Irrational Exuberance, FOMO, and the Beginning of a Collapse Cycle... Be Aware of the Possibility [From Strong Dollar to Ultra-Strong Dollar]

Although it hasn't been long since Donald Trump's election victory was confirmed, reviewing various things I've been looking at has given me a lot to think about.

The biggest of these is that I believe the timeframe until the full-scale commencement of the long-term market crash cycle (aka the Second Great Depression), which I have referred to as a 'time difference' on this blog, has been significantly shortened.

Those who have been reading may have sensed a nuance suggesting that it could start as early as the beginning of next year. This includes not only the already weak domestic stock market, but also the seemingly invincible domestic real estate market and the US stock market.

Just before Trump's election victory last week, the high point reached by the US stock market was considered a slight overheating, not a bubble. Therefore, I thought that instead of the market maintaining that level, the US stock market would maintain its ‘time margin’ for a longer period.

However, the market indicators that appeared over the three days following Trump's election victory suggest a growing intention to cause a further increase, pushing the market into bubble territory. Instead, I believe the ‘game’ time remaining until entry into the crash cycle is almost gone.

The feeling is that the Federal Reserve, after maintaining a policy of 'higher for longer' interest rates for several months given the circumstances(?), is showing a willingness to quickly move on from this to the main event... I had thought that asset markets, led by the US stock market, would not collapse immediately while the Fed’s 'higher for longer' game was in progress. However, it feels like the Fed has begun to give up after trying and failing to prolong this higher for longer game?

If this feeling(?) is correct, then for a month or two, or perhaps a few months plus alpha, a period of "irrational exuberance" will likely occur, with explosive short-term gains in the US stock market (not Korea or Europe) index and some stocks.

I think the cryptocurrency market, which has been quiet since March of this year, will soon show a similar trend. The fact that small cryptocurrencies have already started to rise since Sunday is likely part of this trend.

If this phenomenon occurs, many individual investors will likely experience strong "FOMO" (Fear Of Missing Out) by watching the US stock market. Some of them might jump in late.

Recently, the sentiment that the US economy will experience a ‘soft landing’ or ‘no landing’ has solidified. The narrative is that private consumption, which supports most of the US economy, is robust, and the employment situation, the foundation of income that underpins this consumption, is also robust. Is that so...?

In the chart below, the red and blue lines represent the trend of monthly non-farm employment released by the Department of Labor. Looking at the monthly employment trends over the past 20-30 years, recessions typically occurred when the monthly average fell below approximately 200,000.

The chart below shows that this figure began to fall consistently below 200,000 from July. At the beginning of August, when this July employment data was released, concerns about a recession suddenly surfaced, causing market turmoil along with yen carry trade unwinding issues.

However, even after that, the trend continued to show a low level below 200,000, but reasons such as ‘due to a one-time hurricane,’ ‘due to port union strikes,’ or ‘due to Boeing strikes’ were continuously given.

But, if after looking at the data later, it turns out that 'it wasn't temporary'...What if it turns out that 'this is why the Fed decided on consecutive rate cuts in September (50bp big cut) and again in November without a murmur'...?

The market is currently navigating the latter half of the year by attaching the qualifier "This time is different." (this time it's a soft landing) and the caveat "due to hurricanes, etc., temporary negative factors."

The chart below shows the Department of Labor's unemployment rate and the four-week moving average of weekly initial and continuing jobless claims from the 1970s to before the Corona pandemic.

Historically, the key question has been ‘when does the unemployment rate suddenly surge?’ In the past, once the unemployment rate had bottomed out and started to rise slightly (like the Sham's Law), it would immediately surge, leading to a recession. However, this time, although it bottomed out, it seems to have paused before a surge.

Looking at the historical chart below, it can be observed that jobless claims tend to move in tandem with or often slightly precede the unemployment rate.

The lowest unemployment rate recorded during the period shown in the chart above was around 4% in 2000.

In the aftermath of the Corona pandemic, the unemployment rate theoretically fell to near zero. The chart shows it fell to about 3.4%. And when it hit 4.3% last July, there was a brief jolt along with the Sham's Law issue.

Since then, it has been maintained at around 4.2% to 4.3%, giving a slight impression(?) that it is being managed to avoid exceeding 4.3% again.

Continuing jobless claims represent the number of individuals claiming unemployment benefits for two weeks or more, reflecting a ‘cumulative’ concept rather than initial claims. Those who have newly filed for unemployment benefits but have not yet found employment and remain unemployed for a considerable period (approaching official unemployment) would be reflected in continuing claims.

Therefore, in this chart, when a sudden spike in initial jobless claims occurs, the cumulative continuing claims increase to a higher level, maintaining that level, and then, after a slight delay, the official unemployment rate (number of unemployed) increases.

In recent months, the continuing jobless claims (blue line) have been gradually increasing again.

This trend suggests that if initial jobless claims (green line) start to surge significantly for several consecutive weeks, continuing claims and the number of unemployed are likely to increase.

I also have a feeling(?) that once the unemployment rate rises above 4.3% again, it will not stabilize but rather jump sharply.

It is necessary to carefully examine whether the Fed is simply focusing on the declining PCE price index (inflation benchmark) approaching the 2% target and implementing consecutive rate cuts. (dual mandate)

And Samsung Electronics' share price, which showed a considerable decline today...Below is the monthly chart.

I previously showed you that the long-term trend line has clearly been broken due to the recent massive continuous selling by foreign investors. Let's consider why this is happening.

We will have to observe the market situation after the year-end and the beginning of the year, but my opinion is that ‘it's important not to get caught up in this from now on.’ (We should avoid a situation where we are stuck and call it long-term investment…)”

We should be careful to avoid being dragged down to the long, long-term bottom. This applies to US stocks, Korean stocks, or Seoul apartment real estate. It's important to set a clear standard and be cautious. Even blindly holding US leveraged index ETFs based on a strong belief in the long-term upward trend of the US stock market is risky.

I believe this applies to all assets, whether US stocks, Korean stocks, or Seoul apartment real estate. This is just my personal opinion regarding the upcoming market risks, so please make your own judgment...