Just a friendly reminder that the current market atmosphere is highly irrational.
Two years ago we saw the exact same sentiment with Bitcoin when it reached its most recent peak, and in 2006-2007 with bad mortgages, and at the turn of the century with the tech bubble, and at the end of the 1980's when builders were building new homes on spec, and so on. While none of us were alive then (or few of us), the 1920's were known as the roaring 20's, but the more accurate description would have been the Irrational 20's, because it is the uninhibited movement of money on a large scale that defines a roaring market, built on the irrational faith in success that inevitably overheats and boils over.
While the current atmosphere has the makings of the end of a grand cycle, where everything is in a bubble, the pattern isn't any different. Historically, when you start reading and/or hearing a stream of ridiculous financial news, you're already there and the crash is imminent.
Are we there yet?
Definitely.
Now it's just a waiting game to see who drops first.
The Stock Market is now clearly disconnected from the economy. We hear bad news about the job market and for reasons this bad news has traders feeling bullish, which is absolutely insane and irrational, and shows the dependency many entities have on the stock market staying high and volatile. Just google the old age pension fund in the US, and the 7.5% return it needs to get at minimum to keep the money flowing to pensioners and meet the increasing demand of retiring baby boomers, and that's just the tip of the ice berg.
Car dealerships have parking lots that are overflowing with unsold cars, and instead of reacting to a weakening market, dealerships just keep filling up more and more empty spaces, and the production of new vehicles must continue to keep people employed. Millions and Millions of Americans are three months behind or worse on their car payments, which is insane considering that is usually the thing you pay first because it is your transportation to get to work and make money.
Day Traders in the stock market are looking to the Federal Reserve to cut interest rates to keep the volatility alive, yet any upward pressure in the stock market is completely and utterly disconnected from the actual economy. When something bad happens and people lose their jobs, these irrational markets cheer as Washington calls for rate cuts (usually done in a recession) and the Fed hints that it will take all steps necessary to keep the stock market alive. Sadly, only a tiny fraction of newly created liquity is allowed to sieve through into the economy, with the majority of that money keeping the irrational markets propped up.
Real Estate? Irrational, and in very dangerous bubbles around the world, many of which have already popped or are starting to pop.
New Housing Industry? Builders are building luxury houses on spec, meaning that they are building homes purely on the speculation that the rising price of a new home will turn a nice profit when compared to the cost of building a new home, and that there is a buyer out there looking for said overpriced home. This irrational behavior was the nail in the coffin for the late 80's economic crash and recession.
Technology? Extremely irrational, all hype and no possible way to fulfill on that hype in any realistic manner. Beyond Burger grosses $88 Million in sales in a year, but gets a stock market valuation of $10 Billion? This isn't even just irrational, that's just insanity. I know the product has potential, but not that kind of potential in this economy where the smart people are already shoring up for a recession instead of buying luxury products. Like I said, massive disconnect. Tesla is another great example of severe over-valuation on the stock market. Everyone is just looking for that next winner, because over the past decade we've seen winner after winner, with the Dow Jones index rising by over 300% as the Fed bought up toxic debt and freed up liquidity.
Retail? The consumerism machine is dying fast in the West, which has been propping up the entire world economy as poor people manufacture goods for the 1% at the top (anyone who makes more than $30,000 USD per year), while the West is primarily driven by a service-based economy where everyone is using credit, a lot of which is unsecured, just to pay for regular expenses like food and rent. This behavior is not sustainable in the long run, and there is only so much future you can borrow from until you are living in that borrowed future.
I can't think of any market that isn't irrational right now. Even the almighty gold and silver markets are not reacting in the way that they should be. Countries like China and Russia are stockpiling Gold as though its their job, yet the fair market price of precious metals is much higher than what you can buy them for right now, with everything on deep discount. Irrational is an understatement, more like manipulated.
There is no way any of us can predict the future, but as long as markets are dictated by emotions, the markets will always behave within the confines of human emotions, almost like guardrails that at least ensure market behavior will fall within an expected range, even if not exactly how we expect or hope.
As always, thank you for reading. Shares and comments are always welcome. Be safe and be smart, preferably both, but if you can only pick one - then be safe; gamblers always lose on a long enough time line.
