Loading ...In 1999 despite it being obvious that the tech wreck was going to occur the market continued upward and in fact the Nasdaq doubled during that year before it all blew up and crashed — entirely on “animal spirits”, or more-accurately the greater fool was out in force.
Said fool then lost nearly all of his money.
Cramer’s Winners of the New World portfolio lost very close to all of its value — something that even today he refuses to talk about.
But this time there is no place to go for a “reflation” of those assets. The government cannot “print debt” into a rising rate environment as doing so causes instant insolvency through unpayable interest expense as the current debt load makes materially adding to said federal debt, certainly in the amounts required to stop such a collapse, impossible.
In short the game of “turning the leverage crank” to bail people out and continue the rise in asset prices has ended. I have been warning for the last several years that this was inevitable but the question is always a matter of timing. It went further than I thought it would (by quite a bit) but that’s not unusual at all, since the break-point is almost always a matter of psychology rather than hitting a hard limit somewhere.
We now have the timing, however, with a solid and violent monthly break of the 30+ year bond trendline and a nearly-certain annual (and equally-violent) break of that same trend. It’s over, and this means that whatever you think you know about the investing world that has been predicated on ever-cheaper credit is wrong and in fact exactly backward. It is now merely a function of when psychology catches up with reality — and it will, because on the math it inevitably must.
Time’s up.