So, if we’re getting some late stage run for glory which sends us ever higher, I don’t buy for a moment that it’s the general population finally diving in. I could however see it being the bankers printing even more than they acknowledge they are.
Being and investor, I certainly read as much as I possibly can by other people and get their opinions about the market. Recently I read an article suggesting that we’re about to see the market really kick into gear with a spectacular run even higher than the DOW 22K we’re presently at. A late surge of “panic buying” that sends us hurtling higher.
I don’t have an argument with the idea that we might “melt up” in some form of spectacular run. What I do have an issue with is their “reason” for it happening. In the article, they point to the run up of the late 90’s and how it went parabolic as everyone and his brother put all their chips in the market. They also point to the almost parabolic run from 2006 through 2007.
What they’re suggesting is that at some point all the people that aren’t in the market are going to think that they “have” to jump in no matter what and it will be a mad scramble as stocks soar and soar higher. Well they certainly have some history behind their theory, as indeed, we did see the market go parabolic in both instances.
But if we see some form of meteoric rise from here, I don’t for a minute think it’s mom and pop going “all in”. See, frankly…mom and pop are either broke, making wages that haven’t risen since about 87, are thinking about retiring, or simply got wiped out in the 2008 crash.
Think about it like this. In the 1993 – 1999 run, our economy was indeed humming along pretty well. Jobs were plentiful and for most people they were getting their first taste of the market. But, not from going to see a broker, not from reading a paper and thinking they best start investing…the Internet was the vehicle that exposed millions of new people to the stock market.
Before the Internet, trading stocks was NOT a crowd drawing exercise. Before the net, people had to try and find ticker symbols on the back page of the newspaper. Then call your broker and try and make your buy. “daytrading” so to speak, didn’t exist. But when the Internet came around, people of any and all skill levels from first timers to experienced pro’s could buy and sell a stock with the click of a mouse.
That alone got a ton of people to start thinking about stocks. Then as the market kept going up and up and up, more and more people started thinking that they should learn something about this “stock thing”. I remember back in those early days of say 1995 and 1996, every day my phone would ring with someone wanting to take my “one on one” training course to learn where to start. The phone rang a lot.
Then sure enough, by late 1998 the madness had spread. I remember being in a Burger King getting a Whopper and the kids behind the counter were talking about the stocks they bought. Yahoo, AOL, etc. It was a wild time. So yes, there was more and more people coming into the market, more and more with money from a decent economy, and more watching it just “go up” and they piled in. Sure, many if not most got creamed in 2000 – 03, but we had a “melt up”.
Something similar took place in the 05 – 07 madness. If you remember, that was the housing bubble days. People were flipping houses like mad, and much much money was being made. People were gaining income like never ever before. Houses that people bought for 125K in 2002 were getting bought out for 300, 400K, by 2006.
So the speculative people, were taking a lot of that “instant” money and pumping it into the stock market. Soon enough, not only was the housing market “stupid crazy” the stock market was soaring right along with it. But then… 2008 happened. That’s when the housing bubbles sins hit the fan and the whole house of cards fell like a rock. Once again, a large portion of people got hurt, but this time, many lost not only their market gains…but the overpriced, over mortgaged house they bought.
The run from the crash lows of 2008 to this insane level we’re at right now was NOT caused by “people piling in”. Sorry. The people are broke. 93 million aren’t in the workforce. The Baby boomers are close to or are retiring.
What we did get however, was the Federal Reserve with QE1, QE2, The Twist, QE 3, with trillions printed to suck up toxic assets. Bail outs. We got the Bank of Japan printing trillions of yen. The it was Mario Draghi’s turn. Don’t forget folks, way back in January of 2015 the European Central bank began their QE program, pushing 60 BILLION Euro’s per month into the system. That soon then morphed into 90 Billion during parts 0f 2016. Add it all up. Umpteen Trillions has been printed by the world’s Central bankers to keep the economies from imploding.
That and that alone is the ONLY reason we’re at DOW 22K. Not mom and pop, not the general public afraid to “miss the train leaving the station”. Why do you think they’re so paranoid when they hear rumblings about Draghi thinking about cutting the program? Or Yellen talking about hiking rates and working off the balance sheets? Because they KNOW that if the banks stopped the printing presses, we’d CRASH. Not fall. Not wobble. We’d spectacularly crash.
So, if we’re getting some late stage run for glory which sends us ever higher, I don’t buy for a moment that it’s the general population finally diving in. I could however see it being the bankers printing even more than they acknowledge they are. Why? Because only one of two things can happen from here out. One is that they just print and print forever, we give up on the idea of economics as it’s been known through history, and morph into some bizarre world where they just print trillions for ever and hand it out like candy.
The other is that they start to remove some of the candy that’s already out there, and they know that when they actually do it, the “market” is going to pout and whine like a baby. When they slow the presses, the markets will fall. So could I see them jam the market really really high right before they start taking money out? You bet. I think they would like all the “headroom” they can create before they slow the presses.
We might get that last mile melt up. It’s certainly possible. But it won’t be mom and pop, it won’t be your neighbors, it will be the same as it’s been for 8 years now. Central banks printing money and buying stocks, along with pushing tens of billions into the “system”, a system rooted in Wall Street and banking.
Oh and by the way, that same thinking works for such other nasties as say a military strike on North Korea, or a Hot war over the Ukraine situation. I’m sure they’d love all the headroom in stocks they could build ahead of either of those events also. But again, it won’t be “people’ panic buying that sends us higher. Just my opinion.