Incredible Fed monetary manipulation will have a price. We’ve already seen a correction in the OTC, and now starting in the Chinese stocks, next it will be the small-cap and then finally everything else.
The massive stock market bubble is at historic proportions since March, 20th, 2020 low point. The Fed won’t keep buying Billions of bonds forever, as tapering will set off a chain-reaction through the stock market. While it has been fun to see the second bull market of Bitcoin, and more liquidity than many rich people knew what to do with, economic growth isn’t what it used to be.
Pandemic uncertainty is returning to Wall Street and the equity market is getting too rich. As the 10-year treasury climbs up, even massive companies that are both growth and value won’t be immune, and that will taken the entire market down with it as the entire system is too top-heavy.
I don’t even think it will be in correction territory, but multi month bear market territory. It’s been too good for too long not to happen for us to return to historic levels of the S&P, NASDAQ and the Russell 3000.
People are already taking their earnings off the table and retreating from the stock market, crypto and everything else since they know a potential crash is coming. The days of speculation are over, too much liquidity has created an illusion of permanence for a stock market that only goes up.
One of the textbook signs of a market bubble is when stock market speculation extends beyond Wall Street and becomes commonplace among average Americans. We’ve seen that with SPACs, meme stocks and even dogecoin.
Many traders who entered the market in 2020 have already has steep loses in 2021 and have folded their positions. Not everyone can afford to get in on Woodstocks, and Cathie Wood vs. Michael Burry is the tell tale signs of profiteers on the Bulls and Bear camp.
The S&P is at $4,432. It was $2,305 on March 20th, 2020. It was up recently 100% since those lows. It’s not as if BigTech hasn’t gotten richer during this period of accelerated digital transformation and certainly wealth inequality, a lack of regulation in the U.S. and a massive liquidity pyramid does complicate things for the American stock market.
This pandemic has been more effective than war times for the rich to get richer, so they have agency to prolong it for as long as possible. But eventually the bubble will burst, and there will be weeks if not months of panic selling. Just look at what is happening to Chinese stocks this summer, of 2021.
Cathie Wood says Michael Burry doesn’t understand the innovation space, but those P/Free Cash Flow multiples make no sense for the majority of Woodstocks. Tesla’s fraudulent claims about FSD cars is going to an FTC review soon, and the Billionaires will eventually be unable to milk their favorite cows.
What is Tesla if not the primary meme stock of the Bull market of 2020? What is Bitcoin if not a pyramid scheme at scale? Eventually history does correct, and in this case the stock market is so inflated, it will take a lot of selling to even approach normal valuations.
Central Banks have Tried to be God, but Even God Cannot Prevent a Market Crash
The Fed manipulation will have to end, the wealth of the rich has been protected even as Jerome Powell has created a two-tier America so great, Capitalism as we know it is likely dead and over.
The liquidity bubble of 2020 and the pandemic years will create conditions that will gradually destroy the Middle class as more and more of them will churn down the caste system America is built upon, a fraudulent show of bankers, politicians and policy makers in a broken world where the average Millennial lives paycheck to paycheck and cannot even afford a $2,000 emergency.
The story of how the rich of scammed the poor retail traders of this world during the pandemic is an epic fraud of Billionaire whales manipulated an already grossly distorted market. When the bell chimes for the Bubble to burst, don’t say you weren’t warned.
You don’t need to be a Big Short to see what’s coming. Fed tapering is going to spell the end to the fake bull run. It will no longer spend $120 Billion each month buying bonds to prop up a liquidity market in an era of too much liquidity.
You cannot print that much money and expect that you are creating a viable or sustainable future for the younger generation. Wealth inequality in America is the existential risk for capitalism and even as China regulates it, the U.S. impotent to deal with its own greed and corruption.
What if you drew a normal curve for the S&P up from the March, 20, 2020 lows, what would the S&P historically be? Around $3,500. That’s a long way down from here. Alibaba the signature stock of the Chinese capitalism is lower than its 2020 lows today, how long before American BigTech follows it into bear market territory? As the Fed you can lie to the system and reprogram the rules temporarily, but you cannot change history. Mean reversion is like gravity and even the Fed must eventually face reality. That’s the moment when you don’t want to have your money in stocks.
If February, 2021 was the peak high, The Fed is going to taper soon enough (October, 2021), according to several Fed officials and just about every market expert. The reality is those eight months will be the beginning of the end of the Bubble market and everyone knows it. Everyone and your Grandfather or grand daughter will be taking money out of the bubble.
A race for vaccine boosters, the end of Fed stimulus and a race to the bottom of the stock market isn’t going to be a fun moment in American history. America did especially bad with Covid-19 on purpose though, so a few could prosper and what will be the price of that kind of corruption in capitalism? A stock market bubble bursting is well deserved here.