The highest summit of irrational exuberance ever not seen by those engaging in it makes the perfect peak for the greatest global economic collapse ever not known by those who fell into it.
Some days the level of denial in the stock market twists my head into a knot — not because I am surprised at lemmings jumping over a cliff because they know all the other lemmings are going to jump. In that case, the jump will pay off because the market IS the crowd, so it goes wherever the crowd goes, and the lemmings are merely betting on where the crowd is heading. I understand that.
The head-twisting knot comes when I endlessly see so many seemingly smart people parrot the same falsehoods in their writing when the self-deception is so obvious. Attempting to break through the mainstream media’s deception about the economy is why I started this blog, but the deception and delusion has become almost entirely accepted delusion.
Today I read a writer who clearly had a solid grasp of how irrational and overvalued the US stock market is right now — that was the whole point of his article — and yet even he wrote the following incongruous statement simply because it is what so many people are saying: (emphasis mine)
Indeed the stock markets crumbled under that Fed-tightening onslaught, plunging 19.8% over the next 3.1 months into late December 2018. That severe correction was right on the verge of crossing the -20% threshold into new-bear territory.
He uses the only gauge that didn’t fall by 20% as if it represents the entire market. Thus, he speaks of 2018 as a correction that almost became a bear market. Yet, this guy seems to have things well understood in the rest of his article, the general theme of which is about “extreme technicals, sentiment, and valuations” in a market where “traders’ euphoria and complacency have been running at bull-slaying levels, while valuations remain way up near perilous bubble territory.” He even notes,
All this is happening as corporate profits flatline after surging dramatically. Like after every past waterfall decline, the stock markets are due to roll over and retest their deep late-December lows. Odds are they will fail, confirming a major new bear.
Though he is still following the herd by acquiescing to the way the most popular analysts are calling last fall’s crash, I’ll give him credit for the rest of the article and say this was just a momentary lapse. I reference him because he demonstrates how the dominant thinking even shapes the writing of those who are not trying to follow the dominant thinking. It goes to show how prevalent, pervasive and persistent the rose-colored glasses are and how easily one falls into parroting the pack on its own terms when someone who is writing about how the present market is almost certain to make a “bear-confirming” plunge repeats the party line that claims the old bull is still alive.
It’s completely inane for the majority of commentators to write as if a bull market dies and a bear market begins only if every possible index known to mankind falls more than 20%, especiallywhen the major index with the longest history, the Dow, fell more than 20%. On top of that, the major index where all the biggest frenzy-driving gains were recorded — the Nasdaq — also fell more than 20%. On top of the on top of that, the major index with the broadest sweep of stocks, the Russel 2000 fell way beyond 20%; and, on top of all of that heap of confirmation, the whole NYSE fell more than 20%! Even the sole holdout — the S&P 500 — landed within a rounding error of 20%!
The Russel 2000 is made up of the bottom 2/3 of the Russell 3000, so it is approximately 2,000 small-to-midsize companies, making it much broader in scope than the S&P 500. It is generally considered more representative of Main Street and of the US economy than other indices. It crashed 28% last year and is nowhere near regaining the height from which it fell last summer:
It shows how biased people are toward interpreting everything as bullish for as long as they possibly can strain interpretation in that direction just because they want to when they won’t accept that a 40% crash in the FAANGs last summer, coupled with a 20%+ crash in the fall of all major indices but one, which was within a mere head nod of 20%, as well as a 20%+ crash of the overall NYSE from its last high is not a bear market — especially when EVEN THE S&P 500 HOLD-OUT CRASHED 20% INTRADAY!
If you don’t think that’s absurdly biased, then take the next step, and put these calls in context! Think rationally about how much further the stock market would have crashed if the Fed had not put a quick stop to its “boring as watching paint dry,” “auto-pilot” money-supply reduction and its interest increases in one fell swoop.
Then add to that context for the market’s salvation, the additional context that Steven Munchkin had to PUBLICLY call in the entire plunge protection team as he panicked out loud about whether or not banks had enough cash to remain solvent!
Without that sudden (by glacial Fed standards) tectonic shift in the Fed’s long telegraphed monetary policy, coupled with government-enforced investment (the PPT), the market would have crashed into a total hell hole! We all KNOW that the Fed’s instant release of its interest brakes and its shift out of reverse easing (tightening) coupled with the government’s full-forward push on the investment thrusters is the only thing that saved the stock market from going far deeper. Still, most of the small and mid-sized US companies lost a third of their entire market value in just three months.
Yet, here people are — even the ones brave enough to say the present rally is perilously overbought — acquiescing to the fantasy that this is the longest bull market ever! No, the bull died in December, and you are just deep, deep, deep in denial if you parrot that nonsense about the long bull market still running. You are picking and choosing indices to find the sole major index that fits the narrative you want, and then claiming it is the only index that counts. That’s called “goal seeking.”
Now here is the most irrational part
As if all of that were not irrational enough, I actually have an uphill climb in hammering through my argument that this is irrational. What could be sounder proof that the present rally is nothing but irrational exuberance?
As if the difficulty of conveying a message confirmed by every major index but one (and that one within a rounding error of the same message) is not proof of irrationality, I hear actually people saying, “Where is the irrational exuberance that is needed for a crash? We haven’t seen that yet, and the market cannot crash until we see irrational exuberance.” They actually say that with straight faces in the midst of the steepest rally ever known to mankind! They don’t recognize that they ARE the irrational exuberance!
As if all of that is not the height of irrational exuberance, they claim they the market has “priced in” a recession in corporate earnings, even though the market has done nothing but go up the entire time everyone talked about how earnings were going to go way down! How is that “pricing in” a recession in earrings. Then they become even more irrational than that because I’ve read more than once during this earnings reporting season that the “earnings recession never materialized” only because earnings have come in fatter by a gnat’s waist line than the abysmal prognostications these same people had downgraded their projections to — never mind that earnings have, in fact, receded far below what we had been seeing from earnings last year.
In other words, if you, at least, say things are going to be really, REALLY bad just before they turn out to be only really bad, then they really weren’t bad at all!
Oh the insanity of humanity!
Now, put all of that bias in context: These same people who are now gleeful about how earnings are coming in better than the horrors that were expected are completely ignoring the universally known fact that this last quarter’s declining earnings were propped up with record stock buybacks that were much higher than the record stock buybacks of 2018, which had already beaten the record buybacks of 2017! They are actually “earnings per share” where the number shares has been reduced year after year after year, yet by a greater amount this year than any other!
And then put all of that in even broader context! They talk happily about these “better than expected earnings,” as if being the walking dead is any better than being just dead, knowing full well that the available cash for the buybacks that are animating the zombies is dwindling. You see, the cash savings from repatriated profits were a one-time deal that is now winding down, and everyone knows that. Therefore, everyone knows it is just a matter of time (and probably not much) before that one-time savings play out this year, but they all pretend they don’t know that.
Then, as if all of that were not peak exuberance during a time of peak irrationality, the even broader context is that we have a government that was talking seriously this week about agreeing to add $2 trillion to the debt at a time when the interest alone on the debt this year will be almost a trillion dollars! And no one notices!
Yes, the interest on the debt this year is coming in so high that it will actually be greater by the end of the fiscal year than the entire deficit was only four years ago (and that was a bad-deficit year). In fact, the interest alone will be almost as great as the entire deficit this year! Add this new plan of taking on another $2 trillion in debt, and we will easily pass the point where interest alone demands a trillion dollar deficit every year just to pay the interest!
And, yet, people believe we are in a solidly growing economy because the government managed to tweak its highly manipulated GDP headline number up to 3.2% for one last hurrah. They, of course, don’t believe it is a last hurrah. They believe it is proof that all is well, and the good times will only get better!
No, nothing irrational here folks. No irrational exuberance anywhere! After all, how can things be irrational when everyone shares the same delusion? That makes the delusion the new normal. And I’m the oddball who says the emperor is not only naked; he has no skin! He is a zombie who is only surviving by eating his own flesh.
Why do zombies eat? They are already dead. Yet, they eat even if everything is missing below their chest. They are an irrational concept in themselves. We live in a zombie economy where corporations that are slowly dying from diminishing returns are feeding on their own stocks and other where investors are feasting on those same stocks, which were valued up by money that is now being sucked out of the economy. How is there any possible end game for that that works when the total amount of money in the economy is still being reduced by the Federal Reserve?
Zombies eating zombies eating crow
And that is why I allow my one crow on a wire to keep croaking in the comments below. His constant deception presented to others via false claims never matters to him. Disprove one false claim, and he merely hops over to the next to maintain his self-deception. He provides a constant, albeit clownish, example of just how insane the masses are who are walking like zombies to their own destruction, laughing all the way.
(And when that destruction comes, they will all parrot the party line that “no one could have seen this coming!” My crow will continue to claim I never saw it coming and that what came never really came. Or will reality finally set in with a stunning reversal toward rationality … and fear? From what I’ve seen so far, I doubt it.)
We live in a time of mass delusion, piling up a national debt with interest payments that already exceed anything we could have imagined a mere decade ago, yet choosing to pile it up even faster, caring not at all that we do! We are living a lie.
We live in a time where delusion seems normal to the deluded because it is so widespread that its broad acceptance becomes proof that the deluded are right, and the small minority that is the rest are wrong. That the market goes up because that is the direction all the lemmings are headed is taken as further proof that times could not be more solid.
Here on this blog, my one crow constantly caws about how the market is going up, the market is going up (as if I ever said it wouldn’t go up this year) … as if the market’s rise this year proves what I said about how badly it would plummet last year was wrong. It’s insane. What happens this year can never prove that what happened last year didn’t happen.
What I am demonstrate via the crow who has tethered himself by his own choice to this site is the strength of the delusion: Anyone who speaks against the delusion — even if he is right on each thing he says will happen along the way — is viewed as the oddball for daring to speak against the insanity of the masses, so strong is the delusion.
No matter how many times someone speaking against the delusion is right, even on the timing, he was still wrong in their opinion, and each new whiff of hope is paraded as proof of how wrong he was on things that already happened as he said they would while every actual proof of how right he was is simply ignored.
I say this because that situation here on this blog demonstrates just how dense the denial has become. It is as opaque and hard and cutting as obsidian. You cannot break through it, no matter how hard or long you try.
I’ll note, however, that the highest summit of irrational exuberance that has ever not been seen by those who are engaging in it, makes the perfect peak for the greatest global economic collapse ever known. So, party into the twilight, people. Party into the twilight because the Great Recession is about to become the greatest recession ever known. Yet, will anyone who is in it even know? Do zombies know they are already dead?