Brace Yourself, This Ponzi Scheme Will Result in the Greatest Stock Market Crash in History
By Peter Ginelli, Originally published in The Market Oracle
Every day the markets seem to be going up regardless of the news headlines about the current ominous state of world affairs or even poor economic data. Investors seem to be oblivious to the fundamentals that every market requires in order to find a direction.
We all remember the times when the markets would carefully consider the daily geopolitical risks, news headline and economic data before they would react to the upside or the downside. But nowadays, multiple terror attacks in Paris and other parts of the world, terrible economic data released prior to the market opening, or even ridiculous P/E ratios, does nothing in shaking confidence in the markets. It almost appears as if common sense is absent in investors' decision-making. The dangerous prevailing wisdom seems to be "buy, buy, buy”, no matter if the world is going to hell in a hand basket or the economy is getting flushed down the toilet.
Former Federal Reserve chairman, Alan Greenspan's famously coined phrase 'irrational exuberance' seems to be the permanent Wall Street mentality. But investors will soon find themselves the victims of this dangerous mindset. If history has taught us anything in the past 120 years, it is that every time investors think “this time it will be different,” history proves them wrong.
Although no one can determine exactly when this market will plunge, based on all published data, charts and economic fundamentals, the coming collapse will indeed be the worst in the history of the stock market.
Go back to the headlines before each crash, from 2008, all the way back to the big one in 1929, and you will see how many so called experts and analysts missed the fundamentals deliberately or through sheer stupidity, advising investors to buy into the market, reassuring them how this time things are different from prior times. And upon entering or staying in the markets, these unsuspecting investors often saw their life savings disappear in a matter of hours and days. If this sounds familiar to you, it is because that is the definition of 'insanity.'
After all, how can a reasonable person believe that the S&P 500 companies' earnings are growing quarter after quarter, as they have been reporting, and yet the GDP needle is stuck at 1-2% annual growth? What am I missing? That is like a store showing profit year after year while filing for bankruptcy. It's truly a magic trick, or is it?!
You see, this is more like a Ponzi scheme than a magic trick. And Ponzi schemes do work, for a while, before they finally fall apart. And the last few investors in a Ponzi scheme always lose the most.
Let me show you how this Wall Street Ponzi scheme works. When the FED lowered the short term rates to near zero after the financial crisis of 2008, many of these companies on the S&P 500 convened in their boardrooms and started brainstorming on how to convince investors to buy their shares. After all, the only way an unsuspecting investor was willing to buy their stocks, was if they start growing in value again. And they couldn't rely on a sinking economy or the fundamentals to make that happen.
So they came up with this grand Ponzi trade: Instead of jeopardizing our own money in a crappy economy, why don't we borrow from the banks at 0.0% rate and buy back our own shares? As we buy back shares and there are fewer share available to purchase by investors, the prices will go up. Then the investors will feel confident and start coming back in as we unload these very shares on them with a profit and pay back the bank without having spent a single penny of our own money in interest. Wow, what an amazing idea.
Oh, I almost forgot, and the growth in the earnings we see quarter after quarter? Sorry folks, but it didn't come from these companies selling their goods and services, as used to be the case. It came from dumping those overvalued shares back on suckers after the prices were artificially pushed up through buybacks. Yes, the retired mom and pop with the hopes of making a killing in the market for their retirement days are ultimately the victim of their scam.
Is it surprising to anyone with intelligence that as soon as the FED began raising rates, however small and symbolic, the earnings of these companies began to shrink significantly and the markets stopped their upward trends?
And oh yes, enter stage left, President Donald J. Trump. Let's not forget the so-called Trump-bump. Investors started tripping over each other, rushing to buy even more stocks as Trump won the general election last November, in the hopes that things will be different under president Trump's pro-business, anti-regulation policy promises. What they did not take into account was the lack of details on how he plans to create 3-4% economic growth without adding to an out-of-control national debt and annual deficit.
Trump promised he will make America great again by creating jobs and economic growth, however he discounted the infighting within his own party who can't even agree on the single most unifying legislation among the GOP members; to repeal and replace Obamacare.
After that unfortunate debacle, investors began to reassess their perception of a Trump presidency. Can Trump indeed walk on water?! Can he sell corporate and middle class tax cuts, a trillion dollar infrastructure spending package, a $15 billion dollar southern border wall to his own party while the national debt crossed the $20 trillion dollar benchmark?
So far, the answer appears to be a big fat NO, but since when has Wall Street cared about details? They are too busy buying back their own stocks and selling it back to suckers at a profit to keep the Ponzi scheme going.
Folks, it is your money, I can't tell you what to do with it, but when this Ponzi scheme has finally run its course, don't say, "No one warned me, how was I supposed to know all this?" You have been warned.
Indeed, the cracks have been appearing all over this Ponzi scheme market, and once the collapse begins and everyone starts running for the exits you will be trampled by the big boys before you can even reach your broker to rescue the last few dollars of your life savings.
Keep in mind that even when the economic conditions have been great and our leaders have acted responsibly, the markets have had cyclical crashes once every 7-8 years, going back 120 years in the history of the stock market.
Today, 8 years into this aged, manufactured bull market, our economy is far from healthy, and while our politicians are busy fighting over the most ridiculous things, our national debt is spiraling out of control, and companies continue to manipulate their earnings with share buybacks. Ask yourself this simple question: is this stock market reflecting the reality of today's economic and political fundamentals?
Anyone with an ounce of common sense would answer no.
In conclusion, mark my words. The coming market collapse will go down as one of the worst in our nation's history. Those who think they can defy the odds and get out of the burning building before others, would be well advised to look back and see the road behind them; littered with the rotting remains of those who thought the same thing and didn't make it out fast enough before their lives were ruined.
Save yourselves before it is too late! No thanks needed.