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Weekly Economic and Stock Market Commentary – November 21, 2022


stock market

Note: The US investment markets, and my office, will be closed Thursday, November 24th, for the Thanksgiving Day holiday. The US markets, and my office, will close at 1 PM on Friday, November 25th.

As for the stock market specifically: Stock markets mostly fell last week, with the Dow Jones Industrial Average making a noble attempt to turn positive. It may have been noble, but it didn’t work.

The big story last week was the collapse and subsequent bankruptcy of a big entity in the crypto-currency markets.

I can say categorically that no client assets are in cryptocurrency. If I am going to lose client money, it will be the old-fashioned way.

The reasons why I don’t invest in cryptocurrency are both simple and two-fold: A) I don’t understand it, and B) in my mind the pricing of the “assets” do not seem based on anything except speculation. Similar to the Dutch tulip bulb craze of the early-mid 1600s. Or more simply stated: The Greater Fool Theory. The following is from Investopedia:

What Is the Greater Fool Theory?

The greater fool theory argues that prices go up because people are able to sell overpriced securities to a “greater fool,” whether or not they are overvalued. That is, of course, until there are no greater fools left.

Investing, according to the greater fool theory, means ignoring valuations, earnings reports, and all the other data. Ignoring the fundamentals is, of course, risky; and so people subscribing to the greater fool theory could be left holding the bag after a correction.

The moral of last week’s news goes back to a phrase I first learned in the 1990s with the Long-Term Capital Management meltdown.

“Be afraid of smart people wearing beanies, and using leverage,” is a lesson we should not forget. For those too young to remember Long Term Capital, it was a hedge fund run by Nobel Prize-winning economists and ‘renowned” Wall Street bond traders. In short, they went bust and required U.S. Government intervention in order to stave off the financial system collapse.

The main research indicators have once again improved last week. We are in WEALTH ACCUMULATION mode.

Remember, X’s mean OFFENSE or wealth accumulation, while O’s mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of November 18, 2022 (Courtesy Dorsey, Wright, and Associates).

On a general note:   I think we should give thanks that I am not going to write about general economic news this week.
If you want more information about a particular stock or mutual fund, please contact me.