A Ponzi scheme consists of a fake narrative that becomes widely believed. Followed by a rush of capital into the scheme, an exodus by insiders, a slowing in momentum - fewer people left to con, lastly the realization that the money is already gone.
The most recent example of course is the Crypto bubble. It took almost 10 years since Bitcoin was invented for combined market cap to reach $100 billion. And then it only took 5 more months to reach $800 billion. In other words, all of the money rushed in at the end.
Many people warned it was a bubble, but who could compete with Jimmy Altucher telling everyone that Bitcoin is going to $1 million, back at the very top? Bernie Madoff is a chump change piker next to that guy.
Of course what happened to Crypto is a drop in the bucket compared to this tax cut Ponzi scheme. The tax cut Ponzi scheme was predicated upon the ubiquitous belief that the "fundamentals" of the 'Conomy are the best in years. Market pundits love to cite fundamentals because it makes them sound intelligent. Unfortunately, in securitized assets once a narrative is widely known then it's already "priced in". Someone who buys an asset based upon what is universally believed, is coming in at the very end. This is the ultimate irony of investing. You can't make decisions based upon consensus. Those who seek consensus are asking to get obliterated. The crowd is right in the middle, and wrong at both ends.
Similar to Bitcoin, investors only bought into this fraud at the very end:
Similar to Bitcoin, investors only bought into this fraud at the very end:
Of course, the end result is far more devastating when the "fundamentals" are predicated not on sound economic principles but on the feedback loop of misallocated capital. The bidding up of one's own assets taken as affirmation of an improving economy. Unfortunately, universally believed narratives can't change as quickly as asset prices. Whereas only a few weeks ago, there was ubiquitous belief in a "strong" and strengthening economy.
Now it's already over.
The Trumpflation trade just gave back all of its gains for 2018 in the past three weeks:
Back in late August, Jim Cramer was crowing about the resurgent consumer:
"Nearly every retailer posted monster gains this quarter, including Target, Kohl's, TJX,...in what (Target) management called the best consumer environment they've ever seen."
Less than six weeks later (early October), the greatest consumer ever is now causing the death of retail:
"As stocks continued their declines on Friday, CNBC's Jim Cramer noticed one of his most dreaded narratives bubbling up in the market: "the death of retail."
Sears just went bankrupt in the "best consumer environment ever"
When in fact it was really just the greatest con job ever:
Where the irony comes in is that back in 2015, it was Chinese investors who bought into the imagined reality while U.S. gamblers were restrained. This time around it's U.S. gamblers who bought the delusion.
The Shanghai Composite has now shed $3 trillion in market cap since 2015:
No conned fool needed more proof of non-existent economic reflation than these massive stock buybacks. Corporate executives - the same ones who've carried out millions of mass layoffs to fund stock buybacks - overwhelmingly chose to hand capital back to shareholders, over investment.
Buybacks add zero value to the companies and to the economy. Price goes up, share count goes down. Market cap remains the same. At best, they are companies handing investors back their own capital, essentially admitting that they have no place to invest it. At worst, they're a way for insiders to silently cash out.
But no one has any right to say they didn't see this coming. Rewind one year ago prior to the tax cut:
"Many CEOs did not raise their hands when asked about whether they would increase their capital expenditure because of the GOP's tax reform plan."
Buybacks add zero value to the companies and to the economy. Price goes up, share count goes down. Market cap remains the same. At best, they are companies handing investors back their own capital, essentially admitting that they have no place to invest it. At worst, they're a way for insiders to silently cash out.
But no one has any right to say they didn't see this coming. Rewind one year ago prior to the tax cut:
"Many CEOs did not raise their hands when asked about whether they would increase their capital expenditure because of the GOP's tax reform plan."
This is the stock buyback achievers fund. Companies that have the largest buyback programs.
In summary, the money is gone.
What's left is "realization"
What's left is "realization"
