Two stock market warning flags I'm monitoring; These bubble-peak indicators haven't worked for AI stocks yet; A holiday gift list of my favorite travel gear, clothing, and electronics

1) I'm monitoring stock market warning flags highlighted in two recent stories in the Wall Street Journal...

The first is about how trading app Robinhood Markets (HOOD) pivoted to catering to speculators, which was great for its business (and stock). But I confidently predict this will be terrible for the naive investors who are using leverage and short-dated options to speculate in risky stocks and cryptocurrencies. Excerpt:

Risk-taking is back for individual investors, and few people have done more to stoke those spirits than the 38-year-old [Robinhood CEO Vlad] Tenev. Robinhood's trading app makes it easy not just to buy and sell ordinary stocks, but to invest in options, cryptocurrencies and other exotic financial products, even to make sports bets and play the prediction markets.

The company's critics liken the environment to a casino, but its fans credit Robinhood with democratizing the lucrative world of sophisticated investments...

A host of new products have entered retail-investment markets in recent years and worked their way into the mainstream. Investors are wagering on the price of bitcoin and piling into ultrarisky types of options, such as the "zero-day" variety that expire rapidly and require perfect timing. They are buying futures contracts tied to all sorts of events, betting on whether a Taylor Swift album will top the Spotify charts or whether the Green Bay Packers will beat the Detroit Lions on Thanksgiving Day.

2) The second WSJ story is about how meme stocks and cryptos have become increasingly popular with members of the military. This caught my eye because a similar indicator was how I nailed the exact top – to the day – of the bitcoin bubble in late 2017. (Over the next year, it fell by around 85% before beginning a historic rally.)

My friend, a former Navy SEAL, had told me that active-duty SEALs were returning from overseas deployments for the holidays and using their hardship-pay bonuses to buy bitcoin. This led me to write on December 16, 2017:

In the past week, I've been asked about bitcoin by a parade of the least-knowledgeable investors imaginable – and the only times such foolishness has happened before in my 18-year career were at the peak of the Internet and housing bubbles, so I'm calling a top right now.

Blockchain technology is real in the same way that the Internet was real back in 1999 and housing prices [were going] up in the mid-2000s – in other words, a good idea taken to absurd extremes is not a good idea!

That said, the greed and speculative nature of humans is inherently unpredictable, so for all I know bitcoin could go to $1 million.

But I do know the ultimate outcome: smoldering rubble, a lot of finger-pointing (where were the regulators?!), and a lot of tears and empty bank accounts, especially among those who can least afford it.

According to the WSJ, something similar is happening today:

The U.S. military may just be the world's most lethal investing club, and it's killing it in this bull market.

Servicemembers are making fortunes in tech stocks and bitcoin. They're trading tips on obscure cryptocurrencies from the decks of aircraft carriers. Base parking lots are peppered with new Porsches and Humvees as the market hits new highs. And social-media influencers in fatigues tell followers how they, too, can become rich...

Servicemembers helped fuel a surge in crypto prices that started in the fall of 2020 and peaked in 2021. In 2020, eight of the top 25 U.S. zip codes with the highest share of tax returns reporting receiving or disposing of crypto were around military bases, according to a Wall Street Journal analysis of Internal Revenue Service data. The price of bitcoin roughly quadrupled that year. In 2021, the share rose to 11 out of 25.

3) Seeing warning flags – speculation by retail investors, high valuations, etc. – is different from correctly calling a top, however...

As this article in the Economist notes, legendary investors Ray Dalio (Bridgewater Associates), Peter Lynch (Fidelity Investments), and Howard Marks (Oaktree Capital Management) confidently – and correctly – warned about a bubble in dot-com stocks, but they did so four to five years before it burst:

In March 2000 the tech-heavy NASDAQ index peaked, then fell by more than 80% over the following two and a half years. The trouble was that Messrs Dalio and Lynch were speaking in 1995, and Mr Marks in 1996...

Even for the very best investors, in other words, identifying a bubble is a good deal easier than judging when it will burst.

The article has two interesting charts showing that the Shiller cyclically adjusted price-to-earnings ("CAPE") ratio is good at predicting stock returns over the next 10 years:

But it's nearly useless at predicting returns over the next 12 months:

So, rather than focusing on the CAPE ratio, the article suggests two other metrics for spotting a bubble peak. The first is Google searches related to hot sectors:

The logic is that a bubble is most likely to draw interest from lots of retail traders just as it reaches bursting-point. [The following chart] shows the results for a range of manias.

So far, however, this indicator hasn't worked for AI stocks:

In fact, searches for "AI stocks" hit their zenith in mid-August... and their prices continued to rise serenely for weeks.

The article's second indicator of a bubble peak is prominent investors going out of business, as Tiger Management's Julian Robertson did at the peak of the dot-com bubble:

Those trying to time the top of the present-day cycle should therefore look out for buzzkill types with big names going out of business. Such as, say, Michael Burry, who memorably bet against American mortgage-backed securities before they plummeted in value and set off the global financial crisis of 2007-09. This year Mr Burry has been busy shorting AI stocks, including those of Palantir and Nvidia. In late October, he wrote to investors to tell them he was closing his fund.

I continue to believe that, while valuations are high and recklessness abounds, we aren't at a bubble peak.

It reminds me of one of former President Ronald Reagan's favorite jokes (which is just as true today, but that's a discussion for another time):

Two Russians are walking down the street, and one says, "Comrade, have we reached the highest state of communism?"

"Oh, no," the other replies. "I think things are going to get a lot worse."

4) If you're still looking for gifts for a loved one (or to treat yourself!), I have some recommendations...

These vary between travel gear, clothing, and electronics. I'll also list the prices that I'm seeing as of this morning, but keep in mind that these could jump around as we move through the holiday season.

First up, regular readers know my favorite travel hack is a Matein rolling bag...

It has wheels and a handle, so I can easily pull it. And it has straps so I can wear it as a backpack when I'm boarding a plane (I've never been forced to gate check it or been charged extra for it), or when I'm renting a bike or scooter to get around a city.

Plus, it's cheap at $63.99 on Amazon for the color I own:

One reason I can fit everything for a month of travel into a small bag is because I don't pack shoes – I only bring the ones I'm wearing. So they need to be comfortable enough to walk around in all day, athletic enough to go to the gym or for a run, and look nice enough to wear to dinner.

My answer is On's Cloudmonster sneakers ($170 on the company website):

If you want to take minimalist packing to an extreme, try traveling with just this fishing vest ($31.85 on Amazon)...

Below is a picture of me wearing it in front of Notre Dame when I spent a three-day weekend in Paris last year to see the French Open tennis tournament. I also use it when I go to the U.S. Open, which prohibits even small backpacks. So I stuff the vest's 15 pockets with sandwiches, drinks, snacks, sunglasses, sunscreen, a seat cushion (more on that below), and more:

Here are three more backpacks I own...

• On the left in the picture below: a lightweight bag that can be stuffed into a little sack that fits in my pocket ($19.99 on Amazon for the 16-liter size).

• In the center: a sturdy bag for carrying stuff when I'm biking around the city or on a short trip ($127.99 on Amazon for the color I have).

• On the right: the bag I used when climbing the Grand Teton in September ($140 on Amazon for the 22-liter size in green). It comes with a built-in 2.5-liter water reservoir – but note that it's not big enough to carry a tent and sleeping bag.

I'm a jacket junkie – I own way too many of them...

But if I had to pick one I couldn't live without, it would be the Patagonia Nano-Air Light Hybrid Hoody ($299 on the company website).

It's light enough to be worn as a sun shirt in the summer. But it's surprisingly warm when you need it to be – especially if you pull up the hood:

My family laughs at me when I pull out this seat cushion ($31.46 on Amazon for the color I have)... But it's a total butt-saver!

It's designed for sitting on rocks while camping, but I use it whenever I'm sitting for an extended period on anything hard or semi-hard, like bleachers at a game, in a car, train, or plane, etc. It also rolls up very compactly (you can see it in the side pocket of my Matein backpack in the picture above):

If you're looking to get a new cellphone, I recommend a folding Android one. I couldn't live without mine.

It's like a regular phone with a vertical screen, which is how I use it 90% of the time. But it also folds out to a larger screen the size of an iPad mini, which is great for reading, showing pictures, watching videos, browsing the Internet, etc.

For two years, I've had (and really like) the OnePlus Open (new for $1,699.99 on the company website and $1,099.99 on Amazon for a green refurbished one).

But if I were buying a new phone today, I would get the Samsung Galaxy Z Fold7 ($1,918.99 on Amazon for the jet-black version with 512 gigabytes of memory). It's getting exceptional reviews (here and here) – and my dad loves his:

If you don't have a good mouse with multiple programmable buttons, I highly recommend the new Logitech MX Master 4 ($119.99 on Amazon):

In the picture below, I'm wearing two of my favorite items...

• Ray-Ban Meta sunglasses ($299 on Amazon for standard lenses or $284.25 on Amazon for transitional lenses – this is a special deal, as the normal price is $379): They act as Bluetooth headphones for listening to music and talking on the phone, take surprisingly good photos and videos, and have a helpful voice assistant. I can say things like, "Hey Meta, call Susan's cellphone," and it'll connect me even if the phone is in my pocket, or "Hey Meta, what am I looking at?" and it'll snap a picture and tell me about the artwork or building in front of me.

• A portable neck and head fan, which was a total lifesaver during last summer's beastly heat. The one I'm wearing in the picture is only $25.64 on Amazon. I ended up buying one that's a little smaller and lighter with a cooling strip... But it's a whopping $199 on Amazon.

I like Jabra Bluetooth earbuds because they don't have parts that stick out of the ear like AirPods. I have the Elite 10, but Jabra doesn't make them anymore – the closest you can buy now is the Elite 75t ($69.99 on Amazon):

This little charger has saved me many times ($23.99 on Amazon). It's small, doesn't need a charging cord, and fits nicely on the bottom of your phone:

When I'm running, hiking, working out, or engaging in any rigorous activity, instead of my Jabras – which can fall out of my ears – I use Shokz OpenRun Bone Conduction headphones ($129.95 on Amazon for the older version I use or $179.95 on Amazon for the newer version, which has better sound, features, and battery life):

I joke that these Bluetooth headphones connected to the TV in our bedroom are a marriage-saver because they let me go to sleep when Susan wants to stay up to finish watching a show ($109.99 on Amazon):

Here's the waist belt I use when running ($12.99 on Amazon) – I don't like the ones that attach to your arm:

Lastly, this beanie is a fun stocking stuffer ($9.99 on Amazon). It has a built-in light, which can be removed to wash the hat and charge the light, and it comes in dozens of colors:

Happy shopping!

Best regards,

Whitney

P.S. I welcome your feedback – send me an e-mail by clicking here.