Could The Next Stock Market Crash Be A Crack-Up Boom?
In a recent Twitter poll, George asked the question,
Which is more desirable for those who own stocks?
1. Stocks go down by 25% (no consumer price inflation) or
2. Stocks go up by 100% with 200% consumer price inflation?
In scenario one, there is 0% inflation but your portfolio would take a 25% hit.
In scenario two, there is 200% consumer price inflation but your portfolio would give the impression that you are making money.
In scenario two, your losses would come by way of reduced purchasing power, due to higher inflation.
So your numbers might look great on paper, but in reality, stuff costs 33% more in real life.
Scenario two is likely happening right now.
Am I getting richer or poorer?
In scenario two, when the stock market moves up, you lose purchasing power. Why? Because your portfolio is denominated in a currency that's losing value faster than the ever-increasing stock market.
This is a vital concept to understand, as it can be applied to the United States and any other market around the world that's losing purchasing power at a fast rate.
From Fed put to government put?
Our favorite legacy cable news network/hype-channel, CNBC, published an article back on March 16, 2020, when the market was crashing. The Fed came in and tried to stop the bleeding with a traditional Fed put, but this time on steroids:
In an emergency move Sunday, the Federal Reserve announced it is dropping its benchmark interest rate to zero and launching a new round of quantitative easing. The QE program will entail $700 billion worth of asset purchases entailing Treasurys and mortgage-backed securities. Markets responded negatively, with Dow futures pointing to a drop of 900 points when the market opens Monday morning.
What the market is telling us is the Fed Put has most likely expired.
On March 23rd and 24th, congress unanimously passed the Cares Act, which George likes to call, “the Government Put”. It was approved by the Senate on March 25.
After the Fed tried to stop the carnage in the stock market by doing a massive round of quantitative easing, the Cares Act took off.
The market started moving up again to the point where we are today, at all-time highs.
Around the same time, Americans who qualified started receiving their Stimmys (stimulus checks) which many deposited into freshly minted Robinhood accounts.
Who needs a 9-5 job when You Have Robinhood and Stimmy's?
Inspired by videos on TikTok, many people believe the only thing they need to do is buy a stock, wait for it to move up and the moment it starts moving down, then sell it. Bang! Boom! Money!
Retail investors are using their Stimmys and turning to the stock market hoping to capitalize on a manipulated market that continues to tick up.
This is clear evidence that we have gone from a Fed put to a Government put.
Had the Government and Fed not intervened but allowed a free market, the market would have already crashed down, 1929 style. Bad news.
When will the market finally ignore the government put?
Timing markets is something George, or any other good investor avoids. But know this. Once the markets begin ignoring Government intervention and all confidence is lost, then expect it all to come crashing down.
On January 14, 2021, Sleepy Joe announced a $1.9 trillion coronavirus plan that included more stimulus checks.
This translates to more currency unit printing and more fiscal deficit spending.
Notice the stock market didn’t go parabolic like it did in March 2020. But instead, it went down.
If markets are shrugging off massive stimulus, then what?
Is the government put about to expire?
A heroin addict is the best analogy for what has been taking place.
The highest probability outcome for what to expect from today's markets is very similar to what we could expect from a severe junkie who needs his next hit to function.
A newbie junkie needs a little hit every once in a while to achieve a decent recreational high. But over time that little hit grows in size and becomes more frequent.
Eventually, that recreational high dominates the user's life and ultimately becomes life support.
The addict has two choices at this point. Seek professional treatment or continue abusing drugs until it kills him someday.
The entire financial system showed up on the FED and Government's doorstep hoping for a professional inpatient treatment plan only to discover that the professional treatment plan was nothing more than another dose of fiscal heroin.
The Crack-up Boom Theory
The Crack-up Boom theory is defined as:
The same process of credit expansion and the resulting distortion of the economy that occurs during the normal boom phase of the Austrian business cycle theory. In the crackup boom, the central bank attempts to sustain the boom indefinitely without regard to consequences such as inflation and asset price bubbles.
The Mises institute pointed out “the crack-up boom would unfold only when people come to the conclusion that the central bank will expand the money supply at ever-greater rates.”
Once the Government starts spending money directly into the real economy through MMT, there is no need to sell bonds or increase taxes.
The Central Planners responsible, honestly believe we have nothing to worry about.
Because we have the dollar, paying for things like the green new deal, stimulus checks, healthcare for all, or education, is as simple as typing in the amount needed, and out it comes.
So expect fiat currency printing to continue its supernova/parabolic trajectory until it backfires.
What do you think, are we in a crack-up boom right now? Leave a comment below.
Just like the heroin addict the Fed and the Government print so much money that at a certain point it kills the economy and the stock market crashes down. This is the catalyst the market needs to crash up.
How you can grow your wealth and protect your purchasing power over the next 5-10 years
We get a lot of questions from Rebel Capitalist's that visit Georgegammon.com who have 401k's, IRA's, Roth IRA's, and Government Thrift Savings Plans.
These are hard-working folks who see the writing on the wall and yet, are forced to participate in the World's biggest Ponzi scheme or face severe consequences for withdrawing their retirement savings.
First things first, if you are stuck in a traditional 60/40 risk parity portfolio, which most financial planners who suffer from recency bias still peddle to their clients, then it's time to get out now.
The 60/40 risk parity portfolio is dead in the water. Here's an article/video that goes into detail talking about this portfolio.
If you are comfortable with options, then you can augment your current retirement plan with a dragon portfolio.
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Hi George and team. Can you explain the use of the word “Put” in the discussion (“Fed and Government Put”)? I understand what a Put is in options trading but I still can’t figure out what you mean by it in these recent videos. All I can think is that it means they are making interest rates go down.
When the last bear and the last shorter of stocks goes bankrupt. As long as you see short squeezes, you know that it is not finished. It is a waste of time to try to time this crap. It is much better to buy cheap things like physical gold, silver, platinum, palladium or even better producers, and wait that they do what rhodium has done going from 1,500$ to now 22,000$ on the physical market. Rhodium and bitcoin (which I truly hate with passion and is worth nothing) are worth this ludicrous amount of money because the US dollar is… Read more »