THE WOLF STREET REPORT: What Will Stocks Do When “Consensual Hallucination” Ends

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  118 comments for “THE WOLF STREET REPORT: What Will Stocks Do When “Consensual Hallucination” Ends

  1. HL Mencken says:

    Just got all the Dalio books from Amazon, and read them, had read them online last year, but nothing like a book I can highlight.

    Dalio seems to have a good grip on ‘reality’, which is a major problem, with the majority, take the rebirth ( 1999 deja-vu ) of ‘Unicorn’ and such topics today.

    Essentially Dalio advocates INFINITE FED FIAT to keep the machine running as needed. Given he’s one of the richest men in the world and meets with richest Asian leaders frequently I would say there is ‘light’.

    Call it Reality or Hallucination, we’re talking the same thing, but I think Dalios “All Weather” seems to be a beacon of hope, just know that the trash will go to zero, and the good stuff will go down 40% time2time, but it will always come back.

    The USA ain’t going away in our lifetimes, and astronomically they can create fiat to quadrillions and more. Sure what Dalio is telling World policy makers to do is “MMT”, but this is the guy with the world largest hedge fund, and he wants his machine to run to infinity in time. Dalio’s MMT is a perpetual motion money making machine. But its backed by the most evil military-industrial-complex in the history of earth.

    IMHO Unicorns ( garbage ) will go to zero, just like post 2001;
    Good stock some will stand, many will die, like PGE, KHC,3M, never know when a high dividend gold-stock will drop, but its happening, that’s why you need to be well diversified.
    Heavy on EM, and high paying USD denominated foriegn debt with ‘AAA’ country’s :)

    Like Warren say’s tide will go out and you see whose naked, but the tide always comes back in, by definition.

    Those living in the ‘hallucination’ will meet darwinian-capitalism, nothing new here, like DALIO say’s we’re here for one reason only “DNA”, those who choose to live in non-reality will be eaten by predators.

    • I deconstructed Dalio’s redux on the 1930s. The economies then and now are far too different to make these analogies. The classic mistake also provides some answers, the stock market is an anachronism. Dalio wants capitalism to work for everybody. Society generates new growth, new profits and higher wealth levels. But hell, why not just print money, it’s faster and easier. The destruction of collateral, or wealth is the greatest news flash of the 21st century. We are already in MMT, that’s the point.

      • WSKJ says:

        “….wants capitalism to work for everybody….”

        well, there’s always philanthropy

      • JZ says:

        Ray’s job is NOT to educate anybody. His job is mainly two things. 1st, transfer your wealth into his hands. 2nd, when you are angry, he makes sure he does not get harmed. So which purpose do you think it is that he publish books? I think it is the 2nd. He has done the firs already.

    • Petunia says:

      The rich guys are pushing MMT for the peons because they have every intention of confiscating the income from the recipients. When the time comes to legislate MMT, it will not be protected from confiscation for taxes, debts, fines, child support, student debt, or anything else. The peons will support it, not realizing the rich guys will never let them have it.

      If the rich wanted to help the poor they could raise welfare payments or social security benefits, but we all know that isn’t going to happen.

      • I suppose the premise might be to issue new specie and then tax the benefit.

        • nhz says:

          And also because this wipes out savers and small business, making everybody outside the 0.1% and big multinationals dependent on the government; this will give them total control (even more if they can ditch physical currency and force everyone to use crypto credits instead, of course some kind where Google or their friends hold all the keys).

        • Hmm might explain the current move to replace our three coequal branches of government with an autocracy.

      • Deanna Johnston Clark says:

        The nonsense about Social Security Old Age is that the life span in 1935 was much shorter than today. The reason for this statistic was that so many small children and preemies didn’t make it through measles, polio, diphtheria, etc.
        The true statistic is for adults…and that has declined. The generation born in the 1880s until the 1920s were very long lived…and healthier into advanced age.
        Nobody should begrudge those who spend their lives productively their Social Security pensions. Most have spent their savings on children and grandchildren…and incalculable contribution.

        • Petunia says:

          SS only uses the highest 35 years of earnings to calculate a benefit for retirement. If you worked more than 35 years, the lowest extra years are lost and don’t go into calculating a benefit. Most adults work more than 35 years before they collect, and if they die they don’t get anything. There should be a surplus there somewhere.

      • John Taylor says:

        Rich guys like to push QE, not MMT. The thing that most terrifies the rich is redistribution of wealth.

        QE is wealth redistribution, but it works great because the bulk of the money printed goes to asset holders, primarily beneffiting the rich while labor mainly sees prices go up.

        MMT in the political sense simply means QE used for government spending. This can go any number of places. Whether it goes to guarantee social security, increase welfare programs, build infrastructure, subsidize mass transit, or whatever else, the rich are likely to feel the bite of higher prices more than the boost of asset values.

        The biggest danger is a spiral of increasing wages and increasing taxes, which are both the biggest costs of the rich, while asset values remain relatively repressed.

    • Axel de Paillerets says:

      My understanding of Dalio’s book is somewhat different, especially about the money creation.
      He doesn’t seem to be an advocate of INFINITE FED FIAT.

      He means that the FED must balance inflationary forces:
      – money printing
      – wealth transfer from the have to the have not
      with deflationary forces:
      – debt restructuring and defaults
      – austerity
      The point is to manage the right amount of each to keep real inflation (not the bullshit government numbers) around 0 to 4% and minimize the economic pain from bankruptcy, lay offs, etc
      What he advocates is quite different from what the FED has been doing for the past 10 years

    • steppenwolf says:

      Praise!

    • steppenwolf says:

      Oh, my bad, never mind. Forger Ray Dalio.

      Read Dario Fo!

  2. Good support around the 515 area on the S&P.

    Sounds about right — fair value.

  3. George says:

    Absolutely the best and most thoughtful comments on the net.
    Very lucky to have the privilege to read your
    daily letter.
    A million and one thanks;

    George

  4. fred flintstone says:

    It will end….but…..maybe not for a long time…..as the fed is now trapped….how can it raise rates with a debt overhang of 22 trillion…..and companies so leveraged that a one point move will savage earnings and consumers that are financing to buy cars like they are homes with 8 year mortgages……and politicians that are corrupt instead of patriots.
    So cheap money will go on and on…..until……who knows the trigger……but as sure as I’am typing this it will happen……unfortunately……the longer it goes on…..the worse the event.
    Young people do not remember the song by Kenny Rodgers……don’t count until the end……at this point valuations are just nutty……so its not an investment…..its gambling. Some folks do win in Vegas…..but most go home with memories……just like 1929, 1974, 1987, 2000, 2007 etc etc.

    • Unamused says:

      Young people do not remember the song by Kenny Rodgers

      You got to know when to hold ’em. Know when to fold ’em. Know when to walk away.

      And know when to run.

      Other song lyrics may also be apropos:

      Won’t you give me three steps? Give me three steps mister. Give me three steps towards the door . . .

      Yoda knew when discretion was the better part of valor. And Kang knew that only a fool fights in a burning house.

      For what it’s worth, I’ll just watch, thanks. There’s something happening here. What it is ain’t exactly clear.

    • nhz says:

      more like 1921 in Germany; initially it all looked like smooth sailing …

      • sierra7 says:

        nhz:
        And, like novice “sailors” the world over will look at the “clear sky” and mild breezes and exclaim that they don’t have to “shorten sail” (reefing); The more prudent old salt will look at the same environment and “feel” that something is not right and promptly “reef his sails”. He will survive; the former probably not.

  5. Nat says:

    “… and algos learn to trade with it.”

    There is the concern for me. Is “this time [actually] different” only because there are so many algos making up so much of these markets, and if all the algos have been programed to maintain the hallucination, then might they never wake up to reality and thus never break the illusion unlike a market made mostly out of human traders?

    • Unamused says:

      if all the algos have been programed to maintain the hallucination, then might they never wake up to reality

      With modern computing techniques, global plutocratic totalitarianism can be fully automated.

    • History says:

      See Long Term Capital…

  6. Chris Williams says:

    You speak the truth, brother Wolf.

  7. Dr Demento says:

    We’ll look back at 22 Trillion USD debt like a joke, or real obligation of 600 Trillion USD as tiny,

    Soon we’ll have Trillionaires. Just in our lifetime Millionaire meant something, now it means nothing, soon billionaire will mean nothing. Neumann proves that, as prepubescent punks like the kid who created Ethereum are now Billionaires.

    Once we have Trillionaires common, then we can have quadrillion debt,

    Trillion 10^12 1,000,000,000,000
    Quadrillion 10^15 1,000,000,000,000,000
    Quintillion 10^18
    Sextillion 10^21
    Septillion 10^24

    In a generation kids will be billionaires, and “Sextillion Debt” has a certain ring to it, that all can accept.

    In a world where Unicorns exist, and infinite-fiat, why can’t we accept large numbers?

    Richest company on earth say Apple recently nearly reached a trillion, where CEO’s are billionaires. We have this tiny debt of 600T ( 20T they say ), but that’s only 10^6 scale over the average rich Corp-Welfare/MIC Queen. It’s safe to say that if we take our richest company, or richest individual we can scale that out to 10^6 to estimate an allowable debt.

    How long can this game be played? I think that is answered in the classic “The Little Prince”.

    Say in twenty years we have Quadrillionaires, then we’ll have Septillion debt, … its’ all quite normal. Scales wonderfully. It’s all just a big monopoly game. Of course all wars are banker wars, but that’s another story, there will be casualty’s, but fortunately they’re always well telegraphed, so stay alert and bail ( get out of dodge) early.

    ***

    Thanks for mentioning BITCOIN Wolf, just reminding folks here its all going to zero. The entire reason NSA put BITCOIN( SHA256/ECDSA-256p1) out there, is to offer a bounty to know when it had been cracked. Once that reality is common knowledge, then BTC will go to zero and all 2300 derivatives. Then NSA will raise the bar to SHA512, and the con repeats itself.

    • Harrold says:

      Quantum computers will soon render most encryption useless.

      • sc7 says:

        Nonsense, there are plenty of algorithms that cannot be cracked by quantum computers, which by and large are useless and will likely be for the conceivable future.

  8. van_down_by_river says:

    Stocks will continue to go up, there is just too much money chasing too few assets and there is without a doubt a Fed put backstopping the market. Not only do I think the market will continue to grind higher but it’s nearly impossible to imagine a scenario in which stocks could drop. The dollar will crater way before the market ever will.

    As for cryptos, they are clearly going up for the same reason stocks will never drop again – Fed and all the other major central banks.

    • HumbleBill says:

      You are right !!!!!!

      Until reality proves that you are wrong!

      Go on Brother – your arguments are SO CONVINCING that I recommend investing all your money in stocks and bitcoins and enjoy life from now on … (as Stan Druckemiller says: if you are convinced of something, invest ALL your money in it – no/small divesification).

    • bungee says:

      Hi Van,
      another way of looking at it:

      Stocks will tank before the dollar. The big money will know when the floor under the dollar is gone and will want to be out of dollars. But first they’ll have to sell stock FOR dollars. Stocks down, dollars up. See?
      Just a temporary move before what you are talking about happens.

      Also, ’too much money’ is not going to be a problem. It’s going to be the usual ‘not enough money’ that we all know and love; lack of liquidity, losses magnified because of leverage… etc.

      • Brant Lee says:

        “The big money will know when the floor under the dollar is gone and will want to be out of dollars.”

        As for physical gold, it will most likely be made illegal to own (again re:1933) when the dollars come crashing down.

        • bungee says:

          Gold confiscation will be the LEAST likely outcome. All that will do is make gold flee the country. Plus, the dollar used to be backed by gold internationally and now it is not. So the reason to confiscate isnt even there any more.
          This story is going to end the same way as always. Physical gold. It’s so easy to see and there is going to be a collective forehead smacking sound from the ones who just couldnt quite get it.

      • Andy says:

        Best performing stock markets are currency devalued economies. E.g. Argentina. Equities can be viewed as paper backed by assets versus backed by Fiat aka currency.

    • nick kelly says:

      Stocks are not assets. They are pieces of paper (or e-paper) that represent a claim on assets. This claim comes behind many layers of secured debt ( bonds).
      Usually in bankruptcy the assets remain but the stocks disappear. This has happened many many times. It is much easier to create stocks than assets. There is never a shortage of common stocks.

      What is going to be different about the inevitable next crash is that even many of the senior bonds will recover a fraction of their face value. As the WSJ points out, 60 % of investment grade bonds are now rated BBB,or one notch above junk. So there won’t be enough assets to satisfy their claims either and they will be litigating long after the courts do the easy work of wiping out shareholders.

      • van_down_by_river says:

        Ratings on much of those BBB bonds will be raised to a higher investment grade as central banks continue to push interest rates into the negative.

        I don’t think anyone else who has posted here has lived through a period of out of control inflation. I’ve seen this movie before, everything happening now is eerily similar to what has happened in prior periods when people lost confidence in the currency. We are at the point in time when confidence could collapse in an instant without warning, when that time comes you will be thankful to own anything other than dollars. Have it your way, keep waiting for a stock crash that never happens. I convert my dollars to stocks as soon as I’m paid.

        The Fed is now openly monetizing government spending and the rate of monetization is accelerating – I’ve seen this movie before, it has a sad ending.

        • nick kelly says:

          If you’ve seen this movie before tell us which one ends with REAL appreciation in stocks. Obviously not Wiemar which was the greatest CB inflation ever engineered in a developed economy.
          At least the gold bugs are offering an alternative. How do common stocks, with no direct tie to real assets, shield one from a dollar collapse when they are only redeemable for dollars?

        • bungee says:

          Whoa!
          You’re calling for a currency collapse and you’re buying STOCKS?!
          I agree with you about the fast nature of this transition. But that should make you an advocate for physical gold. Like me. Maples, eagles… That sort of thing. Most of the posters here are paper bugs and do not believe we have a currency crisis coming. The majority seems to be in the ‘cleanest dirty shirt’ camp. That and ‘Japanification’. I’m betting theyre wrong and it sounds like you are too. But why oh why would you then buy stocks? Cause theyre gonna go up? EVERYTHING goes up in a currency collapse!

        • Mike N says:

          I agree with van. This all ends in hyper inflation and anyone in bonds and fixed income annuities are going to get killed.

      • Keith says:

        No problem. Just mark them all AAA

  9. Arbuthnot says:

    Hang in there, Wolf. Your day will come – perhaps sooner than we may now expect. And just remember: the fundamentals, the lessons of history, reality itself – none of these matter until they matter and then they matter very much. If, between now and then, you find it difficult to stand against the consensual hallucination, just buy yourself a tulip – any color will do – put it in a glass of water and in a few days……..

  10. Keynes says:

    “The market will remain irrational longer than you can stay liquid”

    • Mars says:

      Ha! that’s the truth. I won’t tell you how many times I’ve been stopped out of LEAP Puts. Bought some more today :) and riding Calls as well, bought before earnings started for insurance.

  11. Satya Mardelli says:

    In 1841, Scottish author Charles Mackey wrote the Madness of Crowds. In it Mackay wrote, “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

    I found many parallels in Wolf’s latest report to historical things Mackay chronicled in his book. Nearly two centuries have passed and people are still doing the same damn thing.

    The mania that pulls people into a craze is the same today as it was 200-300 years ago. Unfortunately, the endings are also similar. The shysters and opportunists who front run these events will be long gone with the money when the market collapses. The dummies eat the loss.

  12. Auld Kodjer says:

    WEBTEB might just be my favorite new acronym:
    When Everyone Believes That Everyone Believes

    • Wisoot says:

      Thanks Wolf, thought provoking. Two things to add.

      First the marketed reason why crypto arose – to challenge bankers stranglehold on the world/economy/government/control – to chart a course for humanity organically arising out of human need rather than wealthy people’s agenda which history shows us is a narrow vision which ends very badly. Wealthy people think that their cleverness in obtaining wealth (and controlling programming medium) qualifies them to dictate everyone’s future. Misguided. Deluded.

      Second in sanctioned countries with hyperinflation where Governments have been known to steal from its own the people, crypto is a trusted and valuable hold. It is this second point which will ensure clever digital creators will not allow a social system such as China to choke access to knowledge (both good and bad) which drives human innovation.

      • JZ says:

        Crypto is like fashion. It is sexy and attractive but does NOT matter.

        • Wisoot says:

          For as long as the fashion to live by the existing framework of satellite intel, internet supply and global positioning system, crypto will be attractive. A credit card doesn’t matter either, while the asset it buys is considered “to matter”. To matter is subjective, what is held important or what has an important effect.

          Food matters. Dominoes, Pizza Hut And Papa Johns Now Accepting Bitcoin.

          https://cryptocurrencyfacts.com/what-you-can-you-buy-with-bitcoin-and-other-cryptocurrencies/

          Crypto credit cards have opened the world to crypto currency loans and so it goes on.

        • JZ says:

          The moment Crypto goes into 0.3% of global trade, those who matter will show up, with guns to smoke the ones who do not matter. Just watch.
          The accounting unit of your life is determined by guns, NOT fashion.

        • Wisoot says:

          In reply to your gun comment JZ, placing a ceiling at 0.3% of global trade is admirable however unevidenceable – is that a word?

  13. Ole C G Olesen says:

    ” Consensual Hallucination ” … I like the expression … he he he !

  14. Randy says:

    Dr Elder says ” the bears have to break the back of the bulls for a bear market to begin”

  15. Michael Engel says:

    1) Distribution ==> Marxism
    2) Pareto top share their stocks with the public, because they love everybody.
    3) Justice is done when the price is high.
    4) Stay on the left, because the left is winning.
    5) The destruction come when the hallucinated right hand side takeover.
    6) The march is on, well disciplined investors, reeducated in the last 10 years, stay inline, won’t dare to betray the left, because the left was so good for them and SPX is no way a bubble.
    7) But, SPX is a tapper, split in the middle, in Xmas massacre.
    8) SPX daily, ATR(20), x3 reversal.

  16. Leo says:

    I think that crypto is no bubble. It is pure price manipulation by unregulated exchanges. Everyone has the interest in prices going up, so they are driving prices up using fake transactions. There is plenty of evidence for this.
    As you pointed out correctly, this also happens by other means in the stock market. Analyst earnings estimates are a joke. They are always high in the far future and always fall a lot before earnings. Then these companies “beat” earnings and the stocks go up. For q3 2019 S&P 500 earnings estimates are 10% lower than what they were a year ago. For S&P 1000 estimates declined by 15%. Yet now the stocks are up because “earnings are beating estimates”.
    The question is what and when can possibly change this? Can it go on like this for many more years?

  17. Iamafan says:

    The funny thing is that it ain’t even paper. It is make believe.

    • Tim says:

      ” Consensual Hallucination ”

      Great way to label this government sanctioned and enabled ponzee scheme insanity.

  18. Cashboy says:

    I would guess land and a tractor is a better long term investment.
    At least when the shit hits the fan, you can grow yourself food.

    • HowNow says:

      You may want a mule instead of a tractor.

      • M. Everett says:

        In Missouri, I bought a sixty acre farm in 1974; House, Barn, Sheds, 30 acres in grass, 30 acres in timber for $4000. The man I purchased it from had traded a mule for it. When I asked the circumstances he explained that in the depression a good mule was just as valuable as the farm and in some instances more because of real estate taxes which were very difficult to meet. So if you happened to have more land than you needed, it was better to trade it off. Selling was not really an option; 1929 wiped many with savings out. Anyways, when I chuckled about the trade, old Mr. Mayes said, “You don’t understand young man, that was a good mule, capable of skidding logs, plowing a garden or a ride to town!” Well, I am white headed now and have seen alot of change. Today, the insanity in every day business is hard to grasp and although it would take hours for me to explain, I am certain the above story will be repeated. Yes, many will laugh, but make no mistake, we are staring down the double barrels of the greatest financial catastrophe the world has ever seen. And when it goes bang, consensual hallucination will be no more.

    • Mike Earussi says:

      If you know how (and how many actually do?). And then there’s nothing preventing the government from just confiscating it from you to ensure their own survival.

  19. Iamafan says:

    At times, it’s not even logical. The Fed is about to cut rates the third time when stocks are near an all time high. And how about that not-QE nonsense? I think this is more than “hallucinogenic”.

  20. Joe says:

    Big numbers give me a headache…
    Hundreds, thousands, millions, billions, trillions, quadrillion.
    When Canada stopped the making and using the penny, the government should have known the banks would not stop inflation of the currency.

  21. Sandy Toes says:

    Thx for this outline with good examples in crypto’s, Japanese market, etc, and for giving it a name: Consensual Hallucinations.

    Since seemingly, our society cannot function without acronyms, here it is: CH.

    Given a worldview where everything is a bubble and where CH is so pervasive in so many markets across the world, how do real people approach investing in the real world.

    I do not mean cashing out & go to a cave to wait it out (although that might be wise). I also do not mean speculating or gaming CH to guess when cash in the chips (and declare victory)

    Some of these bubble markets seem interrelated and/or impact others that appear less.

    As a regular guy, it is hard to diversify wisely (when everything is a bubble) and to focus on less risky assets (when CH is rampant).

    I look forward to your insights and those of your readers.

  22. Danno says:

    Thank you for keeping me sane with this report Wolf.

    Just one question (that I don’t expect a specific answer to as no one really knows) BUT, what type(s) of situations could finally start a reversal from all of these bubbles?

  23. Just Some Random Guy says:

    I’ll start worrying about stocks when Wolf stops worrying about stocks. :)

    • Wolf Richter says:

      Just Some Random Guy,

      You’re my personal role model for my theory about “consensual hallucination,” as explained in the podcast :-]

      • Just Some Random Guy says:

        And yet S&P500 is at a new record today. I’ll take hallucinating and making money vs clear headed and not making money.

        YMMV of course….

        • Wolf Richter says:

          Yes, you PROVED my entire point. Listen to the podcast! Or read the transcript when it’s done and posted. You’ll love it.

        • Jeston says:

          You couldn’t have helped prove the point any better. Such comments at market highs with a clear downturn in market economies worldwide is exactly when you should really think about which end of the spectrum you are sitting at. The world is not the USA and the USA is shrinking as a percentage of global activity every day. The global agenda and rules are changing but of course most only have 20 20 hindsight. You now US companies are leaving the mainland in droves or already have. The hallucination is strong with this one.

    • Eamonn Harter says:

      So 750 on the SPX?

  24. Escierto says:

    Stocks are hitting all time highs and the economy is the best it’s ever been. So cut rates! To infinity and beyond!

    • Just Some Random Guy says:

      If the rest of the world is cutting, then yes we have to cut as well to stay competitive. Why is this such a hard concept for so many to understand?

    • Frederick says:

      Obviously the economy is NOT the best it’s ever been or they wouldn’t be doing QE4 and cutting rates to zero This bubble/debt collapse is going to be talked about for centuries by the lucky ones who survive it and their families

  25. Iamafan says:

    Here’s something to hallucinate about.

    In the latest TBAC Quarterly Refunding Document for 4th qtr 2019, they calculated that $92.79 billion is the net NEW money that will be raised by T Bills.
    Source: https://www.treasury.gov/_layouts/SPDynamicResources/DownloadS3File.aspx?s3filename=current_production/current_TBACRecommendedFinancingTableQ42019.pdf&x=1572273355960&x=1572273435343

    Meanwhile, the Fed announced the Desk plans to purchase Treasury bills at an initial pace of approximately $60 billion per month, starting with the period from mid-October to mid-November.

    https://www.newyorkfed.org/markets/opolicy/operating_policy_191011

    So in one month alone the Fed will buy (60/92.79) about 65% of net new money planned for the whole quarter in T bills.

    Who’s hallucinating?

    • Bill William says:

      Who is doing the looting this time–is my question.
      https://twitter.com/NorthmanTrader/status/1187098316431155205

      Reagan–86, savings and loans collapse (600 billion)- 84-86 Real Estate collapse, 87- Wall Street
      Bush Sr.– 90-91 Keaton 5 Bank collapse (another 600 billion), 91-92 Real Estate Collapse
      Bush Jr.– 2008 Bank and Wall Street Collapse (1.5 trillion) and the Real Estate Collapse

  26. Pat McGold says:

    The fraud grows parallel with people’s stupidity and greed

  27. In counterpoint this market is entirely rational. Money exists of and for itself. The concept of money as a metaphor for value is entirely absurd. This is what happened to Bitcoin which is going to restore the value of money as a transactional tool to cross value goods and services. Should money be the primary value it is inevitable that someone will print all they need, and nations which print more, will be more rich than the others. The recent rally in stocks is Repo funded, that’s all. Earnings miss, no matter, the banks convert reserves into cash and buy stocks, stocks rise and they keep going back to the Repo window (oversubscribed!) to roll over their stash, and they are also monetizing USG debt, in order to double down on the faltering US credit rating with stock market profits (which are automatic as long as the planet makes money than it needs). No mass hallucinations but the proliferation of mood enhancing prescription drugs, which have migrated into rainwater (Mandrake), and opioids. Hard to get in a mood to sell stocks when you are high going in.

  28. Mike Earussi says:

    Too much money chasing too few goods is the classic definition of inflation, and that’s what a bubble is, just a mass of inflation concentrated in one tiny spot, in this case the stock market.

    Bubbles are both an inherent part of the capitalist system caused by the greed that is an inherent part of Human Nature. You can’t escape either, you just have to adapt.

    A “safe” investment is just as much of an illusion as a never ending bubble is. Investors looking for a safe investment are just fooling themselves in a system flush with way too much money concentrated in too few hands, which always produces bubbles.

    If you wish to “invest” your money then you’re forced to play the same game everyone else is but with the knowledge of its inevitable burst. This can give you an edge in that you’re constantly looking for signs of that burst and then hopefully get out in time.

    • nhz says:

      Not such a tiny spot if you add the bond market and worldwide real estate markets that are at least as bubbly as the stock market. IMHO only insiders will get out in time, not the general public who will be manipulated by the media to “hold on for the long run” and finally scared to sell at rock bottom prices.

      Sadly the alternative to taking big risks by “investing” – holding cash – is a water drop torture, in my country this means loosing 4-5% of your capital very year (interest rate on savings account 0-0.03%, inflation 2.7%, wealth tax 1.2-1.7%). But I don’t think anything of this is “normal”, it hasn’t been like this in my lifetime (nor in most of the preceding centuries). e.g. there was no pressure at all to invest in the Dutch Tulip Mania, just the madness of crowds – nowadays you are forced to play or loose anyway.

  29. RD Blakeslee says:

    How will the folks subject to “Consensual Hallucination” view those of us who will continue to live well outside their financial world, when their world goes South?

    On the other hand, how will those of us who are not living well eventually force an end to economic domination by the 1% who are most benefited by their promotion of “Consensual Hallucination” ?

    Times ahead not likely to be kind or charitable.

    • My Manifesto for Gold is based on the premise that the poor love gold most of all, and there are going to be a lot more of them.

      • RD Blakeslee says:

        I don’t know what “poor love gold” has to do with my question.

        But I think the assertion is amusing.

        Ads marketing gold are myriad. So much so that the FTC weighs in:

        https://www.consumer.ftc.gov/articles/0134-investing-gold

        Obviously, this economic activity is by people and institutions that are not “poor”.

        • right and gold has probably never been in a bull market in our lifetimes.

        • bungee says:

          Fredrick is right.
          How many ‘poor people’ do you know that buy gold? There are people that first worlders consider to be poor who save in gold. Time will tell how strong their hands are.

          You say you see lots of gold sale advertisements… I see none. But every single you tube ad seems to be a stock trading system where they’ll teach me three easy steps to make money in the markets.

          My 18 year old nephew started preaching bitcoin the day of the top. Now he wants to be an ‘investor.’ Funny, he never mentions gold.

      • Frederick says:

        The “poor” love gold the most huh? No actually it’s the Central banks ( think uber wealthy like Rothshilds) who hoard the most of the metal Like the saying goes Gold is for Kings And they don’t sell gold at Walmart’s as far as I know

        • A central banker provides a service to their customer. They buy gold in great part because their clients want them to. They do sell gold in vending machines in Europe, and you can buy gold using your CC, just like the big boys.

  30. Iamafan says:

    How about a mug with a “Consensual Hallucination” art work. That will be a collector’s item.

  31. timbers says:

    “It’s going to get worse before it gets worse.” – Lily Thompson. Central banks throughout the world are intensifying rate suppression. If you think this can’t last a very long time – forever as far as our lifetimes go – think again.

  32. Bobber says:

    How long can the bubble be maintained when the rational investor sees nothing to invest in?

    Buy a stock and you could lose 20% in a week, 70% in year.

    Buy a bond and you could lose 5% a year due to inflation.

    Buy RE and you could lose 30% in a few years while being taxed to death.

    But if you don’t play the game and invest your money, you may not be able to eat in the future, let alone retire.

    This conundrum was created by the Federal Reserve Board, which can’t leave good enough alone.

    • Frederick says:

      Solution Precious Metals Guarantee you will eat well and sleep better too

  33. Memento mori says:

    Dow will hit 30k within the year.
    One has to look at the Fed balance sheet, around 2009 was less than one trillion, today it is over 4 trillions, and we know it’s won’t be unwound. Prices have adjusted accordingly and will go higher unless the Fed goes into tightening/ unwinding mode which doesn’t seem to be the case for now. There are no other explanations, Fed with unlimited printing powers is omnipotent, it can own the world under its fingertips. Invest accordingly.

    • Unamused says:

      Fed with unlimited printing powers is omnipotent, it can own the world under its fingertips.

      The Fed is only one of several proxies, but the end is not in doubt.

      • Powell has abrogated the existing mandate for the Fed, and created a central monetization mechanism. With any substantive changes to long standing policies, come inherent risks. They blew off employment benchmarks, inflation, and lately the rate normalization scheme, and now their primary mission is to collateralize debt. Problem is when you are banker to (Treasury) Main St and the Mafia (Wall St) at the same time, your loyalties sometimes get confused.

        • Memento mori says:

          Yes, it blows my mind how the Congress is quiet on Fed shenanigans, they will spend months on hearings and committees for les than one billon deal, yet are totally indifferent to trillions that the Fed prints.
          The Fed has been operating outside their mandate for some time now yet nobody seems to have the guts to question them publicly. They are the only game in town.
          We will see how it evolves but given the Japanese precedence, I expect this to go on for a very long time, and god forbid if a recession hits, we are pretty soon going to get familiar with that other number that comes after 999 trillions, what is it…a quadrillion???

        • Unamused says:

          Yes, it blows my mind how the Congress is quiet on Fed shenanigans

          The host knows better than to annoy the parasite. It will only succumb faster.

  34. nick kelly says:

    If you’ve seen this movie before tell us which one ends with REAL appreciation in stocks. Obviously not Wiemar which was the greatest CB inflation ever engineered in a developed economy.
    At least the gold bugs are offering an alternative. How do common stocks, with no direct tie to real assets, shield one from a dollar collapse when they are only redeemable for dollars?

  35. Rah Rah Stocks says:

    The current rise in the stock market is based on sound fundamentals and is good for the country. I know this because the President says so.

    Watch out Wolf, the Department of Justice is starting a program to tie mental illness to those who question official government narratives. Those individuals may be detained or followed for their own good!

    https://www.mintpressnews.com/william-barr-formally-announces-orwellian-pre-crime-program/262504/

    • Wisoot says:

      https://decisiveliberty.news/eric-schmidt-exposed/

      Excerpt from this link:
      “PATRIOT: Can we stop the overthrow of free speech by Google, Alphabet, Facebook, etc.?

      JANE DOE: I don’t know. It may be too late. Stopping the spread of Broadcom/Qualcomm was a good start. But then they gave the software out to many companies and the $40 billion yearly subsidizing of 5G may be the end of America as we know it. I am encouraged by the actions against Huawei, ZTE, Lenovo, Chinese semi-conductors and micro-chips, and other such actions. But China marches on no matter how many troops may die.

      China is basically the worst enemy we have ever had now that Eric, through Alphabet, Boston Dynamics, Motorola, and his 5G spy satellites built for the U. S. military are in the hands of Chinese totalitarians. I really don’t know. If we listen to Eric, and I am never going to speak to him again personally, you would hear him tell America that we have two years before his Chinese plan to dominate America kicks in. If 5G goes in, Eric’s robots and the Internet of Things will control America. “

  36. Eamonn Harter says:

    “Consensual hallucination” is how cults operate.

  37. Mean Chicken says:

    Perhaps an austere religious scholar can be elected the next POTUS.

  38. Penny Wise says:

    I guess all that money I’ve made over the last 10+ years is a hallucination as well. You think in a use that defense when I decide not to pay taxes on this imaginary money I’ve made from the stock and housing market?

    Sounds like a lot of sour grapes to me.

    • Wolf Richter says:

      Penny Wise,

      Please listen to the podcast to find out what it is about. Just commenting on the title and stretching it to arrive at a broad conclusion — while being clueless about the content of the podcast — isn’t exactly a sign of brilliance.

      • Penny wise says:

        I’m actually an loyal follower since 2014 and have read every article and listened to every podcast you’ve posted. And I’ve learned A LOT!! But there’s something to be said about the performance of the markets. Yes, the housing market is finally beginning to turn. And it’s seems to be doing so in an orderly manner. And The stock market hit a 20% air pocket roughly a year ago yet here we mare a year later. Earnings continue to rise, the consumer continues to spend. Job market is on Fire. Wages are moving at a rate that will not stoke inflation. Outside of the tech hubs life is a amazing. Is it possible we may be in a Goldilocks phase? Debt is atrocious. I get it. So what? No one seems to really know what the tipping point is as it relates to debt to gdp for a country who’s currency is used as the standard for world trade. I mean, am I brilliant? No. But I can’t take a look at my net worth growth over the last 18 years and say I’m a dummy either. Thanks for responding to my previous comment tho. Means a lot.

  39. The Colorado Kid says:

    None of this crap is new-none of it. In the Early A.D. Emperor Tiberius had the first TARP Equivalent. If you study Economic History Germany did this as well in 1900 when it bailed out the big banks, who in turn, bailed out only the biggest customers and corps. This allows the biggest to get even bigger and vastly more wealthy and buy up all competition and perform regulatory capture which is where we are now. Meanwhile Capitalism gets blamed, when what we have now is certainly not Capitalism. All of this is tied to unsound money and the Government bail outs. This got started in order for the government to fund war. Previously, the government Treasury was only authorized to hold short term bills, this was changed along with the jettisoning of the Gold backed dollar. Fiat money only helps the rich and powerful, while sound money constrains these bastards and helps the average folks.
    Look at the 1800’s when we had sound money (except for the short time after the Civil War). We had a recession about every 4 years that purged the system and was healthy. The sound money part constrained the government and kept progress and upward mobility for the masses. Just imagine the start of the 19th century vs the beginning of the 20th and the upward mobility of the average citizen during that timeframe. This was the result of real capitalism & sound money and a government that was largely laissez Faire. I could go on, look at Germany from 1945 on through the 60’s where they just, kind of, let everything go and sort of started over organically.

  40. breamrod says:

    Wolf called the low in yields in sept. I think he has good nose for trend changes. Bulls beware!

  41. Jake Bodhi says:

    I’m cheap. I’ll settle for a sensual hallucination. That’ll save me money on both ends…

  42. Raymond Rogers says:

    People still believe that the Russians meddled in our elections in a meaningful way, so it’s not suprising that the masses believe in what goes up, must go up further.

  43. IslandTeal says:

    A few people on this blog get it… Got Gold??

  44. andres lopez says:

    What is the diference betwen crypto and fiat?, because the fiat is the same alucination, the only diference is one is a paper an the other is an algortim

  45. SaltyGolden says:

    In both content and execution this is hands down the best WOLF STREET REPORT so far. I am going to steal “everyone believes that everyone believes” for use in casual conversations going forward, it captures the essence of a lot of silly phenomena. I will cite you.

    Well done.

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