Common calculations of aggregate ‘wealth’ take the entire stock of an asset class and multiply it by the bubble prices, on the theory that financial value is what you can sell something for. Of course, some clever or lucky individuals succeed in selling at the bubble highs, but the aggregate bubble prices can never be realized by sale. As soon as any very great number of the owners of a bubble asset try to sell it, the bubble collapses, the evanescent “wealth” disappears, and the long-term trend reasserts itself - Alex Pollock, Resident Scholar at the American Enterprise Institute
I was chatting with someone earlier about how the current market reminds me of the tech bubble in 1999-early 2000. The NASDAQ peaked a little over 5,000 in March 2000. There were maybe a few lucky souls who sold at the top but anyone else who claimed to do so is lying to cover up the accidents in their 401k's. Then I looked to see where the Naz is right now and I discovered it was a shade below 4,000. I stopped watching the Naz a long time ago because it reminds me of the penny stock markets in Denver and Salt Lake of the 1970's. Mostly fraudulent.
Then I looked for comparative purposes at the S&P 500 futures, as I was watching it ramp higher today unceasingly in the last hour to close up over 13 points (close to 1%) despite opening the day down about 9 points. No news or fundamental reason for the ramp. Unless you consider the Federal Reserve's money printing program to be of fundamental value. Hmmmm, let's see. The Fed issues 1 dollar and it's a one banana world, so it costs $1 to buy the banana. Then the Fed issues another dollar but there's no more bananas produced and I'm hungry so the guy who has the banana charges me $2 dollars. I felt wealthier when I had $2, but it still cost me $2 to buy the banana. That's an absurd simplification, but that's basically what the Fed is doing. You call that value-added? You call that wealth creating? In it's most simple-to-understand form it's "inflation."
We might not see the immediate affects of inflation tomorrow when we go buy food at the grocery store, because those dollars being printed are piling blindly and foolishly into the stock market. Why? Because the demand for mortgages for buying homes and refinancing existing mortgages is quickly disappearing, so all that printed money has to go somewhere. It was previously going into cheap mortgages used to buy homes to flip. That game is over now. The housing bubble is popping. Here's where the money IS going:
If you think there's any semblance of fundamentals driving this market other than massive quantities of Fed "cheese," then please review the graph I posted on the upper right side of this blog.
Now, for those of you who think that you'll have the discipline to hold on until this thing peaks, then I will tell you that in 1999 when the Naz was at 3000 and I thought that was the peak, it ran up another 66% from there. Could that happen with the SPX? Sure. But also know that in January 1923 the German stock market index was 21,400. By November 13, 1923 it had run up 26,890,000. Don't blink or rub your eyes, you can look it up. Then on November 14, 1923 the German billionaires woke up and found themselves destitute, as the German Government revalued the mark at 1 for 1 billion. Your billion in the stock market was now worth 1. You didn't even get a chance to sell.
Don't think that won't happen here, because it can and probably will. And you better pray that's how this grand Keynes/Volker/Greenspan/Bernanke/Yellen experiment turns out, because the alternative is that the U.S. starts a world war (we've heard that before, twice when Germany ruled the globe) because China is the country that forced the revaluation of the dollar. If you want to see how that ends, read "The Road." Just remember: Arbeit macht frei...