...we are living in a weird inverse economic reality where cause does not follow effect and nothing does make rational sense. It's a magical world created by the wizards of Wall Street, and, to the extent that we participate in their system by using their monopoly money and investing in their rigged markets, they will continue bending those markets to their will...
Let's party like it's 1999! No, better yet, let's party like it's 2018! What? Haven't you heard the news? The US stock market bull run of 2009-2018 has just surpassed the 1990-2000 bull run to become the longest period of continually-rising stocks in US history.
It was March 9, 2009 when the market finally bottomed out after the Lehman crisis. That was the day that the S&P 500 hit precisely 666 (nothing to see here, conspiritards!). From that day on, both the S&P and the Dow have been on an uninterrupted upward trend, hitting all-time record high after all-time record high. For those keeping track at home, that's 3,453 days of uninterrupted gains as of last Wednesday.
To put that number in perspective, the previous longest-ever period of rising markets lasted 3,452 days, from October 12, 1990, to March 24, 2000. You might remember the latter half of that bull run as the dotcom bubble, which came to a crashing halt when people finally realized that websites like Webvan (look it up) weren't quite worth their billion dollar valuations. In other words, the last bull run was a big, fat, festering bubble inflated by hype and greed and "irrational exuberance," and it came to a messy end that wiped out many people's savings.
But that was so last century, right guys? It's different this time! . . . Right?
Well, I know you'll find this hard to believe but the US dinosaur media—yes, the same ones that feed the hype in every bubble and openly laugh at those who dare to speak economic truth—are assuring us that this time it is different.
Take CNN. (No, seriously, take them!) When the market officially broke the record earlier this week they commemorated the event with the article, "Market milestone: This is the longest bull run in history." It's a marvel of propaganda (and probably worthy of its very own installment of #PropagandaWatch), so go ahead and read it.
The first thing you'll notice is how they play up the post-Lehman "recovery," justifying the record-breaking streak by touting the "skyrocketing" valuations of companies like Netflix and Amazon. But if you read in between the lines of that blather, you'll notice how they blithely admit that the markets were helped along by "unprecedented aid from the Federal Reserve." You don't say. As readers of this column will already know, the Fed's flood of funny money in the years after the Lehman collapse was directly responsible for 93% of the market's rise from 2008-2016. 93%! But readers of the CNN article will be left with the impression that the Fed just played some minor role in the creation of this bubble . . . Sorry, I mean this "recovery."
And as if all that isn't enough, the CNN article then goes on to mention that, for some reason or other, those crazy investors and analysts never trusted this marvelous bull run. "No one believed in it all the way through," they quote David Kelly, chief global strategist at JPMorgan Funds, as saying. But apparently that's all to the good because "The pessimism that's been a hallmark of the bull market has actually ensured its longevity." Riiiiiight. It wasn't the trillions of dollars of central bank funny money that made this the longest bull run in history. It was . . . pessimism?
The article then proceeds to argue that although this has been a long bull run, it's definitely not a bubble, and there are no signs of it slowing down any time soon, barring an all-out trade war.
Well, that settles that, then, hey gang? For a more realistic take on what all of this means, we can turn to Simon Black of SovereignMan.com. In his article on the subject, Black points out that the cyclically-adjusted price/earnings ratio (CAPE) is currently double its historical level. As Black puts it, that means that "investors are literally paying more than TWICE as much for every dollar of a company’s long-term average earnings than they have throughout all of US market history." And the only other time the CAPE ratio has been as high as it is today? 2000, of course. Right before the dotcom bubble burst.
Black also shines a light on an internal contradiction of the Russell 2000 index (the benchmark for small-cap companies' stocks in the US) which itself gives a window into the bubble-like nature of the current stock boom. The Russell 2000 is currently at an all-time high, but fully 60% of corporate debt issued by the 2000 companies listed on the index are rated as junk. As Black writes:
"How is that even possible– a junk debt rating coupled with an all-time high? It’s as if investors are saying, 'Well, there’s very little chance these companies will be able to pay their debts… but screw it, I’ll pay a record high price to buy the stock anyhow.' It just doesn’t make any sense."
How is this possible? It doesn't make any sense. But perhaps that's the point. As I pointed out in my most recent appearance on Financial Survival, we are living in a weird inverse economic reality where cause does not follow effect and nothing does make rational sense. It's a magical world created by the wizards of Wall Street, and, to the extent that we participate in their system by using their monopoly money and investing in their rigged markets, they will continue bending those markets to their will (which, I'm sure I don't need to point out, is very different from our will).
Everything has been distorted by the central bankers and their printing presses and, rather than fight the Fed, investors have learned to simply buy everything, all the time. Junk debt? Buy it. Negative yielding bonds? Buy it. FAANG stocks? Buy it! After all, it's worked for the last decade, right?
I mean, what could possibly go wrong?