The Bitcoin Bubble Has Nothing on This... Welcome to Trading With Larry Benedict If this is your first time reading Trading With Larry Benedict, thanks for joining us. You can catch up on all previous issues right here. If you have any questions for Larry, or feedback, shoot us a note anytime at feedback@opportunistictrader.com. | Daina’s note: Last Monday, Larry gave readers a glimpse into his typical trading routine. While he sleeps as best he can, opportunities in global markets can keep Larry up trading throughout the night. But, Larry doesn’t trade just anything… At the end of last week’s interview, we touched on what Larry thinks about more speculative sectors like bitcoin and cannabis stocks. And today, he shows why both are probably a bubble… but that they’re actually the least of the market’s problems. As always, make sure you read all the way to the end of today’s interview, where Larry gives his usual timely market outlook...
Daina Schnese: When we left off last week, we were talking about bitcoin and cannabis stocks… two popular, if controversial topics in the financial world. It seemed like you had a strong opinion on both… Have you traded either? Larry Benedict: No, I haven’t traded bitcoin or any marijuana stocks. And really, to be frank, I think the cryptocurrency space and the cannabis sector are both bubbles. But they’re small bubbles compared to the larger bubble in the market right now. We’re probably in one, to some extent, with a lot of these IPOs [initial public offerings] coming to market, like Uber and Lyft. Daina: We’ll come back to bitcoin and cannabis. But for now... You say we’re in an IPO bubble? Larry: Yeah, you could say that. I see a lot of similarities between this bubble and the dot-com bubble in 1999-2000. You had a lot of companies going public back then. That was a fake-company, fake-earnings, no-office type of bubble. The only difference between the dot-com bubble and the current bubble is these companies do have earnings and there aren’t as many companies going public now… but they’re still fake companies going public! Plus, the companies going public now will have no choice but to morph into something else or die, like Amazon did after the dot-com bubble burst and it went from a bookseller to a catch-all company. This is simply a byproduct of companies going public later in their business cycles. Let’s look at Uber, for example. The company is fully developed and the whole concept is out there. They have to morph into something else to make it worthwhile in the long run. Look, picking me up at my office and driving me home for $6.50 works well for me… But I don’t know how anyone is making any money off of that, including the driver. So, to me, it’s just another company in an IPO bubble that is slowly forming. Daina: You mentioned before that you had one of the biggest position sizes of your career on the back of the 2009 financial crisis, which was another bubble that burst. How is the current IPO bubble different from that one? Larry: Well, for one, that was more of a leverage bubble. It was excess equity for sale, and you had people buying five houses with no money. That’s not what we’re seeing today. We’re in an era where we simply have too many companies coming public at a much later time in their cycle. Plus, the market is just different now than it was in 2009. Back then, it was very active. Today’s market is reaching all-time highs every day, there are no players in the market (which means no volume), and the Federal Reserve has issues with liquidity. That’s what makes this bubble a lot different from previous ones. And I don’t believe the public plays much of a role in at all. It’s a lot of computers trading these days. So, it won’t look like a spitting image of previous bubbles. Daina: How do you look to trade bubbles? Larry: I usually know a bubble is happening a year too early and I lose my butt trying to short it [laughs]. I’m kidding… but I’ve learned from maturity to let bubbles play out, form, and do their thing. The day after Thanksgiving in 1999, during the dot-com bubble, I traded one stock that went from $20 to $150 in a single day… that’s how crazy the market movements were back then. So, if you’re patient and let the bubble play out, you can make money trading it. And we’ve really seen that in the marijuana space. You could have made money when the prices of some of these companies skyrocketed, but now, they’re right back where they started. It’s a total bubble and there’s a huge lack of liquidity… I mean, people are paying any price for these stocks because they think they’ll get that same jump higher. Daina: Thanks for that, Larry. Let’s dive into the cannabis bubble next time we chat. Larry: Great, sounds good.
Daina’s note: Next time, Larry will tell you why the cannabis space is just one small bubble that may have already popped… And gives his take on why he thinks cannabis stocks are headed to rock bottom. Make sure you tune in for your next installment of Trading With Larry Benedict. And now, on to Larry’s timely market outlook... Larry's Market Outlook Right now, markets are quiet across the board. There was positive news out of Hong Kong last night, as the pro-democracy candidates did very well. So those markets were up around 70 basis points. That set the tone overnight for trading. Europe was slightly higher, but not as good as I think it should be based on what happened in Asia. So, today we should see pretty quiet action pending any news – or fake news. I don’t expect us to take out an all-time high this week, but we’ll see. The dollar remains strong against the euro and the pound. Muted range, though. Probably the lowest volatility we’ve ever seen in the currency markets. Bitcoin traded down to $6,500, but is now back up above $7,000. Not much to say there… And I’m not seeing much in individual equities, either – except for one big story. Charles Schwab announced it will merge with TD Ameritrade – which means more consolidation in the discount brokerage business, with commissions already at zero. We’ll see shortly how the markets react to that news. Regards, Larry Benedict | About Larry Benedict... Larry is a former hedge fund manager with over 30 years of investing experience. He’s also known as one of the world’s best traders… and for good reason. From 1990 to 2010 – when he was actively running hedge funds – Larry never had a single losing year. Larry’s market commentary is frequently featured in Bloomberg, Barron's, and The Wall Street Journal, among other major news outlets. That’s why we’re publishing this limited-edition interview series over the next couple months. When we saw what Larry could offer to everyday investors, we knew we had to share everything we could with you. If you have any comments, questions, or suggestions about this free e-letter, please drop us a line at feedback@opportunistictrader.com. And if this interview series isn’t for you, simply click this link to opt out now. | | 
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