The Morning Line
Bitcoin Leaps Above the Hubbub
The headline on last week’s commentary asked whether it might be morning in America, but the left’s combative reaction to the drubbing they received on November 5 suggests we could be closer to high noon. We may know soon, since the forces of darkness are going full-tilt against Matt Gaetz, Trump’s choice for Attorney General. Wikipedia, while discreetly neglecting to mention Hitler, trotted out a laundry list of dubious citations implying that Gaetz, a Florida Congressman, is a right-wing crazy, sex pervert and a deadbeat. In their dreams, perhaps, for he is actually an avenging angel, intent on rooting out every rat and cockroach in the Justice Department and ending the U.S. Government’s increasingly common practice of arresting and imprisoning people because of their conservative political views.
It would look suspicious if Deep State were to take a potshot at Gaetz after failing twice to bring down Mr. Trump with bullets. Whatever their plan, they’ll have the pathetically diminished but as-yet-unhumbled voice of the New York P.O.S. Times to cheer them on. Here’s the editorial page with a delusional take on the election that makes clear why the Gray Lady might not even be around in ten years: “Many Democrats were considering how to navigate a dark future, with the party unable to stop Mr. Trump from carrying out a right-wing transformation of American government. Others turned inward, searching for why the nation rejected them. They spoke about misinformation and the struggle to communicate the party’s vision in a diminished news environment inundated with right-wing propaganda.”
Humble Beginnings
On Wall Street, Trumpmania experienced a mild setback last week. However, because investors are too revved up to have second thoughts about anything, the feeble decline over five consecutive days should be attributed to the pull of gravity. Stocks were due for a correction, and they obliged as innocuously as possible. If there was anything to worry about, it was Bitcoin’s deranged leap to a record 93,495. Speculators holding out for more — perhaps much more ($1 million?) — shouldn’t let greed cloud their judgment. My technical forecast, viewable on the Rick’s Picks home page (see below), calls for a potentially important top at either 107,670 or 119,253. Not too shabby, considering this still-valueless form of supposed money traded freely for a dime before engaging the proletarian mind in mid-2011.
What If It Really Is Morning in America?
I’ve been confidently anticipating the Mother of All Tops since, like, around 1975, but this week I decided to go wholeheartedly with the flow. The result, technically speaking, is a robustly optimistic S&P target at 7644.50. This might not be what permabears want to hear, but it will leave bulls sufficient room to deal with their psychotic delusions once and for all before boom turns to bust. The rally would amount to 1600 points, or 27%, and come on top of an extraordinarily steep rally begun two years ago that has pushed valuations to near-record levels.
Some would say the relentless uptrend has discounted whatever miracles Donald Trump could conceivably produce for the economy. Putting that question aside, his bullish impact already on the mood of America cannot be underestimated. For starters, Trump’s plan to dismember Deep State sounds do-able, especially if Republicans retain control of the House. Click here to read all about how heads are actually going to roll.
There is no precedent for taking on the embedded bureaucrats who have worked tirelessly for decades to wreck everything that is good about America. Sending these traitors to the gallows, so to speak, promises to be at the heart of Trump’s domestic agenda. It will be interesting to see whether the ideologues who invent the news at the New York Times and the Washington Post eventually concede that Deep State even exists. They purport that it is a creature of right-wing paranoia, even though they have aggressively supported Deep State’s reign of terror editorially for decades.
Term-Limit ‘Bonus’
The President-elect’s ten-point plan even includes full-on support for term limits. This issue should have become a bipartisan favorite, but for the fact that the left has been too busy hating Trump to get behind it. Now, it would seem, the years-long effort to add term limits to the U.S. Constitution will be unstoppable. Arguably, it has always been the single best way to keep influence peddlers from becoming entrenched on Capitol Hill, as they always have been. The opportunity for decent Americans to throw the rascals out is probably worth a thousand S&P points, so don’t be shocked if Wall Street delivers that and more.
A Canny Silver Bull Trades Ingots for T-Bonds
[The author of this week’s commentary is an old friend who worked his way up from exchange-floor clerk to commercial real estate mogul over the time I’ve known him. He has demonstrated remarkable timing, courage and patience as an investor, buying commercial real estate at the bottom of the 2007-08 crash and holding it until two years ago, when an even bigger crash that shows no sign of abating began. He also started accumulating a large position in physical silver as it fell from around $30 in early 2021 to $17 a year-and-a-half later. He recently cashed out his entire position at upwards of $33 an ounce, roughly doubling his stake. Now he is striking out in a radical new direction, deploying a large portion of his sizable gains in the most unpopular investment of the day, Treasury paper. Although no investor is infallible, my friend has never had a misstep with a series of all-in bets.
Coincidentally, or perhaps not, Comex Gold has fallen nearly $60 after coming within $1.60 of a 2803.40 target I started drum-rolling in September, when prices were $300 lower. Is the top in? It’s too early to tell, but even if higher prices are coming, anyone who has held bullion during its steep run-up since last October could not go far wrong by taking a partial profit at these levels. RA ]
Each time a massive wealth transfer occurs, it is caused not by an upward explosion in asset prices, but by crushing deflation such as we experienced in 2007-8. It’s about to happen again, and not with a puny, garden-variety bear-market or recession, but with the epic crash that we have all known was coming sooner or later. The list of possible catalysts boggles the imagination, to wit: a politically wrenching transition to a second Trump term; a full-blown, bloody civil war that pits neighbor against neighbor; World War III, featuring the detonation of an electromagnetic pulse weapon over the Middle East; a Chinese blockade of Taiwan; a massive solar flare that extinguishes life on Earth; Buffett raising cash to record levels; Musk cutting Federal outlays by $2 trillion; a Covid die-off. That’s a lot of deflationary bullets to dodge, and the list is hardly complete. Who knows which of these dreadnoughts is about to throw the world into chaos? I’m betting ‘something’ is about to happen simply because stocks have been soaring for no good reason for too long, and because an event that will shock investors back to their senses is long overdue.
Never Fade the Sage
If you’re still reading this, whether for belly laughs or because you enjoy doomsday porn, let me get to the point: I’m selling many thousands of ounces of gold and silver that I’ve accumulated over the last decade and putting the proceeds into Treasury paper. That’s right: I’m liquidating a large hoard of Silver Eagles and bars, along with all of my gold, and going to Full Faith & Credit in preparation for the black swan’s arrival.
What will it look like? No one knows, as I acknowledged above. But I’m betting that the renowned Sage of Omaha might be the tell. He’s sitting on more than $250 billion in cash, and punting B of A stock like it’s fourth and 20. Additionally, Elon Musk, who by all accounts benefits more than nearly anyone from Government handouts for his space program, has literally bet his freedom on a second Trump term. During recent campaign appearances, Musk said we are broke and need to reduce fiscal outlays by $2 trillion, or a third. In case you forgot, Musk bought Twitter, fired 90% of the employees, and recently proposed lending his ‘shitcoin’ acronym DOGE to create an accountability division of the Federal government.
Realize that most crashes occur at the start of new presidential administrations. Before you put me down as a political partisan, though, let me note that I see almost no difference between Democrats and Republicans — aka donkeys and elephants. They are all feral animals that inhabit the Washington jungle, as far as I’m concerned. Politics aside, I believe this is the perfect opportunity to rebuke the reckless behavior that has powered the bull market since the Covid era. I hope I’m wrong, at least about the magnitude of the coming bear market, but I am convinced that the sky really is about to fall.
An Election Week Scenario
You can always tell when portfolio managers are hard at play, immersed in an epic circle jerk that has become more tediously familiar with each passing week. And so it went on Friday, as money migrated for no discernible reason from certain, temporarily disfavored stocks to flavor-of-the-day hotties. It seemed almost as though the chimpanzees who purport to manage everyone’s money were on a conference call that morning, scripting a narrative simple enough for Jim Cramer to shill to the legions of widows and pensioners addicted to his show. The Dow was down more than 300 points at its lows, even as the lunatic-sector stocks — you know them as the idiotically misnamed ‘Magnificent Seven’ — winked at the thrashing their poor cousins were getting on less sexy exchanges. The Naz was borne aloft as always by light volume and timid resistance. Bears evidently were too gutless to resist the uptrend, which in recent weeks has become increasingly confident of a Trump victory.
4% Above Sits Trouble
Even so, there is a palpable feeling that the stock market has been nutso for so long that it’s overdue for a sea change. That could mean irrational exuberance will peak on or around election day. But Mr Market could also surprise with a rally that turns even steeper than the one that has prop-washed the flesh from sane observers and skeptics.
So which? The chart above makes a compelling case for something in-between. The 6102 S&P target lies 256 points, or 4.4%, above Friday’s close. It would not be as large a gain in points as occurred in August or September. However, if the top were to coincide with the November 5 election, the entire gain would have occurred in just seven trading days. That looks like a good bet, but I would not recommend sticking around for the rest of the week as toga fever rages on Wall Street. The chart says clearly that a big move into election day could be a bull trap and therefore a time for extra caution. Please note that the target will not likely work precisely because it comes from a blended, continuous chart. Even so, it can be expected to show stopping power at or very near 6100.
Investors Go All-In for Trump
Wall Street has gone all-in for Trump, piling up such extravagant gains in the last few weeks that one might wonder what bold miracles investors expect of him. More likely, unfortunately, is that within a year or two of taking office, he will be overwhelmed by the collapse of a financial bubble that required only the hubris of America’s promised return to greatness to set it in motion. Let’s hope Mr. Trump gets a chance to clean house first, since Washington is a rat’s nest of corruption and plots to bring down America. In the meantime, there is no arguing that the rampaging stock market has got it wrong in predicting that Harris, along with the malignant political philosophy and crackpot schemes she represents, will be overwhelmingly repudiated by voters on November 5. With a gusher of mail-in ballots already pouring in and millions of illegals ready to lend their signatures to the Democrats, it could take weeks or longer to adjudicate the results. Regardless, Trump is riding a wave so powerful that even if the Democrats double the cheating that won them the White House in 2020, they will still come up short. Liberals should listen to Harris’s recent interview on Fox with Bret Baier to understand why she can’t possibly win. She comes across as so empty and insipid that a conservative could almost wax nostalgic for Hillary’s evil cunning and brass cojones.
‘A Small Price to Pay’
The biggest problem Trump will inherit lies in the Middle East, not Ukraine. He and Putin are neither friends nor enemies but seem to respect each other. This cannot be said of jihadis Trump must confront and what remains of their leadership. Israel has wiped out the terrorists’ command structure, and we should expect them to try desperately to settle the score, possibly once and for all. A nuclear bomb would not necessarily be the Ayatollah’s weapon of choice since it could risk killing tens or even hundreds of millions of Muslims while making the planet uninhabitable. In the eyes of some hard-core clerics, this would be a small price to pay for extinguishing the last Jew. A biological weapon would be far easier to deploy, although the risk of accidentally annihilating humanity would be greater than with a nuclear bomb. However, if the goal of the crazies is to wipe out Jews at any cost, a bioweapon cannot be ruled out. It’s impossible to say how Trump would react or even whether the alarmingly clueless Harris might somehow have the instincts to preserve a vestige of humanity sufficient to start civilization over again. Any such concerns are unlikely to register on Wall Street, however. As long as there is no mushroom cloud billowing over the Battery, investors will focus raptly on the minutes of the latest FOMC meeting, even if it might be the last.
Kamala Unwinding
[I can’t stomach news reports that take Kamala Harris’s candidacy seriously, especially articles suggesting with brazen implausibility that she is polling dead-even with Trump in some important swing states. Fortunately for those creeped out by all the tilted campaign coverage, my colleague James Howard Kunstler has compressed everything you need to know about the election into a bold, Menckenesque essay that will dazzle you with its insightfulness. He offers three scenarios, two of which could bring America to the brink of civil war. Fortunately, the third, a Trump landslide, seems the most likely and would give Americans a chance to snuff Deep State for good before it can recover from the blow. With Jim’s kind permission, here is Kamala Unwinding, his latest Clusterfuck Nation essay on substack. RA]
***
“. . . we are facing a catastrophic collapse of governance. With democracy reduced to a tragedy or a farce (probably both things). . . .” — Ugo Bardi
<<<<< >>>>>
“As the US increasingly resembles ancient Rome, being president is more and more dangerous. Something around 35 emperors met violent deaths, most from people in and around their courts. In other words, members of the Roman Deep State. An ugly situation is brewing in and around Washington DC.” — Doug Casey
*****
Don’t kid yourself: Kamala Harris does not want to be President of the United States. She doesn’t even want the ceremonial stuff, the incessant shuffling from one photo op to the next, the tedious Easter egg rolls, the prayer meetings, the turkey pardonings, the tiresome state banquets for men in strange headgear who are unfamiliar with using the fork and knife, and forbidden to sip chardonnay. . . .
It’s obvious she has been played for a chump, that she was sandbagged into play-acting “the candidate” by an odd coalition of the distraught and the desperate — that is, the many agency blobsters who fear prison and the perfidious politicians such as Pelosi, Schumer, Mitch the Turtle, the Clintons, and Obama, paid to cover for the blob, often doing it badly, who fear the judgment of history, as well as the loss of their fortunes. Distraught and desperate characters make foolish decisions.
The Black Spot
About thirty seconds after “Joe Biden” vowed to stay in the 2024 race, a delegation of these panicked pols paid him a call and passed him the black spot, knowing he could not credibly front for the massive election cheat underway. He was barely able to front for the previous one in 2020, when every lever of power got pulled to-the-max to conceal the truth about the steal, and to severely punish those who dared to murmur doubts about the election’s freeness and fairness.
How did they decide that Kamala would do any better? I assure you we will find out when the party explodes in recriminations sometime after November 5. It will probably turn out to look like the 2017 movie, The Death of Stalin, a frantic vaudeville of scheming buffoons oblivious to mundane doings of the suffering nation they pretend to serve. Unlike Nikita Khrushchev in 1953, Kamala did not prevail among this gang of squabbling clowns by force of personality or guile. She was merely a default setting as veep, arrived at to present the illusion of continuity and solidarity where none existed. She was not even involved in the backstage action. I doubt that anyone even asked her if she wanted the assignment — she was only notified after-the-fact. Thus, all the drinking.
Is ‘The Steal’ on Again?
The outstanding question: will the Democratic Party actually go ahead and attempt to execute an election steal despite growing evidence of a developing Trump landslide that might obviate it? The works are already in motion. The mail-in ballots went out long ago and early votes are getting cast by the day. The overseas ballots that require no US address or voter verification are flooding in by the millions and four years of open borders has 10-million illegal aliens (at a minimum) dispersed around the nation, great gobs of them planted in swing states, processed through the DMVs and social services — with the requisite automatic voter registration — their ballots already pre-bundled for harvest.
It could go a few ways. One is, just let’er rip, harvest all those fake votes, stuff the drop-boxes, flood the zone, and do it all right in America’s face as if to say: we can do whatever we want. . . to get whatever we want. . . and you can’t stop us. That is probably the point where blue America finds out exactly what the Second Amendment was designed for. You might also expect a whole lot of state-organized resistance, especially in the populous red ones, Texas, Florida, real court cases over fraud this time, contested certification.
High Court Could Decide
Or, the election could come out a hopeless unresolvable muddle. There’s no precedent for this and no provision in the Constitution, but you can imagine the Supreme Court having to decide a necessary do-over minus all recent gimmicks, paper ballots only, voters with proof of citizenship only, all voting on one re-scheduled election day before January 1. This novelty would be something apart from the clunky Congressional machinery established for settling electoral college disputes, since it is predicated on various states’ inability to determine their electoral college vote in the first place, based on patent irregularity and fraud.
You could also imagine a period of disorder so deep and grave that the regime behind “Joe Biden” declares martial law. . . or, alternately the military — the martial institution — has to take matters into its own hands, shoving aside even “Joe Biden” and his filthy retinue. Appalling to consider, I’m sure, but these things happen in history, and the Party of Chaos has set enough mischief in motion to wreck the election and wreck the country. Call it catastrophizing, if you will. There it is.
Trump Is on a Roll
But to step back from that abyss, it appears that Mr. Trump’s momentum accelerates by the day, that he is becoming, at last, an implacable, irresistible juggernaut who will, perforce, overcome all the gimmicks, traps, and frauds arrayed against him. Kamala seems to think so. Have you ever seen such resignation, such loserdom-in-action as her recent performance on CBS’s 60-Minutes, or her pitiful admission on ABC’s The View that she couldn’t think of anything she would do differently beyond the excellent management of national affairs under “Joe Biden” (and herself as veep). Surely that said it all. She has nothing, brings nothing.
Long ago, she was a pretty girl with a law degree and an infectious laugh on the fringes of local politics in San Francisco. The winds of fortune blew her this way and that way until she ended up way over her head, used by the reprobates around her as a mere device to stay out of jail. She ends as an historical prank on her own country. It must be deeply demoralizing to be used like that in front of the whole world.
Stocks Act Fearless as Oil Price Soars
If you can keep a cool head while everyone around you is panicking, perhaps you don’t understand the situation. That’s what they say, anyway. It is exactly what we saw last week when stocks barely shrugged even as the shooting war in the Middle East took another baby step toward nuclear conflagration. The oil markets certainly recognized the danger, spiking sharply after our titular president warned that Israeli warplanes might soon start targeting Iran’s refineries. Energy quotes scored their biggest weekly gain in years while stocks, although relatively subdued, appeared to consolidate for yet another psychotic upthrust. What seemed to matter most on Wall Street was not the threat of cities going up in flames, but a few meaningless, cooked job stats implying that droplets of juice from America’s financial bacchanal have begun to trickle into the parched gullets of gig workers, nurses and cocktail waitresses (if not yet retail clerks).
Longshoremen could join them shortly with a 62% raise to $69 an hour, including the union’s legendary no-shows. It’s a little late in the Kondratief cycle for them to become rentiers, but the prospect of owning a few shares of Nvidia seems realistic enough. Although keeping up with the Joneses has gotten easier because the Joneses’ inflation-adjusted net worth has been stagnant for 50 years, chasing inflation has only grown harder. And that’s measured against phony data that understate inflation by half. Take heart, all you working stiffs: beating inflation is going to be a cakewalk when the next recession brings it down to, like, minus five percent.
What About Microsoft?
Speaking of recession, this IBM chart, even to the unschooled eye, suggests the Beamer may be about to reverse in a big way. Although I have never tracked the company’s shares closely, there may be a few old-timers who still remember when Fortune and Forbes featured Big Blue on their covers regularly. Now, the computer services company is so little thought of, at least by traders, that IBM puts and calls barely register a pulse. Spreads are too wide to use options for shorting the stock even though it looks likely to make an important top at or near 226.34. I’ve been drum-rolling that Hidden Pivot resistance as a prospective bull-market top since last January, and now it’s finally time to flip long positions. Does that mean MSFT, our #1 bellwether and currently trading for 416, will not test the all-time high at 464? Time will tell. Although its ABCD pattern is too obvious to work precisely, it is also too compelling for the ‘D’ target to give way easily. In any event, it’s hard to imagine IBM usurping MSFT as the stock to follow, but the relentlessly steep pitch of Big Blue’s bull market would surely qualify it as a full-fledged member of the lunatic sector (aka the idiotically misnamed ‘Magnificent Seven’).
Levitating Kamala
Expect stocks to continue their heedless waft into outer space until the election. They would not likely do so if investors even remotely imagined Kamala Harris might win. James Kunstler provided the most succinct reason we’ve heard for why this is not going to happen: “The people in this land are finally sick of a faceless blob ruling madly from the shadows,” he wrote in the current edition of Clusterfuck Nation. “Mr. Trump has become a national father figure, a titanic offense to a party run by women with daddy issues and to their Marxist allies dogmatically bent on destroying the family (along with every other institution). As it happens, countries need fathers, both actual and symbolic. What a surprise!”
So what about polls that show Harris and Trump neck-and-neck in some swing states? Even ostensibly conservative news outlets such as Fox and the Wall Street Journal have been reporting this as though the data were authentic. My guess is that the editors and news gatherers have all been overwhelmed by the nation’s left-tilting news media into believing polls that have been massaged with poor sampling, misleading questions and purposeful misinterpretation. In reality, the believers are like the audience assembled on a barge to witness David Copperfield make the Statue of Liberty disappear. Although some in the audience would swear this happened, it didn’t; the barge had simply been repositioned while a curtain was raised to obscure a large swath of the horizon.
8%-10% More Believable
Although the magician eventually revealed how he did the trick, the New York Times et al. will not be called upon to explain how they levitated Ms. Harris, since she is going to lose by 20 million votes. That’s a realistic number if forecaster Martin Armstrong is right, as he often is about so many other things. He says Harris is actually polling in the 8%-10% range, notwithstanding numbers from Quinnipiac and the Wall Street Journal that have her garnering half the popular vote.
Meanwhile, if stocks have been rallying because they sniff a Trump landslide, investors had better prepare to sell before November 7. We’ve already advised ‘selling the news’ for those who have been gung-ho on stocks in anticipation of Fed easing. That has already begun, and the best conceivable outcome has been priced extravagantly into the market. Trump will inherit an economy pumped full of hot air, and the inevitable bust will occur during his watch. No amount of business acumen can prevent this, but it will be better to have a businessman in the White House than a closet Marxist who will not let the crisis go to waste.
Sell the News
The stock market went bonkers following the Fed’s first rate-cut since March 2020, but it’s more than a little tempting to sell the news. A return to easing had been rumored for the last couple of years, but with a pitchfork mob threatening to descend on the Eccles Building, Fed Chairman Powell finally gave in to Wall Street. The mainstream media has given him cover with the lame story that lower rates will help spur employment. Historians are more likely to recall that the central bank’s pivot toward lower rates came at a time when stocks were breaking out to new all-time highs, inflation was ravaging the middle class, and home prices were at record levels. Still, it’s an election year, and what did we expect? The Open Market Committee is simply revivifying the American Dream — not with a scrawny chicken in every pot, but with renewed hopes of a leased Lexus in every garage.
What will lower rates mean? For one, they could conceivably delay a crash in home prices and stocks for a while. It has been coming ever since the 2007-08 deflation failed to finish the job. At the time, one might have surmised that the nation’s most popular and pernicious delusion — growing rich simply by owning a home — had suffered a fatal blow. Alas, whatever lessons the Great Financial Crash held for us were erased by a turbocharged recovery that has pushed home prices higher than ever.
And stocks, too. Although Powell’s steadfast hawkishness may have disappointed investors every month for the last three years, it did not impede the stock market’s steep rise even slightly. Nor did it quell Congressional spending, which is currently adding $1 trillion of debt to the U.S. balance sheet every 100 days. Historians will recall that statistic, too, when they pick through the rubble of the financial collapse that is coming.
Party On, FOMC!
Although the mainstream media watched CPI and employment data obsessively to predict Powell’s next move, it’s clear that he was thinking on a different plane. By making dollars merely somewhat more difficult to borrow, he was on the only path that could conceivably have reined in Federal spending. The strategy also supported the dollar’s hegemony, and it rebuked easy-credit policies of the EU that cannot possibly produce a happy ending. Now Powell has joined the party.
It is almost unimaginable that rates will fall far enough to trigger a re-fi mania like the one in 2020-21 that kicked the U.S. economy into high gear. Thirty-year mortgages could be had for as little as 2.65% then, but the only way we will see rates that low again is if the economy slips into recession or worse. If conditions in 2020 were ideal for promoting inflationary growth, the opposite is true now: we are at the precipice of debt deflation. While mortgage rates have fallen from a high of 7.1% in 2022 to a current 6.1%, that is still far too high to stimulate a wave of home-buying. With residential prices poised to fall, a repeat of the 2007-08 experience seems unavoidable. This time, however, the collapse will be fed by much greater excesses, making it more likely to kayo the economy for a decade or longer.
The ‘Wealth Effect’ Is a Delusion and a Fraud
The so-called ‘wealth effect’ is the Tulipmania of this era on steroids, creating untold sums of money from speculative spume. If materializing vast quantities of spendable cash is the goal, a revved-up wealth effect makes the Fed Open Market Committee look like a ladies’ luncheon club. Indeed, it can take long months or even years for the central bank to stoke the consumption furnace using swaps, repos and direct purchases of Treasury debt. These obfuscations are designed mainly to make the promiscuous use of credit more attractive to everyone. However, the money must be borrowed into existence for profligacy to work its magic on the economy, and that takes time. There is a much faster and simpler way to inject cash into the system. It works every time, and the result is instantaneous, effectively showering Wall Street with a blizzard of $1000 bills.
This is a monetization trick that is not taught at Wharton. An added feature is that even Joe Sixpack can pitch in simply by buying stocks on margin. Turbocharged by a 4x multiplier and a steeply rising stock market, Joe will be driving an Escalade and living in a grandiose suburban home he will never own in practically no time.
The chart shows how it’s done, satisfying America’s money sickness in ways even the financially ingenious Dutch might not have imagined. Their seaborne empire was at its height in the 1630s, when greed and hysteria combined in just the right proportions to make the masses believe a rare tulip bulb could be worth as much as ten acres of prime farmland. The Burghers who invented the open-outcry exchange had the good sense to restrict futures trading in flower-bulb contracts in one crucial way: traders could not sell them short.
Shorts Power Bull Markets
In contrast, a key feature of today’s mania is that nearly any security can be sold short. This naturally invites the occasional short squeeze, an irresistible wave of panic buying triggered by an accelerating rise in the price of a stock that speculators have bet against. When the inevitable margin calls go out to traders suffering rapidly mounting losses, their collective short-covering gooses stocks with such force as merely bullish buying could never provide. In their eagerness to escape the vise, they jackhammer stocks through thick layers of resistance and previous peaks while sellers stand aside and let their profits run. Few pleasures in the investment world are more exhilarating than watching a stampede move one’s way.
Lest the threat of catastrophe elicit a slap on the wrist from regulators, the officially sanctioned mountebanks who control the markets have mastered the art of triggering off less-noticeable mini-stampedes every morning, usually in megacap favorites such as NFLX, AMZN, GOOG, MSFT and NVDA. Hardly a day goes by when one or more of these stocks does not open on a gap like the one pictured in the Walmart chart. That nearly volumeless short-squeeze in the opening bars of the session added at least $3 billion of wealth-effect money in mere minutes. Relatively few shares changed hands as the stock spiked through a smattering of sellers.
Replicate this momentarily unhinged price action in a half-dozen mega-cap stocks routinely, and pretty soon, as the late Sen. Everett Dirksen once quipped, you are talking about real money. In 2024, Nvidia alone tacked on $2 trillion of valuation in mere months. This occurred even as other heavyweight stocks, including the once-staid IBM, were rolling up unconscionable gains.
For all the hubris, there are relatively few customers’ yachts plying the waterways. But all across America, the upper echelons of the middle class are flush with cash, eager to spend it on luxury goods. It is mostly fund managers with the financial acumen of lab rats who have racked up the biggest scores. Most of it is sitting on the books, a napping cosmos of ‘wealth effect’ money that can be hocked six ways of Sunday at the first opportunity.
Re-inflating a Pension Fund?
Unfortunately for us all, it would barely dent what we owe collectively. That is such an enormous sum that even tens of trillions of dollars of ‘wealth effect’ money cannot begin to pay off our liabilities for Medicare, Social Security and the welfare state. Wall Street’s gaseous wealth is fated to contract to nothingness in the next bear market so that the aggregate value of all publicly traded stocks would not likely bail out even a single state pension fund. Illinois seems the most likely to test this forecast, since the state’s very name is synonymous with corruption, arrantly stupid governance and reckless budgeting. But there are at least two dozen other states not far behind, and there will be no bailing them out. Only an imbecile could think ‘the Government’ will come to the rescue. Substitute the word ‘taxpayer’ for ‘Government’ and you’ll understand why. Although it is easy for ‘the Government’ to pump up financial assets and nominal GDP by monetizing debt, expanding credit and spending money it does not have, it is not possible to re-inflate a collapsing pension fund. Each sends out hundreds of thousands, or even millions, of checks every month so that recipients can pay for food, shelter, health care and other essentials. The nation’s taxpayers would quickly tire of supporting them, especially if they were all about to get stiffed themselves.