4, the raging bull will be relentlessly slaughtered by the inexorable real inflation. By then, the #2 (Fed will turn from a rescuer to a butcher) and #3 legs will both be broken, with #1 and #4 still afar in sight. The only thing that stands is gold as the only alternative.

    The pandemic is the perfect propellant of inflation. Money ultimately trickle down to the needed on Main St. via the CARE act and other fiscal stimuli, rather than 2010-2020 monetary reflation circulated only on Wall St. The deep-rooted deflation or stagnation is mainly caused by wealth inequality and lack of technology breakthrough. The marginal spending of the rich is far less than the poor, who want to spend but lacks of dry powder which now they have. The up-soaring saving rate and credit card repayment rate is overtly evident. As long as the government free cash keeps down pouring, the Main St. could build up dry powder to pursue some discretionary spending as their wish now. Literally, the free ride on government checkbook should run more than enough to spur up the inflation not seen in developed world for decades. That’s the only opportunity to overturn the stagnation.

    Through and through, #4 will be hardly seen in sight. The Rep has already put forward all the market-friendly reform policies. The Dem could only make it worse.

    Tickers: +UGL, +NEED, +DRV, +POTX, +VNM, +SCHP


    Optimism will be rebuilt after the inflation curbed back to normal and the corporate earnings-rise in horizon, and the Sam trumps over the Comm.



    Details:

    SHORT TERM (Phase 1, 1-3 MONTHS): Go with the flow, but hedge the upcoming pull back


    Tickers: +UVXY ($20 Point of Writing), +UGL ($74 POW), holding on to the winning stocks on hand, -TSLA ($440 POW).

    Keynotes:

    · Availability biases prevails in the short term, the experience of decade long resulting massive FOMO mindset, among both professional and amateur investors.

    · sentiment and crowd thinking keep stoked by social media.

    · We are only half-way out of the woods. Thanks to the Fed, the social and economic crises inflicted by this pandemic didn’t morph into a full-scale financial crisis.

    · Back in Mar and Apr, people are too scared, fear pervades the market. People thought another 2008 is coming in sight, with deluge of bankrupts and credit squeeze. But the Fed had learnt its lesson, it forestalled that from happening by flooding the market with newly printed money. The reflation stratagem worked. People now thought that the 2008 is over, and the great 2010s rebound is in sight. Now FOMO takes over.

    · The wreak havoc of the pandemic is already priced-in (though not fully), the numbers of infection and death are just numbers, though astonishing, but didn’t falter the belief that the vaccine will be roll out in months and the Fed got cover of the market. The market is temporarily immune from the pandemic.

    · On the other hand, every country in the world is busy handling their own business and fighting their own fight against the pandemic. The heat of international tension flared up here and there last year now dissipates to a negligible degree. With the election in sight, Trump will also ease the tension with China.

    · More and more dry powder (money market fund, fixed-income fund, etc.) will be poured into the market considering that the market participation rate is yet to peak.

    · Thenceforth, it’s now the windows of non-negative news. We are reaching the plateau of optimism. The market will be soaked in optimism and FOMO.
     
    #1 the B & the S, Sep 17, 2020
    Last edited: Sep 17, 2020
  2. UnaAllan

    UnaAllan New Member

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    Actually, it's interesting theory about a bull
     
  3. JuliaLambert

    JuliaLambert New Member

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    thanks for the info provided, it was interesting and informative to read
     
  4. the B & the S

    the B & the S New Member

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    MID TERM (Phase 2&3, 1-3 SEASONS): Buy deep dip (after 20% pull back across major indexes) and ride with a resurrected bull, but this time a disparate value bull.

    Keynotes:

    · 3 scenarios unfolding (scenario 2 is the most likely):

    o 1) Bullish (the last bull): Trumps wins the election

    Tickers: +NEED, +DIA, +VTV, hedge with UVXY, dodge UGL.


    The exorbitantly exuberant sentiment and FOMO will return akin to 2017, but with a caveat. The high-flied growth stocks will be tamed, whereas the cyclical and value stocks will be embraced. Nonetheless, this resurrected bull will be a limb bull with only the leg 3 and the illusionary leg 1 standing, which can’t keep its footing for long. Any negative news could knock it down. So, ride vigilantly.


    o 2) Sagging: Trump loses, no further Main St. CARE stimulus or a mediocre stimulus package

    Tickers: +UGL, +TMF, +YANG, +SQQQ, +SRTY, +DRV, sneak VNM, dodge UVXY.


    The Dem will not budge their bargaining power over the stimulus act, cuz they are on the side of the needed, and they can easily scapegoat the Rep on the lack of valor and sympathy. There is a deep rift between the parties. The agreement won’t be reached soon. The Fed will keep pumping money into the Wall St. to keep interest rate low and liquidity ample. But it won’t help the overall economy or lift the inflation to the lofty target 2%. The Japanification will be a looming threat to the US, and the inflation target will be further away. The spike in tax rate promulgated by the Dem will be the ultimate bludgeon knocking down the market, which will trend down steadily, not in panic mode.


    o 3) Bearish: Trump loses, second surge in Covid cases or greater than expected Main St. CARE Act windfall

    Tickers: +UVXY, +YANG, +SQQQ, +SRTY, +DRV, hedge with UGL, dodge TMF.


    Both the second wave of Covid or greater than expected Main St. stimulus will decimate the market, since the Main St. oriented stimulus will not help the Wall st. nor the overall corporate profitability in the short term but only drive the inflation up relentlessly. The Fed will have to lift interest rate quicker than the consensus. Exacerbated by the spike in tax rate, huge volatility will come back. Assets across the board will plunge like died pigs thrown out of a plane.
     
  5. JuliaLambert

    JuliaLambert New Member

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    oh, thanks, I'll see it attentively!
     
  6. The Brontide

    The Brontide Active Member

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    I couldn't vote as I am in all three modes.

    I love the intro post, well thought out.

    But I do not believe many metrics currently, as published, reflect the dynamics this market is trying to convey.

    The current market movements, although show patterns that I follow, do not appear organic in nature.

    One metric that is out of balance is the dollar index. It is being played ferociously by the powers that be in order to have the market harmonics demonstrate things that are in fact untrue or not market natural.

    In other words, my expectations for October are very bullish as soon as the fed starts stimulating as well as the Treasury printing a few more trainloads of monies.

    Surprise!

    But November thru January I am expecting full bear mode as everything in America gets screwed up with this election and protests and civil unrest (that is getting worse) and with COVID killing up to 3000+ humans in America. Every single day.


    I know, not a pretty party from me. I know. And I would rather be proven wrong.

    But back to the point. I am playing both sides right now using my projections above. Yes I have lost a little. But I have made more than enough to make it a non issue.

    I doubt I will be long until we have much more stability.
     
  7. The Brontide

    The Brontide Active Member

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    And to add in response to the OPs second post, I am convinced inflation is awhile down that dusty road.

    I feel the fed is fighting Deflation with its policy. They want more inflation.

    The difference between recession and depression is, people in recession still have money.

    Hence all the trillions of stimulus.
     

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