⚠️ Don’t Fall Prey to these False Prophets

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What’s on the Menu 🍴

Become a world-class investor means thinking for yourself, and not getting influenced by people with ulterior motives.

So today, we’re exposing two kinds of “false prophets” that can lead you astray on your journey to building wealth.

We’ve also got a recap of the most important regulatory announcements for crypto this week…

And we’re answering the big question: Is this a bear market rally or the start of a new bull market?

Here’s what’s on the buffet:

• False Prophets of Doom ⚠️

• False Prophets of Prosperity 💸

• Your Weekly Crypto Crumbs Recap 🍞

• Bear Market Rally or New Bull Trend? 💹

Today’s newsletter is a 5 minute read.

False Prophets of Doom ⚠️

Ah, the Armageddon salesmen.

Those bearish boogeymen who predict a market crash every other Tuesday.

Yes, the stock market can be a wild roller coaster, with its fair share of chills, thrills, and spills…

But it's essential to keep a long-term perspective and not let the Doomsday drumbeaters scare you off the ride.

Why do these purveyors of pessimism do it?

Well, fear sells.

Guys like Robert Kiyosaki and Harry Dent have been making a killing scaring people out of the stock market for decades.

These guys have been making prediction after prediction about how a “crash is imminent”, meanwhile the stock market has continued to compound year after year.

Here’s a small appetizer of some of their failed predictions:

Harry Dent:

• 2010 Great Depression - In his 2009 book "The Great Depression Ahead," Dent predicted the Dow would plunge to around 3,800 in 2010, leading to a major depression. The Dow ended 2010 around 11,500.

• Dow to 3,000 by 2014 - Dent predicted in 2011 that the Dow would plummet to 3,000 points by 2014. The Dow crossed 17,000 points by the end of 2014.

• 60% Market Crash in 2017 - Dent predicted a 60% market crash in 2017. The Dow ended 2017 above 24,000.

• 70% Market Crash by 2021 - In 2018, Dent predicted a 70% market crash by 2021. The Dow ended 2020 at record highs.

Robert Kiyosaki:

• Market Crash in 2016 - Kiyosaki predicted in his 2002 book "Rich Dad's Prophecy" that the biggest market crash in history would occur in 2016.

• US Dollar Collapse in 2016 - Alongside his market crash prediction, Kiyosaki also predicted that the US Dollar would collapse in 2016.

• Giant Stock Market Crash in 2020 - Kiyosaki predicted a significant market crash in 2020. While there was a downturn due to the pandemic, markets rebounded significantly within the same year.

Even new school YouTubers have started hopping on the doom train:

Now, don't get me wrong, market downturns are a part of the game.

But the key is, markets rebound…

And if you're invested for the long haul, those dips are just part of the journey.

Consider this – $10,000 invested in the S&P 500 in 1980 would have turned into more than $700,000 by the end of 2020, despite all the crashes, downturns, and crises in between.

If you'd spent those years shaking in your boots on the sidelines because some "prophet" scared you off, you'd have missed out big time.

These perma-bears sell fear and pessimism because, let's face it, it sells.

But here's some free advice: don't buy it.

Instead, build a diversified portfolio, sit back, and watch your dough rise slowly in the warm oven of the market.

So next time you hear a doomsayer warning of the next crash, remember this – they might be right.

Or they might be as wrong as drinking decaf in the morning.

But either way, the best thing you can do is keep calm, carry on investing, and let time do its thing…

Because in the long run, time in the market beats timing the market, every single time.

False Prophets of Prosperity 💸

What’s the opposite of doom prophets?

The answer might be wall street analysts, otherwise known as the “sellside”, who almost always put “buy” ratings on the stocks they cover.

Equity research teams at wall street firms like Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and others are tasked with writing research reports on public companies.

These research reports usually come with a buy/hold/sell rating and a price target, and they get a lot of attention from retail investors and financial media.

However, there’s a reason they’re called “sellside analysts: they do not make actual purchase decisions on stocks themselves.

Their true client is the public company itself to whom they seek to sell advisory services, M&A deals, or capital raising transactions.

It’s no surprise that sellside analysts rarely issue “sell” ratings on stocks, because they don’t want to anger the companies they cover.

In fact, the data shows that sellside analysts issue something like 80% buy ratings and less than 5% sell ratings across the entire universe of public stock coverage!

Another common pattern from sellside analysts is that they are momentum driven.

They will often upgrade a stock to “buy” and raise the price target AFTER the stock has already run up a lot on good news, and they will also downgrade stocks to “sell” and lower price targets AFTER the stock has already tanked.

This is not helpful at all to investors!

We point this out because there’s still a big misunderstanding of how sellside price targets work.

My First Million podcast host Sam Parr recently tweeted this:

We love Sam, but we disagree with his conclusion.

The NVDA price target nonsense is classic sellside behavior, and experienced investors know to ignore the “after the fact” reactions of these nitwits.

We put tremendous time & resources into our own investment research, and our prediction and win rates are far higher than the sellside.

Frankly it has to be, because we put our own capital on the line!

The same is true of many professional analysts at hedge funds (the “buyside”). There’s much better alignment between forecasts and end outcomes on the buyside.

The sellside is not completely useless; their longer coverage reports do sometimes surface interesting industry & company insights.

Just remember that sellside analyst price targets are lagging indicators that are changed in reaction to stock prices. They are rarely predictive and always biased in a bullish direction.

We aren’t all morons out here! 😁

Your Weekly Crypto Crumbs Recap 🍞

This month has been a whirlwind of regulatory action in the crypto-space.

As governments worldwide grapple with the rapid expansion and influence of digital currencies, we've seen a flurry of regulatory actions and proposals that aim to bring clarity, control, and consumer protection to this burgeoning industry.

This week has been no exception, with several significant developments unfolding across the globe.

Here's a quick rundown of the latest regulatory news in the crypto space this week:

• The US Federal Reserve has launched its new instant payments service, FedNow, significantly speeding up money transfers in the US economy

• The UK government has dismissed the idea of regulating crypto retail trading like gambling, emphasizing that it will be regulated as any other financial service

• US House Republicans have introduced a new digital assets oversight bill aiming to establish a regulatory framework to protect investors in the crypto sector

• The UK's Financial Conduct Authority (FCA) is crafting prudential requirements for crypto firms, aiming to ensure adequate financial resources and suitable management arrangements

• The UK's FCA has announced the launch of its Digital Sandbox, a supportive environment for early-stage tech firms, starting from August 1

Bear Market Rally or New Bull Trend? 💹

Bear market rallies are periods where price climbs higher after major selloffs (what goes down, must come up).

The debate is this:

Does the current rise in the S&P 500 mean we’re in a new bull market?

Or is this just a “bear market rally” that will lead to new lows?

When looking at the prior 3 major bear markets, the story is clear.

Today’s price structure is stronger, the corrections are shallower, and the odds of this being a new bull market are higher.

But, let’s go back in time and look at prior market crashes:

Let’s start with the 2000 tech bubble:

The rallies that happened under the 200 day moving average were clearly bear market rallies.

But, as soon as price crossed above the 200 day with strength, a new bull market begun and we never saw the lows until the next bear market.

Next, the 2008 financial crisis:

It’s the same story:

Bear market rallies happened below the 200 day moving average, keeping the bear trend in tact.

Then, when we see price cross above the 200 day, price shoots into a new bull market not to see the bear market lows again.

And the 2020 pandemic was a wild one.

It was so fast, that the only major rally that happened, was the one leading us above the 200 day into a new bull market.

And for the current 2023 price action:

It’s hard to argue this rally is anything BUT a new bull market.

1. We’re back above the 200 day moving average after a 20% bear market correction.

2. We’re seeing a very large gap between price and the 200 day

3. We’ve seen strong consolidation above the 200 day

4. We’re seeing higher lows

Granted, we’ve got one of the most shorted markets on record for the S&P 500, so a lot of this could be short squeezing, and momentum buying as price moves higher.

But the real test to this “bull run” will be Q2 earnings season to justify if valuations here make any sense.

Until then, we think price action is looking strong.

Delicious Bites 😋

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• Stamp prices vs. inflation

• Remote & hybrid work has caused a shift in the hours that people work

• Where to find the best used car deals

Food For Thought 🧠

"Beware of false knowledge; it is more dangerous than ignorance."
- George Bernard Shaw

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.