Hello, this is Kim from Investing Made Easy. I would like to talk about the imminent Great Depression and the implicit warnings from Buffett and Burry. 

First of all, we have an opportunity to examine the trading trends of institutional investors from the recent quarterly reports. Recently, Warren Buffett sold stocks worth $6 billion, which is approximately 8 trillion won in our currency. And as you all know, Michael Burry is the investor who accurately predicted the 2008 global financial crisis and made a significant profit from it. However, it has also been reported that Michael Burry has recently reduced a substantial portion of his portfolio. 

This indicates that investors, particularly those well-regarded on Wall Street for their insights, are continuously selling off their stocks.

We can see that the proportion of cash is continuously increasing. This implicitly warns us that an economic crisis is approaching, even if we are not preparing for it in our portfolio. Even if an economic crisis does not occur, at least now is the time to secure a cash position when investing in stocks. It seems like the message being conveyed is along those lines. If that is the case, we need to understand why these individuals are selling off their holdings while still continuing to invest some of their capital in the market. They are not completely liquidating their cash either. This raises questions about why they are still investing a portion of their assets in stocks. Upon looking into the data, it was found that Michael Burry reduced his stock holdings from $100 million to $53 million by the third quarter of 2024, which is almost a halving. Moreover, he has also invested in financial-related stocks.

He reduced his investments by 90%. He originally held 10 billion won in financial-related stocks, so he sold off 9 billion won worth. This is a significant amount. It has brought about the biggest change in financial stocks, and although he added new investment items, it is clear that his overall investment strategy has changed significantly. It is being said that the third quarter of 2024 will be an important turning point in Michael Burry's investment strategy. The reason for this is that he has reduced the proportion of his portfolio investments, and there have been many changes in the stocks he has invested in. So why has Michael Burry changed his portfolio? It seems that his perspective on the U.S. economy is shifting. He believes that negative impacts on the U.S. economy will occur in the future. I can share some insights on this, as his portfolio used to consist of about 37%.

He has sold his stocks, and there are ongoing discussions about the increasing possibility of an economic recession in the United States. In this situation, Michael Burry has been observed selling off significant positions in stocks that could be heavily impacted by the market. If we look at reports that indicate the trading trends of institutional investors, we can see how these individuals are positioning themselves in the market. However, these reports do not clearly explain why they are changing their positions, so we can only make assumptions. Based on these assumptions, it cannot be definitively stated that Michael Burry sold off his stocks due to recession risks, but many investors believe that the current selling of stocks is indeed related to concerns about an economic downturn. In particular,

The sector that has been reduced the most is, as I just mentioned, in financial stocks. The allocation to financial stocks has been significantly decreased, and consumer goods have also been reduced by about 30%. Additionally, energy and industrial stocks have been nearly all sold off. In other words, investments have started to shift towards essential goods stocks, which are less sensitive to economic cycles. Exposure to telecommunications technology has been maintained, and currently, this sector is thriving in terms of supply and demand. This is because money from around the world is flowing into this area. Therefore, these changes suggest that he is approaching the U.S. economy cautiously. In my view, I believe that stocks with strong supply and demand should still maintain some allocation while navigating through the financial crisis.

When an economic risk occurs, financial stocks will initially decline significantly. Therefore, to account for the financial risk premium, most financial stocks are sold off. Moreover, if an economic recession happens, commodity stocks will also fall. As a result, the commodity sector will see a substantial drop. This is why it seems that energy stocks have been sold off as well. Additionally, the industrial sector is one that can be greatly affected when an economic downturn occurs. This is because when the economy worsens and a crisis arises, it's like the blood flow in the human body is suddenly blocked. When that happens, the companies in the industrial sector are particularly affected, leading to a slowdown in the economy. Thus, we can observe that there is a trend of selling off these sectors. Nevertheless, overall...

I am maintaining a long position in the market. What does that mean? It means that I am still investing a significant amount, and I have only slightly reduced it. I am still betting on the market rising, and Warren Buffett is doing the same. Warren Buffett also has 50% in cash and 50% in stocks. Historically, he has never had such a high cash ratio. Nevertheless, he is still maintaining a portion of his investments. Moreover, recently, the Hang Seng Index has surged wildly, almost to the point where it seems it doesn't know where the bottom is. However, Michael Burry has been investing in tech stocks for a while, so he probably saw considerable returns in his portfolio. Therefore, he is increasing his investments in Chinese tech stocks, as Chinese stocks are undervalued compared to American stocks, even if they are in the same tech sector.

It seems that they invested because it is much more undervalued. When making these adjustments, considering the period during which Michael Burry is estimated to have invested, the Hang Seng Index has indeed skyrocketed from the bottom, so I think he probably saw some decent profits. They have increased their stake in Alibaba, and they have also raised their investment in major companies in artificial intelligence and internet services by 87.5%. They believe that the U.S. economy is likely to face some challenges, which is why they are reducing their investments. On the other hand, since Chinese stocks are now cheap, they see long-term investment opportunities and are actively buying. It seems they are structuring their portfolio in this way. However, not only Michael Burry, but also some institutions that are reflecting the risk of economic recession in their portfolios are still maintaining a portion of their investments.

It exists, but we have this principle: don't leave the market when you're in the market. It seems like there's a flow of market trends that is similar to the day before the College Scholastic Ability Test. In other words, while we've reduced our investment proportion, we're still investing, and most institutions are still maintaining their investments amidst the market trends. I strongly believe that this is why they're maintaining their investment proportions. 

Especially, not only Michael Burry, who is heavily invested in China, but also the number of institutions concentrating their investments in China seems to be increasing. Additionally, there's a ratio of insider selling to buying among American companies. When we look at this ratio, there’s an interesting fact: the blue line represents the selling-to-buying ratio, and the black line represents the S&P 500 index. However, since the end of 2021, the ratio of insider selling to buying has shown some trends.

What it means to record the highest level is that the selling and buying ratio indicates that corporate insiders are selling off their shares. Who are these insiders? They include the CEO, major shareholders, and executives—those who know the internal information of the company better than anyone else and can predict the company's future prospects more accurately. When these individuals sell a significant amount of stock, the stock price index tends to drop. 

In fact, at the end of 2021, when the stock price index peaked, it fell for almost a year. At that time, leaders of major American tech companies like Bill Gates, Jeff Bezos, and Elon Musk sold their stocks. Therefore, when the selling ratio increases, it is generally seen as a negative sign. After reaching a peak, the stock prices fell significantly; for instance, the Nasdaq dropped by 37%, and Tesla's stock fell by 75%.

NVIDIA has dropped 68%, and Bitcoin has dropped 77%. So, it's more than a halving. If I had invested 100 million won, that would be about 30 million won now, and it only took a year. Since then, the CEOs of big tech companies, like Jensen Huang from NVIDIA and Jeff Bezos, have sold off a significant amount of their stocks. They sold shares of their own companies. If the founders and leaders of these companies are selling off their stakes, we can wonder how overpriced they believe their company's stock is to take such action. This is something we should consider. Recent data shows that the optimistic sentiment among retail investors, or individual investors, is waning. However, when this optimism declines, the market tends to rise significantly.

We can see that during this relatively short period, there has been a stagnation. This survey asks investors whether they think the market will rise or fall over the next six months. The data collected shows that the average sentiment of investors over the past 50 days has reached a level that is even higher than the peak during the 2008 global financial crisis. This indicates that the sentiment has risen to a level typical of when the market is about to reach its peak and decline. In other words, it seems that investors are currently experiencing a kind of madness; everyone appears to be investing frantically. How can we objectively confirm this? The only clear answer, based on data, is that investors are this greedy.

There has never been a time when we have easily said that we have bought in the market, especially when the data suggests an increase in buying sentiment. This increase is associated with significant peaks in the stock market, so it could be a signal that we are approaching a peak. Therefore, we need to be cautious about the market's downward trend. In particular, this figure is quite similar to the trends observed during the 2008 global financial crisis. 

In fact, there is another important piece of data I want to emphasize, which is the yield curve. The yield curve is well-known for being a strong predictor of economic crises, particularly hard landings. It is one of the commonly used indicators, and those who are informed recognize that the yield curve is one of the most dangerous indicators. The most concerning situation occurs when the yield curve inverts and then recovers. Right now, we are experiencing an inversion.

The situation shows a clear recovery. However, I would like to share an astonishing fact. Currently, the inversion of the long-term and short-term interest rates has taken 781 days to recover. Please remember this number: over 700 days. According to statistics, the longer the period of the interest rate inversion, the greater the level of market collapse tends to be. At that time, the inversion lasted just over 700 days. This means that if the inversion of the long-term and short-term interest rates is short-lived, the market crash will also be brief. However, the longer the inversion period lasts, the more severe the level of collapse will be compared to other times. In other words, the longer the inversion period of the long-term and short-term interest rates lasts, the larger the scale of economic crisis and stock market collapse could become.

I mentioned 781, and this is the level we've reached. There hasn't been a time since the Great Depression in the United States where the inversion of the yield curve has lasted this long. So what could happen in the future? The Federal Reserve's response will depend on the government's actions, but if an economic crisis does hit us, it could be like a massive tsunami approaching. It's been 82 days since the Nasdaq has been unable to recover its peak, which is a remarkably long time without a recovery, except for the decline in 2022. Nevertheless, the upward trend still remains. The long-term upward trend is still precarious but is being maintained. Therefore, I'm not saying that we should stop all our investments and leave immediately.

However, at least if institutions are increasing their cash holdings, we should consider this aspect and perhaps raise our cash position and adjust our risk. It seems we need to adopt a certain position. Regardless of what you all think, our sentiment is well reflected in the market. However, as we have confirmed through the data, regardless of the sentiment you hold, that sentiment is currently entangled with the behavior of investors. This reflects the conventional market atmosphere at present, where the market is on an upward trend. So, I'm not saying that my view is right and yours is wrong. Rather, when viewed objectively, many investors are optimistic, yet the economic situation is undoubtedly poor. In this context, institutions and corporate insiders are selling, which suggests that we need to be somewhat cautious.

Regarding the risks, we need to be mentally prepared. I believe that as we enter the second half of 2024, we should keep this in mind. I will conclude my remarks here.

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