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This is an unprecedented expansion. We better take the opportunity rather than miss out. However, we must also be diligent and aware that this is an extremely overvalued and hyper-expanding market. There are good stocks and good macro opportunities to invest while this lasts, and by hedging these positions, we will remain profitable even if the market goes down.

Here is an intra-market recap of the last year or so:

Investors are now rushing into the US-treasury bonds, as represented by the TLT in the first graph. This means that confidence is decreasing in market valuations, resulting in some bearish divergence. Either this or that the money also flows out of the treasuries and are invested in stocks. Thus, be diligent with your investments, rooting them in solid value over the next few years. (Note that these divergences have a large window, so it's better to hedge bets and ride the market rather than short, especially in today's market) If the ladder happens, money supply will continue to increase to levels never seen before, resulting in further inflation with no reserve requirement increase. This is highly unsustainable, and thus we are short the US dollar and are long on silver, gold, and especially oil. I have personally profited a large sum of money in oil, and is looking to ease out of that position as its momentum drops. However, I am still putting my extra cash in gold/silver etfs.

One may be bearish by something like this, however, it is normal because the orders that were previously not needed were then ordered at a later date. The total area under the curve remains the same, which means that consumer demand was fulfilled.

Money velocity will also inevitably bounce back, leading to more inflation:

Consumers discretionary valuations remain stagnant for one of two reasons: investors previously priced discretionary to highly as they came out of COVID. The second reason is that the economy is not doing as well as the S and P suggests. We also see this sort of trailing drag going on, with the top 50 companies dragging up the bottom 450 companies.

These stocks driving the market today are still growth stocks, which means we will see a resurgence in value stocks in the long run compared to the market.

So, either the stock market is going to continue to go up by the smaller cap stagnant companies catching up to the market, or the general market is going to catch up to the value of the smaller-cap companies. It is currently more advantageous to invest in those smaller cap companies due to its risk being lower in both of the mentioned situations. We look very favorably upon the service sector as demand and supply imbalances balance out in the economy as the fed tapers its asset buying and inflation lowers.

As many of these sectors remain stagnant and no trend is currently detectable, it would reasonable to assume that the service sector is going to start doing better, especially when investing in the best value companies in those sectors. The overall strategy would be to have a net neutral position being long in cyclicals and short in the worst stocks in the defensives sector, while putting cash into oil, gold, and silver.


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