What Will Stocks Do When “Consensual Hallucination” Ends?

The phenomenon works – until it doesn’t. What’s astonishing is how long it works.

This is the transcript from my podcast last SundayTHE WOLF STREET REPORT:

There is a phenomenon in stock markets, in bond markets, in housing markets, in cryptocurrency markets, and in other markets where people attempt to get rich. It’s when everyone is pulling in the same direction, energetically hyping everything, willfully swallowing any propaganda or outright falsehood, and not just nibbling on it, but swallowing it hook, line, and sinker, and strenuously avoiding exposure to any fundamental reality. For only one reason: to make more money.

People do it because it works. Trading algos are written to replicate it, because it works.

It works on the simple principle: If everyone believes stocks will go up, no matter what the current price or the current situation, or current fundamental data, then stocks will go up. They will go up because there is a lot of buying pressure because everyone believes that everyone believes that prices will go up, and so they bid up prices and chase stocks higher.

I call this phenomenon “consensual hallucination” – “consensual” because everyone eagerly smokes the same stuff in order to be able to get the same hallucinations everyone else is having, and to be part of the movement, because they believe that this movement will make them rich, and if enough people have this consensual hallucination, and if algos are programmed to trade with it, then it works wonderfully.

Until it doesn’t. The moment it doesn’t is when this hallucination begins to fade. And what happens then?

One of the most fascinating places were consensual hallucination is beautifully at work – until it isn’t – is in the entire cryptocurrency space. At first there was just bitcoin. Then more people invented their own cryptos and started selling them to others for real money. By now there are 2,350 cryptos listed on coinmarketcap.com. Everyone can create their own cryptos and attempt to sell them.

But in order to sell them and push up prices and make money, the creators have to get enough people together that eagerly transition into this consensual hallucination – the feeling that everyone is pulling in the same direction, and that this thing is going to go up and make everyone rich if everyone believes that everyone believes that it will make everyone rich.

There is no fundamental basis for any of these 2,350-plus cryptos to have any value above zero, from bitcoin on down.

But as the folks in the crypto space have found out, this consensual hallucination can suddenly wane, as enough folks are starting to cash out because they no longer believe that everyone believes that this thing will go up further. And suddenly, once they come out of this consensual hallucination, they worry that this sucker is going down. And they try to get out.

This is when prices begin to decline, or plunge, and these dropping prices pull more people out of their hallucinations with a sort of rude awakening, and they sell in order to hang on to what they still have left, and this pushes prices down further and yanks more people out of their consensual hallucinations.

It works wonderfully on the way up, and it can last a lot longer and be a lot more powerful than folks who haven’t smoked the same stuff think possible. But at some point, it turns into a treacherous and gut-wrenching mass-awakening.

To pinpoint when consensual hallucination begins to fade and more people come out from under it is the hardest thing in the world. Since consensual hallucination is by definition not rational, there is no particular rational cause, by definition, for it to end.

But consensual hallucination is not permanent. And it ends. It might be an extreme event that shakes people out of it, such as a severe recession or a financial crisis. Or it might be something more mundane, such as the perception that now is a good time to sell that then begins to spread.

If rational reasons had been allowed to rule those prices, they would have stopped rising a lot sooner. And some things, such as cryptos, would have withered on the vine.

At some point, people do come out from under this consensual hallucination. This can happen very gradually and unevenly, or suddenly and all at once. History is full of both events. And often it’s a combination, at first gradually and then suddenly, or vice versa.

The world is full of stock markets where this has happened:

The Japanese Nikkei index is down 42% from the peak in 1989. This 30-year saga had several big plunges and lots of long phases where stocks were just meandering lower, interrupted by rallies. Japanese stocks are a superb example of consensual hallucination through 1989, followed by a treacherous and gut-wrenching awakening.

China’s Shanghai Stock Exchange is another perfect example of consensual hallucination that people eventually came out of. That market peaked in October 2007, then plunged as people came out from under it, then soared again but not quite has high, and today remains 52% below the peak 12 years ago.

There are many other similar examples, including Italian stocks that are down nearly 60% from the peak in 1999. Or French stocks, down 18% from the peak in 2000. Or Spanish stocks, down 40% from the peak in 2007.

The cryptocurrency space has gotten crushed since the end of 2017, amid the enormous multiplication of cryptos.

In the US, the whole stock-market system is laid out to promote consensual hallucination.

Wall Street’s “research” reports are designed to promote it. Big-money interests that are heavily invested in it promote it. Warren Buffett promotes it. The President promotes it. The Fed promotes it.

The Fed promotes the idea that it has surgically separated stock prices from economic and business realities by trying to get everybody to believe that everybody believes that it has succeeded in doing so, that no matter what, stock prices will always go up. If that doesn’t work, and markets drop anyway, then everyone believes that everyone believes that the Fed will prop them up.

The entire financial advisory industry promotes it. Brokers promote it.

Corporate earnings data is out there for everyone to see, but no one wants to see it. Instead, everyone wants to see and believe the fairy tale that Wall Street and Corporate America spin with such skill. That can take many forms, such as promoting “adjusted” earnings that have obviously been adjusted for the sole purpose of driving share prices higher.

Or promoting “forward earnings growth,” which means earnings growth sometime in the future, and it is always huge, and everyone knows that as the reporting date moves closer, those expectations are lowered. But it’s those distant, wildly inflated “forward earnings” that are used to figure “forward” earnings per share estimates, that are then bandied about as rationalization for the gravity-defying stock prices.

That these “forward” earnings are the biggest hoax out there isn’t new. Everybody knows that everybody knows that they’re dragged out to bamboozle, well, exactly whom? Everybody else?

But it works – as long as everyone believes that everyone believes that this will drive stocks higher. Many people believing in the same thing creates momentum, and momentum creates more momentum, and chasing this momentum creates even more momentum. But then something invariably happens, and the process falls apart.

What’s astonishing is just how long consensual hallucination lasts, and how shocked and appalled people are when it ends.

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  147 comments for “What Will Stocks Do When “Consensual Hallucination” Ends?

  1. RepubAnon says:

    I’d call it the “Tinkerbell Syndrome” – Tinkerbell only exists if you believe.

    The collapse is best shown by the line from Men In Black 1 “It’s like the party’s over, and the last one to leave gets stuck with the check.”

    It’s a variant on the “pump and dump” strategy, except that everyone’s pumping – and planning on dumping when the market peaks. As few folks can time the market perfectly, there’s lots of risk.

    • Michael says:

      Hallucination and illusion are terms that were used post-crash to refer to the market before the 1929 crash. For fun we should watch videos about that crash. It will be like Deja Vu.

      Welcome to the dark side, Wolf. The water is warm. Roubini, you, and I can later repeat to all: I told you so.

    • Old-school says:

      I am basically out of the stock market in short term treasuries. I have started researching stocks on the most shorted list looking for something I think is overdone and that I understand as an investment. I put 5% of my portfolio in so if I lose it all not too painful. First one I got lucky and made money when the company beat expectations and shorts got squeezed (PETS). My attempt this time is SKT (Tanger Outlets). Days to cover for shorts is 17. Dividend 8.5%. It’s a retail REIT.

  2. flying kiwi says:

    Slightly off topic but it would be interesting to see a breakdown of all the share repurchases. Eg What a companies earnings per share would look like before it did repurchases and what they look like following their repurchases.

    Share repurchases have to be the biggest con on share market investors.

    I also think the “gurus” who predict the estimated returns for these large companies set their expectations as low as possible so everyone can claim they beat market expectations.

    It appears that if a company does not think it will meet market expectations they simply buy back their own shares and hay presto market expectations beaten and management get big bonuses.

    • Kiers says:

      The SEC wanted disclosure from Cos about the average price they bought at in the quarter preceding……..The Cos went all “Tea Party” angry against the SEC!!! No……disclosure…….at………ALL about what’s happening with Shareholder cash!

    • Martok says:

      @flying kiwi – I think what you said is right on topic of “Consensual Hallucination” that Wolf has rightly called, and yes I too believe both yous are correct in your statements.

      One of the stock groups I’m in have that consensual feeling that the market will continue to rise, and very few saw the meltdowns of 2008, 2000, or 1987 like I have.

      They believe “somehow it’s different this time” – Ha Ha – however it’s a matter of time when all will fall apart.

      We are seeing the slowing down of the world economy, and the “spigots” of money being thrown in world markets, lower interest rates, cheap money, and buy backs of stocks to keep this “Hallucination Fix” going, and when a major event(s) happen the carnage will be horrendous, – worse than 2008.

    • Jon W says:

      It’s not really a con for anyone but value investors. Share repurchases through debt issue is just a way to transfer cash raised as debt through the corporate veil and into stockholder’s bank accounts where it cannot be reached on insolvency. As long as you sell the stock before the debts sink the company (or better, bought cheap enough that it doesn’t matter), you get to keep the money.

      Indeed, if you are a senior enough bond holder (doubt any member of the public can get in on that action) you’ll even get to pick up the profitable core of these companies once they are restructured and all the other bond and share holders are wiped out.

      At this point surely everyone can see this is what is going on. But what are your options? Play the game, pocket the ludicrous amounts of cash, and keep an eagle eye on the fed to see when it’s time to bail, or stick your money in the bank and watch it get eaten by rampant asset price inflation and the eventual bail in haircuts.

      Also there is this great sea of zombie investors (govt enforced pension funds) that will happily pile into the bag holding position, so you don’t even have to worry much about finding a bigger fool.

      The whole situation is a joke. This is what our once great market economy has come to. We used to send people to the moon.

    • Dale says:

      For the S&P 500, the divisor is down 4%, which indicates that about 4% of all stock (in aggregate) was bought back, in the last 2 years. The total market is now about $40T, suggesting about $1.6T in buybacks, which sounds about right.

      The only problem I have with buybacks is the moral hazard. Executives, as documented by the SEC, tend to schedule repurchases so as to make the price high when they are selling. Meanwhile, as shown by IBM and GE, the company hopelessly languishes due to underinvestment.

      • Old-school says:

        Some of the older companies have a lot of pension obligations and have headquarters and operations in high tax states.

        I like finding younger companies that have no pension obligations and are head quartered in business friendly states. The manager and board have to demonstrate over time that they are shareholder friendly. If you arent sure, forget it.

    • christmasape says:

      I’m sure just a crazy coincidence that this mega-bull market started in the depths in 1982.

      The same time the Govt. changed the law making it legal for public corporations to buy their own stock where before it was insider trading!

      • Dale says:

        It wasn’t a law change, it was an SEC rule change. In exchange for a set of measures to be taken by companies to ensure against manipulation, the SEC allowed repurchases.

        The problem is, the SEC has admitted it has never checked to verify those measures were taken.

  3. Joe says:

    Like playing these computer games and buying chips with real money and have a big win…The payouts are in imaginary chips that have no cash value.

  4. Crazy Chester says:

    Wolf: You said the same thing over and over again, until you didn’t. And it was funnier and funnier each time, until it wasn’t.

    • karate kid says:

      There seems to be a real cog-dis here about the truth. PPL are saying their profits are real during this hallucination.

      Sure their real, but they’ll evaporate just as quick as they appeared, unless of course you cash out and bury your loot as gold, or something valuable that doesn’t rot in the ground.

      Sure you made a ton on RE, but better sell it and hide the loot quick. Sure you made money in the stawk-mark, but again you better flip that into solid real tangible hidden from tax-collector asap. That’s probably the biggest noise coming from the rich right now, they see populism in full swing, and they see massive ‘takings’ of cash & assets from those who didn’t play the game.

      Double edge sword to have to post a blog every few days, when there is nothing new under the sun, most of us of course just search for conformation bias.

      It’s noted that most of comments I’m seeing here and on ZH, are clearly generated by bots that don’t get past the subject line.

      It’s sad, not long ago the comments were the best part, many just skip to the comments, but something strange has happened in the last 1-2 years. Where the good commenters are shadow-banned, or dropped, but the auto-generated bots just grow and feed back loop each other.

      Pity Wolf much, having to post so frequently, nothing new to say, yet must be entertaining, …

      • Bam_Man says:

        The profits are only “real” once you SELL and NEVER go back in.
        That is a lot easier said than done for the vast majority of so-called “investors”.

      • Old-school says:

        I agree that it seems like the can is being kicked forever. I have decided that it’s a good time to prepare my buy list and buy price based on my own assessments of long term GDP growth 4% nominal and 7 – 8% personal equity return requirements for an investment. If market doesnt drop that low thats OK.

  5. Kiers says:

    Big Buy-Side Money Game: (laid out bare and simple)
    STRATEGY A: (momentum following markets, IE. when spot and 20DMA keep rising)
    1) Throw huge blobs of money at once, INTO spot equities
    2) Start selling the same amount OUT in small increments over the month

    1) Throw huge amounts on spot equities Index ETF
    2) capitalize on call option on same

    Rinse, Repeat. Point to your CFA credential and Diploma on wall..

  6. andy says:

    Well, they fixed the yield curve to near perfect. And Tesla is raising prices for self-driving car. Or you can get an Uber, like some loser.

    • Frederick says:

      That’s exactly the kind of condescending thinking that James Kunstler was just talking about Why are you a “loser” if you don’t buy the latest stuff? Especially if you live in a city with high costs and good mass transit I think you need to rethink your comment Andy

  7. Wolf did you really write that article or was it a figment of my imagination? I’m so confused. 2% inflation? Not QE? The greatest US economy ever? Wework at $47 billion. If I wake up will this just turn out to be the final episode of St. Elsewhere?

    • Wolf Richter says:

      Tommy Westphall,

      One of those things that you listed has already been taken care of, namely the $47-billion WeWork :-]

      • Mark Pontin says:

        Wolf, I’ve been following your work teasing out the Softbank situation and its ramifications with admiration. But this whole piece could have been summed up in two words: Minsky moment.


        Regarding Softbank, scuttlebutt I hear from one East Coast biotech VC that Softbank is now forcefully encouraging its Japanese employees to invest their salaries in the company’s own stock so as to prop up the share price.

        Regarding the more general picture — what happens to RE values when the Softbank ponzi and the rest of the real economy go south — an executive at Kohler (the global purveyor of baths, plumbing and bathroom accessories, so a good indicator of the real economy) told me three months ago that Kohler’s business was already down 25 percent.

  8. rhodium says:

    The funny thing in a frustrating way is, any asset bought and sold in a market could probably go far higher in “value” than it is now. Even though tweedle dee could keep trading back and forth with tweedle dum at whatever price they both agree to, creating volume at ever more ridiculous valuations, eventually a price gets so high one of them simply cannot afford it. There are budget constraints related to money supply. However, I don’t think the system ever gets to that point. A few sly investors long before the limits are reached do actually manage to time the market as first movers. Or perhaps a black swan crashes into a window (don’t shatter my general equilibrium bro), jk, only people who think like tweedle dum would be silly enough to shake Eugene Fama’s hand and smile. Basically, sooner or later there has to be a tipping point where a critical mass of first movers calls bs. Personally, I keep an eye on junk bond yields. Stocks are in the clouds but reluctance to actually fund this stupidity is growing and yields are creeping up. All it’s going to take is a default somewhere, and that particular “black swan” might very well have sticky black shale oil feathers. Nobody should say though that it flew out of nowhere.

  9. raxadian says:

    The Fed lowered rates yet again, I think the “Dream” still has a few months left.

    • Frederick says:

      What will “the FED” do if and when the real collapse starts with its already having shot its wad? That’s what I want to know Oh right deeply negative rates I almost forgot that’s even possible

    • MC01 says:

      Has anyone got a remotely believable explanation for this latest idiocy? I mean: financial markets doing great, very good GDP growth figures, inflation only kept somehow in check by energy prices (not to mention statistical manipulation), commercial real estate valuations overheated by the Fed’s own admission, US banks grumbling because their easy profits are evaporating… and these folks act like Lehmann Brothers has just collapsed.

      Unless some phenomenally good explanation surfaces over the next couple months I’ll have to stick to that old but always true axiom: “Never attribute to malice what can be adequately be explained by stupidity”.

      • cesqy says:

        I have read it takes about a year for the fed’s interest rate changes to filter into the economy. Thus, each saver with $100,000 in a short term treasury has effectively made a “voluntary stimulus” contribution of $750 to next year’s election economy, compounded annually of course.

      • Old-school says:

        I think the answer is that we are near the end of a business cycle. Unemployment has went from 10% to under 4%. That’s a big tail wind but that’s about over. As we got near full employment we got the tax cut that gave us another boost.

        We are at roughly max employment with people feeling good and spending. The Fed is cutting, the govt is running trillion dollar deficits to keep it all going. We are at peak earnings and peak price. In a recession it’s going to go in reverse very quickly. Earnings will go down and price will go down and then we will see some even crazier stuff happen. At the micro level we have to keep our own personal house in order so as not to become a casulty.

        • Frederick says:

          How can you truly call it full employment when so many millions of people such as myself just gave up looking for meaningfull employment years ago? It’s smoke and mirrors and we all know it Aftermy divorce in 2008 I retired at 54 rather than take some minimum wage job just to say I was working 40 years in construction was enough for me

        • Dave says:

          Wasn’t the formula for calculating unemployment greatly changed in the last 10 years? I’m pretty sure the 4% of today doesn’t compare to the 4% we had the last time unemployment was low. I know for sure that they stopped counting people whose unemployment has run out, for example, on the assumption that they must have gotten a job when the checks quit coming. Didn’t they also start counting part timers different?

        • Wolf Richter says:


          “I know for sure that they stopped counting people whose unemployment has run out, for example, on the assumption that they must have gotten a job when the checks quit coming.”

          Those are two very different measures.

          1. Unemployment insurance is activated when the former worker applies for it.

          2. The unemployment rate is figured via household surveys. I’ve been selected in the past, and participation when you’re selected is compulsory to avoid selection bias. There are a bunch of questions, such as (and I don’t remember the exact wording): Do you now have a job? If not working, when was the last time you actively looked for a job? And they give you examples what the means. Why are you not working — student, retired, homemaker, etc.?

          The surveys establish how many people are working; and of those who are not working, how many are looking for work (precisely defined). The definition of “unemployed” is: not working but looking for work. If you’re a homemaker or retired or just rich and you have no intention of getting a job, then you don’t count as “unemployed.”

          People looking for work plus the people who are working form the “labor force.” And the people who are looking for work but are not working divided by the labor force is your unemployment rate.

          There are various definitions for each element, and so the Labor Department publishes various unemployment rates and under-employment rates. The headline number is just one of them.

          In addition, there are surveys of businesses (“establishments”) about jobs at the business location that receives the survey. My tiny little company has also received one of those surveys. This is where the “job created” number comes from, not the unemployment rate.

          The jobs data is a complex huge data trove that is being published once a month. The headlines are just over-simplified summary data.

    • Old-school says:

      I have learned a lot reading Hussman and one is when people realize the tide is going out and they are going to lose money there is nothing the Fed can do to stop people from selling. They will be cutting and QE ing but it will not matter until the panic is over.

  10. colonel Klink says:

    Well its an election season, this is what they do.

    Besides, they just reduced interest rates, and as we all know that means stock go up.

    Infinity folks. Infinity, and that is not a hallucination.

    Even Madoff called the USA system a ‘PONZI’, but guess what its the most effective killing machine in the history of the world. Who is going to stop the ponzi? Especially when a nation of 320 Million Mercenary killers are willing to die for the ponzi.

    Question: Why does Wolf close off a previous exact post, and re-post for the same exact replys? Just curious.

    • JZ says:

      I thought 320 million with 300 million guns are supposed to die for the constitution, NOT the ponzi, right?

      I have heard of people suicide bomb themselves for the Jihad or get 12 wives after they die. The Ponzi, as a good story, can NOT have as much influence as the promise of 12 wives. I wonder why would anyone out of the 320 million would like to die for the Ponzi.

      • NBay says:

        Yeah, I kinda think “willing to die” usually implies the certainty of an afterlife.

        As I have never chatted with a burning bush, count me out, at least until old age stuff just gets too unbearable.

  11. Nicko2 says:

    My mother cashed out her 401k last week, it doubled in the last 10 years. I think her timing will prove prudent.

    • Old-school says:

      Sounds good. Don’t make the mistake of Isaac Newton of getting out, but getting sucked back in as it went higher. He lost it all I believe.

    • endeavor says:

      Yep. Put her 401k in cash and tell her she will be one of the few who ‘beat the market’. Congratulations!

    • NBay says:

      I always called it “riding with the rich”. I quit all of it long ago, like 2007.
      No regrets, have reasonably secure minimalist food and shelter for what’s likely left of my life….”bucket list” was completed by 33, when I could really enjoy it.

  12. Rchadz says:

    Also there has to be a time when the amount of money going into managed funds will decrease due to demographics eg baby boomers no longer saving for retirement. Bankers down where I live are also getting cautious, it’s like a cycle that eventually comes around. Less money going into the market, prices will fall? But I think so.

  13. medial axis says:

    Bitcoin isn’t about getting rich, it’s about getting free.

    • JZ says:

      If you want to be free, get guns. This is the part the hodlers don’t get. Hodlers think they can get free by playing math games? Through out human history, it has been guns. Technology advanced a lot, but the way human f*** humans have remained the same. Nothing new under the sun, so I would guess the break free solution remains the same too. Just my opinion.

      • George Kovachev says:

        To be fair, it shoud be noted that the bitcoin itself was never intended to be used as an “investment asset” (and most definitely – not as speculative one).

        If anyone bothers to read Satoshi’s white paper (I suspect that most of the so called “cryptoinvestors” never did), one shall see that the bitcoin in particular was intended to be used precisely as a currency – as medium of exchance, and, due to its digital nature, could be used as an unit of account (if anyone choose to do accounting in bitcoins).

        Regrettably, it was turned into a big Ponzi-scheme by the so-called “crypto-exchanges” and a lot of companies, created with specific purpose to waste a lot of electricity in order to perform pretty much meaningless calculations with no real-world purpose.

    • Rich says:

      Free of what? Money?

  14. Jeff Relf says:

    Japan can’t grow its GDP without growing its population;
    and that’s not going to happen — neither kids nor foreigners
    are welcome there.

    Such is the global trend;
    it’s not confined to Japan.

    China and India’s primary advantage is
    their a huge supply of poor people;
    Chairman/Comrade Xi is a robber baron.

    • karate kid says:

      Just got back from Japan ( I live in Asia )

      Every hotel, every lousy-job, I saw was being done by foreigners.

      I saw USA kids, lots of Filipinos, and people from Europe and South America. The deal is its there now, if you want to work, if you want a job, its clear to my own eyes that Japan has opened up. Most were young, I didn’t see any older foreigners do the low-level jobs. That said I saw ton’s of ex-pats on the streets of major urban centers walking with Japanese businessmen, fluently speaking Japanese.

      There is no homeless, no poverty, and no shit on the sidewalks, and no drooling drug addict zombies wondering around. Funny thing is the people in USA have been told that Japan has been dormant for 30 years, but my own eyes tell me its every bit as vibrant as Shenzhen, or Shanghai.

      • Wolf Richter says:

        karate kid,

        In Tokyo, the homeless people have been moved to less obvious places. They’re still there (maybe in smaller numbers than in the 1990s when I first went to Japan), but you’re less likely to run into them. Every homeless camp I have seen in Tokyo was a paragon of neatness.

      • Iamafan says:

        Many foreign workers in Japan are hush-hush.
        You see them mostly in places TOURISTS DO NOT GO TO.
        Ask most Filipino workers in Japan, they will just smile back.
        It’s not only Japan. You can go down as far as Australia, or anywhere far. Good for you, you live in Asia and you have another point-of-view.

    • Old-school says:

      Last data I saw Japan was doing better than US on a GDP per capita basis. That’s what counts for individuals.

      • Pedro says:

        Japans population will decline by 30% in the next 40years. GDP/capita will shrink on a relative basis. BoJ will print money to ensure the nominal stats rise.

        Also, what does Japan export these days? They used to be the epicenter of consumer electronics and cars. China owns that market now. What industry does Japan actually dominate? Maybe industrial robots and speciality electronics, that’s all I can think of..

        • nick kelly says:

          The parking lots around me are full of cars made in China. To fit in I may have to get rid of my Honda and get a Chery.

        • Petunia says:

          Japan is the most trusted market for second hand luxury goods, from designer handbags to watches. People buy online and travel there to find used versions of their favorite luxury brands. It may be a small market, but it is a respected source.

        • char says:

          Japan makes the things that go into consumer electronics. The camera chips are mostly Sony and made in Japan. They are also big in machine making and chemicals. Still make plenty of cars and ships.They are also surprisingly big in aviation. But the market they really dominate is chemicals for chip-making. Ask Korea for how long

    • Robert says:

      Those are all good points- and I personally believe that an aging population does not bode well fopr a prosperous future- but anything that boosts productivity will produce growth in GDP regardless of population remaining static, no?

  15. karate kid says:

    You ask the rhetorical questions about stocks, but then content talks about crypto and unicorns.

    We know where crypto & unicorns are going. To Zero.

    The question then begs to ask ‘stocks’, even during great depression, great companys continued to operate.

    It’s would be useful to make a post such as “When the Hallucination ends, when Icarus crashes back to earth, How will you survive?”

    It would be interesting in the comments to see what preparations people are making.

    My reading the comments on this blog tell me that most are bambi in the headlights, making their funny-fed bucks on RE, and stocks to the moon, and crypto/unicorns to boot and they expect it to last forever.

    Let’s remember that all this free/easy money since 1987 is what has fueled all the bubbles, and the FED simply can’t keep doing what it did, we’re now pushing on 40 years, and historically that as long as most reserve currency’s live.

    • JZ says:

      My W2 is more than what I spend.
      I used to be 8:1 Cash:Debt. In the past two years, I got so scared by what FED is doing and I know nobody knows how this will end and when, I adjusted to 1:1.5.
      I want to stay above 1:1, but my wife became greedy since everybody else has done so well. I am NOT looking for getting ahead, I just want to stay alive. Most people I know have Cash:Debt < 1:5, and they are all betting on one thing, “they can NOT raise rates or the US treasury will be in trouble and there will be political consequences”. This ONE thing is soooooo powerful that people think they are playing the game right. Jay Powell has shown how he turned 180 after what happened last december and people remember to reenforce belief in this ONE thing.
      For me? I believe they can NOT force people to eat shit when shit happens like in the repo market. Fed can NOT just say “let it be 1.5%” like God and the repo will be 1.5%. THey have to go into the repo themselves and do things to get their hands dirty and gold is shooting over 1500$. I think there is a limitation to FED, but my wife and others do NOT believe FED can fail. This is the gamble of the century and everybody is in it. Well done, FED, you have corrupted honest working people into wealth transfer gamblers. Why don’t you legalize prostitution and cocaine so that everybody gets STD and become incapable of work?

      • Iamafan says:

        Re: I think there is a limitation to FED, but my wife and others do NOT believe FED can fail.

        This is when “Consensual Hallucination” finally ends – The Fed and US Treasury CREDIBILITY.

        History normally repeats itself.

      • Petunia says:

        There is a limitation to everything including gold. If gold was such a great investment or great hedge the insurance companies would have stacked it to the sky. But they don’t, even though they are insurance experts, because it is not as valuable as most imagine. In this new world if it doesn’t have utility, it doesn’t have value.

        • Kerry says:

          Keep telling yourself that…

        • JZ says:

          Gold’s utility is anti government corruption. When nations are corrupted at business or commercial level, gold has no utility. Once a nation corrupts to the money foundation level, gold will start to have utility. When nation corrupts further, then guns will have utility. US did not clean up the rot in 1987, 2002, 2009, and let the rot corrupts down to money system, this is 2019. They just keep going and my suspicion is that gold start to have utility. I can NOT gauge the level of corruption against accumulated US national wealth and how long it still has to sustain this corruption, but I am 100% clear of the direction. But hey, even the sun decays, so let’s do what is natural.

        • Old-school says:

          I agree with this concept of utility and value. Within the last week I had three retail transactions that added value to my life. All gave me exactly what I wanted in a way I am happy with:

          1. Two quality tires installed for $215.
          2. A haircut $14
          3. 353 lbs of seasoned firewood for $40.80

          I was especially happy with the firewood because I didn’t want too much. Never knew you could by firewood by the lb.

        • bungee says:

          Your view is unequivically wrong, Petunia. Does a Monet have utility? Does a classic car that never gets driven? If it doesnt have ‘utility’ it means that its price is arbitrary. But that doesnt mean its price is low.
          I put utility in quotes because all of these things DO have utility: store of value. In a hundred years there is a very good chance a Rembrandt will still fetch a high price. Same with gold. And by the way, you are living in an age of systemic gold suppression. Ive asked you before to please think about the LBMA and bullion banking and just how exactly the ‘price’ is determined. Gold is special. Its not copper or oil, doesnt get used up, is indestructable and has a phony market. It is the buy of a lifetime.
          What if there was a paper market for your Picasso? But only you owned the real thing? The paper would trade and set the price. But honestly, we wouldnt know what it was worth until you brought it out for auction and only one person was gonna take it home.

        • Saltcreep says:

          I certainly find utility in it, Petunia. It allows people to ensconce capital away from the manipulations of monetary authorities that seek to transfer away the purchasing power of low risk savings.

          I wouldn’t feel particularly secure being exclusively invested in a dangerously unstable environment that strongly encourages that all capital reserves be consumed on an ongoing basis or constantly put at risk in leveraged markets, whilst compensating risk takers for their losses by diminishing the value of the savings of more frugal and cautious participants.

    • Paulo says:

      Well Karate kid, I would list our family preps but then Wolfmeister would have to chide me publicly and suggest a move to some kind of prep blog.:-) Suffice to say there are a few who contribute comments to WS who have no debts and solid time-enduring assets.

      Health, attitude, work ethic, and no debt would be a good starting foundation, imho. A supportive family and community is rocket fuel in this dog eat dog World.

      To investment savvy contributors, I continue to learn more every day the limits of my wheelhouse and limitations due to your comments and opinions. In the early ’80s I learned to ask this one question, “If I don’t have special/inside information on a company, why would I buy their shares”? Of course this was all about the Vancouver listed mining sector, but still. And I see the Bre X geologist died the other day, you know the one, the guy who salted the Indonesian jungle floor with nuggets? In today’s world he would be a tech unicorn guy, or maybe building EVs in Nevada. Regards.

      • Albieok says:

        Ahhhh, Bre-X. Consigned to the dustbin of collective attention deficit disorder. We. Do. No. Learn.

  16. Bet says:

    Spx ndx at all time new highs on long term negative divergences. Running on fumes
    The kicker is, the markets have gone so parabolic since 2016 they can drop 40 percent and still be in a raging bull

  17. Unamused says:

    What Will Stocks Do When “Consensual Hallucination” Ends?

    America’s fine institutions will respond to the crisis vigorously with interest rate cuts, tax cuts for the rich, increased subsidies to corporations, and an end to those wasteful SS, health care, education, infrastructure, and unemployment programs that caused the crisis in the first place.

    Stocks will probably double again, or triple, just to make sure. So will the national debt and poverty statistics, but it’ll be worth it.

    • Pete in Toronto says:

      I always read “tax cuts for the rich” as “tax cuts for the biggest taxpayers”.

      • 91B20 1stCav (AUS) says:

        @Pete-fine, but until they soldier, on the front lines, in proportionate numbers to their wealth, why should they expect the less-wealthy citizenry to take on the socialization of that responsibility?

        Of course, the current wholesale development of slaughterbots may make a nonsense of my question.

        A better day to us all.

  18. RD Blakeslee says:

    My goodness!

    All you nattering nabobs of negativism.

    • Unamused says:

      That’s clever, Spiro. You should write for sitcoms.

      Honestly, reality could reassert itself at any moment, and that’s a real threat to skyrocketing rentier profits – er, public safety. The irrational attachment to mere facts represents a dire national security threat, and you’re just lucky to have a stable genius working every sleepless night to criminalise it.

      A single mediocre quarter for the robber barons is the signal everybody has been dreading for the oncoming recession. Patriotic Americans must therefore make major sacrifices and reduce themselves to destitution to support the heroic tycoons, on whom the entire economy depends.

      Therein lies the path to salvation. It’s the only way.

  19. Old-school says:

    The good thing about the stock market is there are so many types of businesses from highly speculative to no growth dividend payers. The local big utility is DUK and pays out nearly all earnings with around a 4% dividend. It’s a long lived investment like a 30 year treasury. If those were my only two choices I would probably choose it rather than a 30 year treasury because the relative reward to risk is better.

    If you allow me a third choice of investing anywhere along the treasury curve then I would choose either cash or a shorter term treasury to wait for a better time to invest. Waiting has a cost of a little over 2% per year on the DUK investment and very little cost over a 30 year treasury.

    • I’d bet heavily on the 30 year treasury over DUK. Stocks 30 years from now will be worth much less than they’re worth today non-inflation adjusted.

      • Mike N says:

        Inflation is what you should be concerned about. Cash and bonds are not as safe as everyone seems to believe.

      • Old-school says:

        You could be right. The one thing you can be pretty sure of is the government going to pay you back in worth less dollars. How much less is unknown but if you trust the Fed its going to be 2% decay rate.

    • char says:

      they exploit a consumer gas network. You believe that still has use* in 30 years?

      *) Not as a cheap way for Google to lay fiber to the last mile.

  20. c1ue says:

    No, the writing is definitely on the wall.
    It isn’t any one thing, but it will be everything at once.
    Real estate: the Chinese have left the building.
    There’s still flight capital money coming but it is a trickle of what it once was. Between the greatly tightened capital controls in China and the ongoing nationalist wave/anti-China stance in US/trade war, the recycling of Chinese surpluses into US college degrees and McMansions doesn’t look like it will maintain, much less grow.
    Stocks: there have been less shares available every year since something like 2002. That’s how heavily the buybacks have been. There are less companies as well – yet another symptom of late stage banksterism.
    The US has been cutting rates, more or less on a straight line, for decades and we just bounced off zero / ZIRP. The boomers are now starting to hit retirement and low to zero COLA on Social Security plus nearly invisible returns on bank deposits isn’t something they’re particularly able to tolerate, but the US debt is now so large that any return of interest rates to normalcy would seriously hurt the balance sheet. The foreigners don’t think Treasuries are a good investment – their net ownership has continued to be net zero for the last 7+ years.
    Central bank holdings totaled over $4B in November 2012; it is $4.196B today.
    Total foreign ownership was $5.5B in November 2012, it is $6.85B today.
    US national debt was $16B in 2012; it is $22.7B now.
    For comparison: US national debt was $5.67B in 2000; it increased $10B from 2000 to 2012 but foreign holdings of US Treasuries went from $0.6B (central bank) and $1B total to $4B (central bank) and $5.5B overall. Or in other words, foreigners bought 45% of the increase in US national debt from 2000 to 2012 vs. 20% of the debt from 2012 to today.
    And I suspect a lot of that $1.35B is because of rate hunting bond purchases by Japanese individuals and institutions.

    • weinerdog43 says:

      clue, I don’t mean to be harsh, but are you sure your numbers are correct? These days, $1B is something of a rounding error. Don’t you mean trillion with a T?

      • c1ue says:

        You’re right, convert the billions to trillions.
        Pretty sad when annual deficit numbers are in t’s…

        • weinerdog43 says:

          Sad but true. This money will never be paid back. A billion dollars is pretty hard to imagine, but a trillion, jeez. Your fundamental point is still absolutely accurate.

  21. David Hall says:

    Marijuana stocks rose on hallucinogenic euphoria, then went down as the stocks were over hyped. The product was faulty. Brain fog is not a good investment.

    On a day when people want the price of their houses to go up, inflation might drive most prices up along with housing in the long term. Some investments may be better than cash over the long run.

    • Unamused says:

      Brain fog is not a good investment.

      Only because the issue was so oversubscribed the returns bottomed out.

    • hobartchic says:

      Nor are the side effects of constant vomiting and psychosis (estimates have gone up from 1 in 10 users to 1 in 2 depending on data sources) taking up E.R.s in the US where it’s been de-criminalized. I do not want that here in Australia where our hospitals are already slammed but our Doctors are not fighting hard enough for the majority and for the greater good. It’s all about identity not facts. Everyone is a victim until the country is bankrupted.

  22. The ultimate goal of buybacks is to take your company private. Once you delist you lose all sorts of credit advantages, but in this world of dark pools and shadow banks, raising capital through traditional channels is not the only way to finance a company. Allowing for greater expansion of financial channels, and a downgrade to government credit, and oversight, (So you’re listed? So what? The regulatory agencies aren’t doing their jobs) companies will leave the S&P. Buying back shares makes them immune to market downturns, and the exaggerated boom and bust cycles the Fed creates. The structure of these market exchanges, which cannot handle volume disparities without block trade mechanisms, and the farce of an earnings season, and lack of promised oversight, and manipulation of these markets by elected officials who seek to manufacture economic growth through GDP. This market may end with a whimper, but corporate America will soldier on. Markets go up because THEY print money and drop it from helicopters, has never been a more obvious indictment of the system. Of course it’s an hallucination, it was a fantasy to begin.

    • Jersey says:

      C’mon, the ultimate goal of buybacks is to increase the value of the stocks held by management and to get management those bonuses that come with a temporary rise in stock prices.

  23. Iamafan says:

    I think we have to look closer at a global slowdown and the dismantling of the worldwide financial synchronization. The hallucinations may have lost its international over-stimulus coordination.
    Let’s see.

  24. Old Hippie says:

    Ah, there’s no fun in having the same hallucinations as everyone else. Used to be, any writer from San Francisco would know that. But, that was back when San Francisco was worth visiting.

  25. tommy runner says:

    they nailed the windows shut a long time ago, so I suppose the poodles would wash up on the sidewalks w/ the early casualties and they’ll call it something cute like stockocolypse.

  26. Henry Padula says:

    Cesqy, we just retired from selling my business for $3.5 million net of all income taxes, expenses. We have been in business for 42 years and had enough hassles with dealing with all of it.

    My wife and I turned 65 this year and worked side by side and we never like taking high risks with our savings, stock markets, equity funds, mutual funds, ETF’s, REIT’s etc. as we already did with our business making a decent living but we had more transparency and know how, control over our equity, retained earnings in the business.

    We had a bad feeling about interest rates this year so we took all our savings and put it in 3.4% to 3.5% 10 year CD’s and 30 year U.S. treasuries. As we suspected, they would push rates down again. This way we know we will have a floor on our retirement income of $119,000 a year.

    We will take our excess savings per year of $60,000 and find the best place to invest. I guess the U.S. FED will have to wait longer to use their $750 stimulus per $100,000 CD depositor with us.

    • cesqy says:

      The govt has the “awesome” amount of principle you invested and locked up for yourself or someone else the next ten/thirty years. They aren’t as worried about your money as mine, short term. As for me…if the election makes me mad, I will probably move it 28 days later.

  27. gustav says:

    It’s amazing that the author of this blog still—still—can’t see the value proposition of a cryptocurrency. I guess after a certain age the synapses stop reaching for new receptor sites.

    To say the sheer number of cryptos out there cannabalize each other is like saying tin and copper dilute the value of gold and shows a complete ignorance of the value of the network effect which is what drives a currency in the first place.

    Unlike gold and silver, crypto is INHERENTLY REDEEMABLE. There is zero trust involved. Price is a function of scarcity. Berkshire Hathaway is ~$300k/share because there are only 5 million shares outstanding.

    On a deeper level, Wolf Richter is deer-in-the-headlights at a paradigm shift technology. He is a Catholic priest in the early 16th century saying “What is this foolishness of owning your own Bibles, we’ve already told you what it means. How can a copy of something have value, we have the original!”

    In point, Mr. Richter simply doesn’t understand the desire for humans to be free.

    • KGC says:

      Currency is all about trust. When I can buy Bitcoin (or an other crypto) at a place I trust, and can redeem it for goods and services with merchants who have the same level of trust, I’ll consider using it. That’s not going to happen until large banks and governments gain control of them, so there goes the “freedom”.

      The dollar still has the highest “trust” rate in the world. I don’t expect that to change in the next 40 years. Too much of the world is invested in dollars for them all to give it up.

      Frankly, I expect credit cards (or whatever takes their place) to lock in the electronic currency market.

      • gustav says:

        “The dollar still has the highest “trust” rate in the world.”

        Which is what you would expect right before its value collapses.

        If in Jan 2007 I stored my $1000 USD wealth in actual USD to pay a future oil bill and it came time to pay my oil bill in the summer of 2008, my purchasing power would have collapsed by 67% in 18 months. That’s the “world’s reserve currency.”

        Perceived value in a commodity that is being inflated ad infinitum is a collective illusion.

    • RD Blakeslee says:

      “Unlike gold and silver, crypto is INHERENTLY REDEEMABLE”

      Sounds nice in theory, but tell that to the victimhood:


      • gustav says:

        That’s what happens when you give up your private keys. Don’t. By “inherently redeemable” I mean at scale gold and silver require trusted proxies in digital or paper form, crypto doesn’t.

        Scams are an indicator of a paradigm-shift discovery.

    • medial axis says:

      Hold on with oldies don’t get it, I’m one (into my 70s) yet get bitcoin, and am so glad to have lived to see it. History in the making.

      Nice analogy with tin, copper and gold. I’ll nick that for later use. Thanks.

      Finally, let’s not forget to say, Happy Birthday Bitcoin – Satoshi’s white paper was published 31 oct 2008.

      • Kerry says:

        Satoshi, LOL…

      • gustav says:

        “I’m one (into my 70s) yet get bitcoin, and am so glad to have lived to see it. History in the making.”

        I raise my glass to you, sir.

    • nick kelly says:

      I hope WR doesn’t bother responding to this guy.

      However: I guess everyone has seen those American Picker shows. Those guys and the guys on Canadian Pickers, about once an episode have to ‘splain to someone that scarcity does not mean valuable. You can own the ONLY one of something and it may have no value.

      The shares in BH are NOT worth what are (35K per ?) because there are only five million. Many companies have fewer shares and are penny stocks with the whole company worth less than a million dollars.

      The shares in BH are backed by real assets like railways (Burlington) and companies like Coke. A railroad is INHERENTLY valuable.

      Now, for the recipe, blend ‘valuable’ and ‘scarce’. Which is easier to start: a crypto or a railway? Don’t forget that the main asset of a railway IS the way, the right- of- way occupied by the rails. And they stopped giving those out a century ago.

      • gustav says:

        Your strawman is almost too stupid to respond to. Scarcity is a *part* of what makes it valuable.

        Nothing has “intrinsic value.”

        If you or I started a crypto it would start worthless and stay worthless. First mover, network effect, etc.

        A currency with the hashpower of Bitcoin provides a triple-entry accounting ledger. Maybe find out what it means to replace double-entry accounting which is like 500 years old–gee, why would that be valuable?

        Look at what Patrick Byrne is doing with tZero providing a location service for short sales to prevent a settlement crisis like 2008, built on the FLO blockchain.

        It goes on and on. I’ve been preaching crypto since 2011 but people get a Marxist meme like “intrinsic value” stuck in their heads and the light goes dark. Cryptocurrency is as important as the Gutenberg press and Phil Zimmerman’s PGP.

        But you keep complaining about banker wars and exploitation as you continue to help them finance it by using their money.

        • nick kelly says:

          A triple accounting ledger? Why are all the BC guys hyping the anonymous no- ledger as a main advantage? If someone says: I paid you last month with BC, and the guy says ‘no you didn’t’ where is proof of payment?

          Has one month gone by without a massive heist of BC? And as I pointed out in a letter published by the Globe and Mail. BC never belongs to you, it belongs to your storage device. So the poor guy in the UK who threw out a computer with millions in BC is SOL.

          In the same letter, I pointed out that saying you are a BC investor is like saying you have a bunch of cash or gold at home, but worse. The bad guy pointing the gun at you doesn’t leave with heavy gold or numbered bills: once you press the button, gone and untraceable. Sure enough since then there have been several BC thefts that weren’t the usual hack.

          So don’t preach the gospel near home.

        • MD says:

          Well it’s because most of what you spew is all techno-geek, management-consultant type babble when it comes to cryptocurrencies.

          A ‘location service for short sales based on the FLO blockchain’ – WTF is that?

          Generally if people use opaque language, what they’re selling is snake oil.

          Time will tell I guess. Still can’t buy anything with any crypto, unless it’s buying from criminals on the dark web.

    • 91B20 1stCav (AUS) says:

      @Gus-and when the power goes out???

      a better day to all.

    • c1ue says:

      That’s because Wolf understands that the freedom you espouse includes the freedom to be robbed, the freedom to be cheated, the freedom to be pumped and dumped, etc etc.

    • Old-school says:

      If you use logic you realize that the key is owning shares of a company that makes a product that people want. Take coca-cola. It’s probably purchased in 50 different currencies. Or the Toyota pickup truck. Purchased all over the world with a lot of currencies and probably a few in gold and crypto.

      The problem is buying the stock in the right company at the right price.

    • Petunia says:

      Your argument in favor of crypto can be correct in the circumstance where everybody in a collective group decide crypto is the exchange method of choice. This collective agreement gives it value. But this example is also the only reason gold has value. This collective agreement, especially in second/third world settings, is the current underpinning of gold. When the SHTF, if most are not in agreement about the value of gold, it will not be in wide demand.

      • bungee says:

        Petunia, (see my response to you further up)
        You are right here, gold only has value because people agree it does. BUT they’ve agreed on this for thooooooouuuuusands of years. Think about that network effect. Literally almost everyone in the world throughout history has valued gold. Bitcoins been around since 2008, so whoopdeedoo.
        Gold does get value from the third world, but the real value is how the super-rich use it… which is the same way the third-worlders do; they save it for the unknown future. Because they know everyone else does too. Its the definition of the network effect. If the shtf everyone will be in unanimous agreement. When everything is uncertain, gold is the only place to rest, catch your breath and take a break from risk.

        • nick kelly says:

          Gold was and is universally accepted as payment between sovereign states.
          A lot of folks will think WWII is ancient history (it isn’t) and gold played an enormous role.
          Germany’s arms buildup had nearly bankrupted it by 1939 with looming food shortage. The first years of the war were largely financed with looted gold from Europe’s central banks. A lot of it passed through Switzerland before being used to pay for Swedish iron ore.

          As helpful as the US was to Britain, it made sure it got most of the UK’s gold before extending credit, sending warships to pick it up.

          One of the most successful treasure recoveries from a modern ship, covered in a TV documentary, was the deep water salvage of Soviet Union gold from a torpedoed British warship that was transporting it as payment for supplies. There was a Soviet delegation aboard for their share that kept a VERY close count of the bars.

          That was the problem, moving the stuff over hostile seas. Today gold payments are often made by moving bars from one country’s pile to another in a London warehouse.

      • hobartchic says:

        When the SHTF crypto will show it’s worth. No one is protecting it. Why anyone would invest in something without protection is beyond me. It’s worthless until it is converted into actual dollars. Classic ponzi.

      • Petunia says:


        Sorry but I am a first worlder in every sense, by birth, education, and experience. If I was going to stockpile for the end times, it wouldn’t be gold. Thousands of feet of fiber optic cabling and spam would be better choices for me, because they represent a way back to stability. Only an idiot would trade food, protection, and communication for gold. This scenario is also why crypto is crap.

        • bungee says:

          Petunia, space and time limit my reply. I’ll hit you back in another thread.

        • Kerry says:

          Only an idiot would buy gold before getting out of debt and acquiring at LEAST a year of preps. Precious metals come after all bases are covered…

  28. Unamused says:

    The Fed is going to look pretty silly if Wall St. crashes while they’re still bailing it out. Although it’s possible they’re bailing it out because it’s already crashed and just forgot to send out the notifications.

    Everything will be copacetic so long as everybody remembers to make their minimum payments.

    • Unamused says:

      Everything will be copacetic so long as everybody remembers to make their minimum payments.

      Remember, there’s no shame in selling off your kids for body parts if that’s what you have to do. Just don’t hold up a bank. That’s just robbing Peter to pay Peter.

      • Iamafan says:

        There is something intriguing here:
        Just how much of their own money (or net worth) is everyone protecting. Forget OTHER peoples money.
        Will ideas change when one is protecting 6,7,8, >9 figures of their own money?

  29. flashlight joe says:

    The astockolypse, followed by the rupture!

  30. WSKJ says:

    The darkest hour is just before the dawn.

    So is the coldest hour.

    Thank heaven for the dark humor here. (I’m not implying that I believe we’re about to see the first lightening in the sky; don’t the houses of cards have to fall first ?)

    Thomas Pynchon, are you still alive ? still out there ? Time to write a gravity’s rainbow for the U.S. economy of the last few decades.

    …….I’d settle for a crying of Lot 49, for that matter…………..

    and for that matter, yes, I believe that on a personal level, it’s don’t give up the ship time….we have not yet begun to fight. ( but…, but, where did these battle scars come from ? lots of unanswered questions).

    Thx, Wolf

    • Unamused says:

      The darkest hour is just before the dawn.

      Not exactly. It’s always darkest just before it goes pitch black.

      • whosOnFirst says:

        Well its hottest say 2pm, but the high-noon is 12 noon, so the heat takes time to heat up the ground, which then heats the air.
        I noticed in the last BIG solar-eclipse in PNW, that it lasted 5-10 minutes, but 5 minutes into the eclipse not only it got dark, but it got super cold quick.
        I agree with the guy who said its coldest near blackest, but it also takes time to cool down when sun is removed, its not instant, but its pretty quick. So maybe 5 minute latency, but as long as its black, it just keeps getting colder.

        The heating of the ground seems to take longer to warm the air, while absent of heat at night the air cools quick when sun is totally removed.

        Now on to the subject, the rise&fall of the sun don’t have poop do to with the stawk-market.
        The market will go down when greed/fear has done its thing, analogys of weather or astronomy with human-greed is just silly.

        Title say’s stock-market, content talks about unicorns&bitcoin(crypto-crap), most comments here are of course trolls defending BTC(&family), only village idiots think that crypto will be around after the NSA algo has been cracked. No public NSA algo in history has not been cracked, because NSA has never made an algo publice, where they did’nt hold the back door keys, so its just a question of time when some kid in India, or China cracks the NSA algo for BTC. NSA created BTC as a bounty-system, so they would have a reliable way of knowing when its time to move-on to a higher order algo. No to strong, just strong enough.

        Unicorns are all garbage.

        Lot’s of good company’s out there, with solid 100+ history’s of dividends & quality. They ain’t going away. The USA stawk-market has had its day like the USD, so smart people have moved on to EM long ago.

        PPL who hold unicorns, crypto’s, and over-indebted USA companys will go the way of the dodo bird.

    • char says:

      The darkest hour is in the middle of the night, not just before dawn.

  31. Mean Chicken says:

    The tire fire continues smoldering. Central banks repeatedly testing for smoke, fire hoses kept flowing.

  32. Michael Engel says:

    How R/R hallucination ended in 1873 :
    Prof Richard White excellent book :

  33. Long only says:

    Stocks go up something like 75% of the time. This is due to global growth largely being positive most of the time. No hallucinations needed here, just the facts. Everytime there’s a plunge, it lasts a brief time, then it’s off to the races again.

    A good strategy is to wait for a 20% plunge, buy some stock and wait for the money to flow in. Could a crash happen soon? Maybe, as long as S&P growth targets for 2020 are slashed.

    If you want to make money, youmust buy stocks, end of story. If we descend into a negative growth hell-scape, well then there won’t be any money to make.

    • cesqy says:

      The Japanese stock and real estate markets are still down from the early 90s peak. The US stock market went sideways for the twenty years I spent in the military.

  34. nhz says:

    Dutch 17th century Tulip Mania was one of the first big financial bubbles; half of the country participated. Initially it made some sense: tulip bulbs were rare, and if you put them in the ground and provided some care you could multiply your “investment” within a year; can’t do that with stocks or houses. But it quickly devolved into paper shuffling. The bubble lasted about two years and collapsed over 90% in just over a week, at a time when news traveled by horse or pigeon at best. When two years after the crash politics still had not agreed on a solution to settle the huge debts that remained (which incapacitated the whole economy), several politicians were lynched.

    Fast forward to 21th century: the Dutch housing bubble has been running for around 30 years now, half of the country participates feverishly, often with OPM (zero-down mortgages) and home prices are up 10x, 20x or 30x from the start of the bubble despite very minor income gains. As often the case with bubbles, a small group has made money beyond belief and the rest of the population has racked up epic debts – but nobody cares because they are all winning in the home ATM lottery. I bet that contrary to 17th century, thanks to the internet this bubble will take many years to deflate, just like the discussions in parliament about who has to pay up for all this idiocy (although I’m pretty sure savers and people without debt will be first in line …).

    People never learn and all the nonsense on the web makes it worse; most do not want to read (or understand) what is written on websites like WS …

    • char says:

      Can you give one example of a house going up 30X? They went up a lot but not 10x like you claim.

      • nhz says:

        Many examples of 10-30x in my city.

        Very small early 20th century worker home in inner city, sold for Hfl. 18K (EUR 8K) in 1991, current price of these homes EUR 225-275K (30x) – there are dozens of them in the same street but this is simply as cheap as it gets now. Big monumental inner city home, asking price in 1991 Hfl 120.000, current asking price EUR 795K (15x). Big canal house, sold for Hfl. 125.000 in 1985, current valuation around EUR 1.5M (based on prices of a few similar neighboring homes) = 26x. In none of these cases there were significant changes, just general upkeep and some improvements to kitchen/bathroom etc.

        The home where I lived in the nineties cost Hfl. 360.000 in 1992 (then one of the top-five RE properties in the city, considered way too expensive by almost everyone), sold for Hfl. 1.5 million in 2001 and now worth EUR 1.7-2M judging from sales of two somewhat similar homes (= 11x from 1992). The home next door that I owned briefly and sold for Hfl. 210.000 in 1992 was offered at EUR 900K (9.5x) in 2015, probably final price was lower because it took over two years to sell. Other big monumental home in the next street, on the market for Hfl. 400.000 in 1998 with no takers for at least two years, flipped several times since then. Sold for EUR 550K in 2015, just sold again after some nice improvements for EUR 1.3M (7x within 20 years). For the better (in my city often monumental) inner city homes I think it would be difficult to find one that has appreciated much less than 10x over the last 30 years and for entry level inner city homes, or big monumental homes that have been split up in tiny apartments, the price increase is even bigger.

        On the other side, like I mentioned apartments have increased far less and probably more like 5x (I don’t have data for them from the nineties). I also heard a few examples of expensive new homes outside the city that increased less than 4x from the early nineties, but difficult to know what the reason for this relative underperformance is.

        I have lots of Kadaster records and RE advertisements from the early nineties because my expanding company had to move office a few times in those years, so I can do some interesting checks. Unfortunately you can now only access sales prices now from the last seven years or so online and older prices are no longer available (for a good reason, I guess – don’t want to scare homebuyers). Ten years ago you could still get all sales prices from one postal code area from the last twenty years for just a few bucks … I have heard very similar stories from inner city of Amsterdam and I guess the same is has occurred in most other old and reasonably attractive Dutch cities.

        • nhz says:

          P.S. as an interesting example for historic Dutch home prices:

          The home were I lived in the nineties, former residence of a president of VOC (the first and one of the biggest multinationals ever) had an initial value of around Hfl. 10.000. That value was reasonably stable during 18/19th century until 1850 or so when the local economy started to crash. In 1890 a very similar home close by sold for Hfl. 6000. But that price included at least Hfl. 5000 worth of very expensive tapestry, statues, paintings etc. that were immediately “stripped” from the home and sold. So the real value of the home was maybe Hfl. 1000-2000, down 80-90%. There are no sales records for most of the 20th century because it was government-owned then. But during the 20th century the “value” went up by a factor of around 1000x (of course most of that was monetary inflation, and not real gains in value).

          Fortunately for homeowners, speculators and politicians, price declines for homes are a thing of the past and you can count on at least 5-10% yearly gains. Extrapolating a bit, before the end of the 21th century you need to be a billionaire to buy this home – if you pay cash. But the way things are going you might receive 1 million every month if you decide to buy the home with a 1 billion zero-down ECB mortgage ;(

  35. red pill economics says:

    What Will Stocks Do When “Consensual Hallucination” Ends?
    The phenomenon works – until it doesn’t. What’s astonishing is how long it works.

    Longest bull market in history. Largest amount and number of Fed/Gov’t. interventions in history (Fed “balance” sheet, alphabet soup of various monetary, fiscal, and housing policies, etc.), plus almost daily jawboning of the markets by TPTB. There’s a correlation here.

    GDP would be negative without the largess of Gov’t. spending, transfer payments, Fed machinations, etc. No actual benefit. The Fed’s policies are a failure, and yet here we are.

    Summary: Potemkin economy. Based on debt growth other nefarious forms of artificial stimulus; not organic growth. Result was “The Everything Bubble.” There’s no where to hide. Stocks, Corp. Bonds, Housing (CRE+RRE). This will not end well. Not even close.

    “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.” – Charles Mackay

    “Nations, like individuals, cannot become desperate gamblers with impunity. Punishment is sure to overtake them sooner or later.” – Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

    “Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.” – Charles Mackay

    • nhz says:

      Plus it’s also the Everything Bubble in the sense that it’s the same all over the developed (especially Anglo-Saxon) world. No way to hide, while until recently even the biggest bubbles were mostly national and one could hide in foreign currencies, stocks, bonds, RE etc.

      IMHO this negates the quote from Mackay about punishment: if everyone uses the same rampant money printing, ZIRP/NIRP etc. how can there be punishment for the nations that run this Ponzi? It is more likely that the game continues until the middle class is eliminated and everyone but the 0.1% fully depends on the government to stay afloat.

    • whosOnFirst says:

      Well if you read McKay’s book you will see that those who didn’t play did just fine.

      Even Sir Newton, smartest man in the world at that time lost his fortune in similar ponzi’s ( south-sea, but also in mcKays book), so high intelligence doesn’t mean anything when getting caught up in ponzi’s.

      The thing here is that most USA shite is going down, certainly for USA created crypto-crap, and certainly USA unicorns, but the world moves on, lots country’s with low debt and a non-zombie population.

      I suspect like all things those in hallucination stayed, and those not left early, when the rose colored glasses come off all will see they live in a world of SHITE, but then it will be too late to leave, like Nazi Germany, you leave in 1932, you don’t wait until 1938.

      It’s not just money that makes ppl mad, its denial like politicians in Seattle who deny there is a city problem, while cops have quit arresting robbers and drug dealers; my liberal friends all deny the problem, all say that random crimes will never happen to them in this ‘mad-max’ world that now exists in Urban USA. When I return to USA and walk around I get into confrontations daily, I see fights everyday on the transit systems, no where else on earth is a shit-hole as bad as contemporary USA.

      KUNSTLER does a great interview & ORLOV about how USA is now a mafia state, that just shakes down ppl, the worst is medical & edooocation

      • nhz says:

        Again, the big difference with past bubbles is that those were all local, or at most involving a few countries. The current bubble is global which means there is almost no way to hide.

        If you own a business that produces stuff like food or other daily necessities or maybe if you offer essential medical services, and assume the government will not take control or other desperate measures (look at Venezuela), then maybe you would do well when the Everything Bubble crashes. But I really doubt it, I think we will see desperate measures IF it ever crashes because the debts in US, Europe, China etc. are too big and there is no fair way to settle them. To be sure, denial and government mafia practice is just as bad in Europe.

  36. Henry Padula says:

    Cesqy, what do you call working all your life, some 30 years others 40 years. We don’t have to deal with people complaining and expecting always a good deal, price etc.

    We will not have to deal with all this crap anymore and will gladly take our $10,000 a month and let others wake up 6 am 6 days a week going to work the rest of their lives. We more than contributed to the U.S.A. If you think voting for socialism utopia that does not exist is going to help good luck with that.

    The younger generation today are so brainwashed that they actually think lower interest rates and all the financial engineering and government programs is actually for them. The ones in charge don’t give a crap about all you inexperienced, young, university, college manipulated minds out there.

  37. Augusto says:

    It’s no different than the South Sea Island bubble in the 1700’s. People in England all fantasizing about the riches of the “new world” wrapped up in this giant speculative bubble. They had no more clue about what was going really on or what the new world was really right….just hope, greed and everyone was doing it. Now, We have “high tech”, “globalization”, and “MAGA” to explain or rather mask why we will all have this great future of blue seas, white sand, palms, rum punch and fruit falling from the vine into our laps…is it 1719 it 2019?

    • nhz says:

      Also keep in mind how Isaac Newton, one of the brightest people of his time and not only a great scientist but also someone with vast wealth and financial expertise, made huge “investment” (speculative) gains initially but then lost almost everything in the South Sea Bubble.

      Possibly even worse nowadays because current bubbles last MUCH longer than the worst bubbles of previous centuries (maybe due to people getting dumber over time?), and after many years of fighting the tide (the FED/ECB) many will give in and join the mania because TINA.

      • whosOnFirst says:

        Newton stayed on the sidelines on SS1, but all his friends got rich, so on SS2 ( second phase of bubble ), he jumped all in and lost his entire life fortune. Newton was a social guy, and most of his discovery’s we know were absconded like Calculus from Liebnitz ( french ). I would liken Newton to Epstein.

        I think we call this FOMO these day’s “Fear of missing Out”

        Solution of course is to ignore your friends, especially the ones who don’t understand technology, or the under-pinnings of said investment, like BITCOIN most fools endorsing BTC, don’t have a clue about NSA-ECDSA/SHA algos, which takes grad-level math to really understand.

        1999 was the same way, everybody bragging about getting rich with high-tech internet unicorns, I was already in the biz since the 1970’s and didn’t play, and don’t regret stay out; Always best way to make real money is to start your own companys and retain 100% ownership

        The sale of stock market IPO paper never changes, its one of the most PONZI sources of individual created FIAT ever made, any smart people can pull an IPO out of his/her ARSE and sell it to fools.

  38. CLN says:

    The headline to the story / podcast is about what will STOCKS do when the hallucination ends, and it’s fair to say that everyone here is not in much doubt about what they will do: the market will decline. Whether that’s a gradual deflation or a crash is going to be dependent upon who’s calling it as much as how objectively rapidly it all unwinds. The stocks that I own “crash”, and the stocks that you own seem to only “deflate” — and you might say exactly the same thing, but switch the labels. When one is losing one’s own money, then it seems pretty catastrophic.

    But that’s just “the stock market”. It will take a hit, maybe a massive one and maybe a long-term one; we just don’t know, other than “it will happen”.

    My question is more on the order of “What happens to the dollar?”

    We know that stock prices are a kind of relativity, in that they rise and fall relative to each other, yes, but also against the “relatively certain” yardstick of the dollar. How certain are we in the future of the yardstick itself? We all acknowledge that inflation takes an annual toll, and that the toll is cumulative. At what point does our “consensual hallucination” in the dollar going to end, that is, the belief that the it has any particular value?

    • nhz says:

      I think you should rephrase the question: “What happens to fiat money?”

      Because the euro, yen, yuan, UK Pound etc. are all at least as bad and inflated to infinity. Despite MSM nonsense about “low inflation” I see inflation accelerating everywhere especially in costs that are enforced or influenced by the government (like housing, healthcare, taxes, public transport and all kinds of mandatory government services) but also in wages for government workers (especially those at higher levels) that are surging lately compared to the real economy.

      I’m not so sure stocks will crash because the current trajectory looks more like the currency will crash and stock prices (and bonds, and RE etc.) will keep inflating like they did in Weimar or more recently Zimbabwe, Venezuela etc. until the currency and middle class are completely destroyed. When governments start enforcing some kind of digital currency for all financial transactions (all the talk in BIS circles etc.) maybe even gold is no longer a reliable yardstick because.

      Another problem is that even if there is a crash, it will also (mostly?) hit those who did not participate. My country has a massive housing bubble with epic mortgage debt and many homeowners make sure they spend all their money. Over 90% of recent Dutch mortgages are zero-down and taxpayer-insured against losses (with some small print added). If homeprices tank the “homeowners” will be bailed out by the taxpayers (= those who still have some money left), I doubt politicians in Europe will never evict people on a massive scale even if everyone can see they will never be able to pay their debts. For stocks and bonds maybe the crash comes when the ECB owns the majority of them, so savers and taxpayers get to foot the bill?

  39. Ishkabibble says:

    “The Sun Also Sets”

    I’ve said time and time again that Jerome’s computer (money machine) has a magic zero key which he holds down for longer and longer periods of time in order to, when eventually necessary, “buy up” literally everything on the planet, as well as, most importantly, pay for the military industrial complex that is the enforcement mechanism of the drone-standard fiat-USD. (You don’t want to accept fiat USD as payment-in-full for your REAL products, resources, etc.? Whether you ask for it or not, “democracy” is going to be delivered ASAP to your country via very-expedited air service.)

    Back on track. Jerome also has on his keyboard that similarly-magical little “delete” key. Never underestimate the power of smoke, mirrors and Fed-controlled zero and delete keys.

    In short, never underestimate the power of the human imagination (greed).

    The question is, what breed is the NEXT rabbit to be dragged by the ears out of the Fed’s (BoJ, BoE, BoC, etc.) top hat? Only the Group of 30 knows for sure, along with the “systemically important” VIPs they leak to. (Don’t you wish you were one of the “leakees”? Then we, too, could enjoy the shower of fresh money. Now, THAT would be a “trickle down” economic system that I could live with!)

    Depending on one’s particular definition of “collapse”, one could easily argue (and win) that the “traditional” US economy ALREADY collapsed with the bailout of TBTF banks, TARP, Dodd-Frank, etc.

    Of course all of that very unwise rescue stuff was necessitated by the previous repeal of all of the very wise post-1929-depression legislation and the very predictable return by the TBTF banks to doing what caused the Great Depression 1.0.

    At the very least, one would have to say that what the Elite’s governments and central-bank slaves have be doing since the Financial Crisis a few short years ago is “flying by the seat of their pants”. Or, as one Lord Rothschild recently said ….

    “The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world”.

    Of course the irony is that if large investors were to start selling stocks, bonds, etc. and started buying PHYSICAL gold and silver (or homes in Toronto, London, Vancouver, etc.) in large quantities, this would not only cause the price of physical gold and silver to skyrocket, but might very well force the Fed, etc. to prevent the DJIA — the too-big-to-drop (TBTD) ultimate symbol of “capitalism” — from crashing by becoming the share-buyer of last resort. That is, if the Fed, etc. take their “whatever it takes” experiment to the extreme in order to prevent a stock market crash, the private Fed, etc. might end up owning or effectively controlling some or all of the corporations that are listed on the stock markets. (And what could possibly go wrong with that?!)

    So lots and lots of astronomically-priced gold would be owned by all of the stock/bond-sellers, and the central banks would effectively own or control lots and lots of shares of corporations. Now, THAT would be what I would call experimental, because if you think corporations are buying back their own shares to the extreme now, can you imagine how high Jerome’s computer’s number-pad could boost the prices of ITS VERY OWN corporations’ shares “on the stock market”? To infinity and beyond!!

    Dear Jerome, etc., what you’ve been doing so far has worked great, so you just keep spouting gibberish and using those zero and delete keys wisely and we’ll all enjoy another great sunset this evening.

    • The FED and U.S. central bankers would become the bag holders a first in history. The institutional buyers and pension funds at some point in time finally will learn from history and leave the FED and U.S. central bankers as the sole bag holders. We’ve just seen the bogus earnings season all predicated on buying before all the tariffs ratchet prices higher and the idiots continue to buy stocks.

  40. medial axis says:

    Some see negative rates as a distortion of what is the true value of money induced by the antics of central banks – but it is not. Negative rates reflect pretty much exactly the value of these fiat currencies. As for the dollar, it, through the payment system, has been weaponized. That might have seemed clever initially but it’s a double edged sword. Nations on the other side of the world are preparing for a new world reserve currency and payment system.

  41. Doug Stanon says:

    Medial axis, I guess the suppression of gold, silver prices for decades is the true value as well. Gold and silver prices should be at least double where they are today at a minimum. Come on, in all this money printing, central banks buying up tens of trillions of bonds, other debt instruments, stock, equity markets is pure and total manipulation and monopolization.

    In this environment, if the market was doing what it is able to do and not be intervened everyday by the U.S. Fed, ECB, Bank of Japan etc. we would see much higher interest rates not low to negative interest rates. Is this is what the media, university and college economics professors teaching people today.

    They have destroyed incentives of the economy and finances which they know is how to destroy capitalistic and free enterprise systems and go more and more socialist and communist if they can pull it off. The inexperienced and naive will be the downfall of our society.

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