I was in the office of one of my hedge fund subscribers, and he comes in and says, “Doesn’t it feel as though something really bad is going to happen? Like the stock market is going to go down 60% in the next few years? Even bigger than the financial crisis?”

That statement crystallized my thoughts. I’ve been worried for a while about the stupendous amount of risk-taking that is going on. Remember in August when we had the yen carry meltdown? How everyone bought the dip and drove the market to new highs?

All the sentiment indicators are pegged max bullish. So, you can traffic in this stuff, trading charts and memes about the bubble, and watch it get relentlessly bigger, or you can get in there and make the bubble even bigger yourself. I choose Door Number Three—do nothing and watch.

One a price-to-book basis, the stock market is the most expensive it has been in history. And the problem is, relative to previous bubbles, a lot more people own stocks this time around than in previous episodes. Retail participation is much higher than it was during the dot-com bubble. Everyone has exposure to stocks, whether in IRAs or 401(k)s or 529s or index annuities. The stock market is the biggest wealth generation machine known to mankind.

It doesn’t go up forever. And it won’t.

I hear that some strategist somewhere wrote that we have eliminated the business cycle, with AI or something like that. That sounds like “permanently high plateau” comments to me. I’ve got a head of gray hair at the age of 50. I have lived through the dot-com bust; the financial crisis; the European debt crisis; the US rating downgrade; whatever happened in 2015; Volmageddon in 2018; the pandemic; and, of course, the rate hike cycle in 2022.

2022 seems like a distant memory at this point, but I will point out that the bear market in 2022 had stocks down 25% at one point, and it was exceptionally painful. People have complete amnesia about it.

All I am saying is that periods of excessive risk-taking are usually followed by periods of excessive risk aversion. And paraphrasing J.P. Morgan, nothing distorts your financial judgement so much as the sight of your neighbor getting rich.

We’ve had a hell of a run since October 2022. Bull markets are the stuff of dreams, and there’s no shortage of dreams these days. AI is an investment boom. So was the internet. The internet investment boom lasted a few years, then it crashed—then consolidated and based over a decade while the real potential of it was being realized. AI will probably follow a similar pattern.

Believe it or not, I’m not a pessimist, an angry bear, or a permabear. Longtime subscribers know that I was buying October 2022 with veins popping out of my neck. But I have a nose for sentiment. I am not an optimist either. I am an opportunist. I trade both sides of the market, like a mercenary guerrilla. More accurately, when everyone else is a pessimist, I am an optimist, and when everyone else is an optimist, I am a pessimist. It’s easy to be an optimist strategist these days. 95% of the time, the market goes up, and when it doesn’t, you’re like, “How could I have seen this coming?” And your reputation remains intact.

Be very, very careful here. Nobody wants to sell—because if you sell, you might miss out on the S&P 500 going to 400,000. There is no greater sin than selling too early, right? Absolutely not. Sometimes, you just make enough money, you take the gains, and you move on to the next trade… because there is always a next trade.

Also, if you’re going to sell, do it on January 19.