The Moment Wall Street Has Been Waiting For

The Trap Is Set Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] The Moment Wall Street Has Been Waiting For - After 13 long years, this ominous development has finally happened… - Who needs fundamentals anyway?… - The one thing the Fed excels at… Recommended Link [New “$2,000,000 Prediction”]( [Read more here...]( Jim Rickards is famously known for his game changing predictions throughout his career… But now Rickards has just issued what he says is, “The biggest prediction” of his career… One he is extremely confident will happen… that there is currently an estimated $2,000,000 connected to it. [Watch The Video Here]( San Francisco, California July 31, 2021 Editor’s note: During bull markets, stocks climb a “wall of worry,” it is said. But what happens once stocks make it over the wall? Today, Charles Hugh Smith argues that the moment is finally here after 13 years, and why that’s a bad sign. [Charles Hugh Smith]Dear Reader, A key weakness of our system is its reliance on debt, leverage and speculation. The more debt that's been piled up, the greater the instability of the entire system. Risk always appears low until the system destabilizes, and then all the hedges fail and risk breaks out, flooding through the entire financial system. Leverage is great fun on the way up, as it magnifies gains. Since the Federal Reserve implicitly guarantees that "buy the dip" will generate massive gains, why not ramp up leverage ten-fold to maximize those Fed-guaranteed gains? Leverage is less fun on the way down. When the underlying collateral has shrunk to 20% of the leveraged bets being made, a 21% decline in the asset wipes out all the collateral holding up the palace of leveraged debt. And that’s a massive problem... Old hands on Wall Street have been wary of being bearish for one reason, and no, it's not the Federal Reserve. The old hands have been waiting for retail — the individual investor — to go all-in stocks. After 13 long years, this moment has finally arrived: retail is all in. Peak Bubble? If you doubt this, just look at record highs in investor sentiment, margin debt and valuations. Current valuations are so extreme that the previous extreme in the 2000 dot-com bubble now looks modest in comparison. I have my own sure-fire indicators for when retail is all-in. One is my Mom's financial advisor recommends shifting her modest nest-egg out of safe bonds into the go-go stocks that are topping out. Back in late 1999, it was Cisco Systems and the other dot-com leaders, today it's the FANGMAN stocks. Sure enough, my Mom just informed me her advisor recommended moving money from bonds into a FANG-dominated stock fund. Bingo, we have a winner. Recommended Link [Which Road are You on?]( [Read more here...]( You only have two choices: One – Get on The Road to Riches. Two – Stay on The Old Road and Hope. If you are someone who wants to take positive steps today toward a better financial future, then I invite you to join me… For my new online training, The Road to Riches. If you are serious about thriving this year... [Join This FREE Event Now]( Second indicator: average people who have never traded stocks are all-in and supremely confident they can't lose. When 20-year college students are trading based on a "genius" 22-year old friend's advice, retail is all-in. When a worker cleaning a wooden deck pauses to put $100,000 in a company he knows nothing about (yes, true story), retail is all-in. Much is made of meme stocks, but the real driver of retail going all-in is the complete collapse of risk/moral hazard: the Fed will never let the market go down is not a meme, it is an article of secular faith, supported by 13 long years of ceaseless Fed intervention/stimulus, all in service of elevating the stock market. Since all evidence supports this secular religion — stocks never go down because the Fed will never let them go down — the trick is to rotate into the next blow-out winner or buy the dip in Big Tech or a meme stock. And since something is always shooting up like a rocket, the way to become a millionaire is to simply buy what's hot and buy the dip. This Time Is Different! In this secular religion, nothing else matters, all the old stuff is just a distraction: price-earnings ratios, valuation, cash flow, future earnings — none of that old stuff matters. Technical analysis is also a waste of time: just buy the dip and rotate into what's hot, and the millions just pile up on their own. Every generation that experiences a speculative mania feels it's unique. This is the pattern that repeats. The confluence of forces driving the mania to unprecedented heights is so obviously unique and uniquely powerful that it is literally crazy not to grab a board and ride the wave to riches. What the newly minted millionaires don't understand is they're the marks and bagholders. Wall Street has been patiently waiting for retail to go all-in so the pros can sell all the over-valued stocks to the euphoric, trusting retail traders, who will continue to buy the dip and rotate into the next hot meme-stock until their fortunes have dwindled to spare change. The con requires euphoric confidence that stocks only go up forever, and every retail trader is confident in their ability to ride the wave to riches. We're finally at that summit of euphoric confidence, where faith in the Federal Reserve is literally a religious experience. Recommended Link [Billionaire Leaves Crowd In Shock]( [Read more here...]( An audience of a few hundred (including myself) quietly gathered in Washington D.C. a few months back. That’s when the world’s richest man, Elon Musk, took the stage… and shocked the entire room. It all has to do with this image you see on your screen… showing a surprising new discovery he’s made. Not only will this blow you away… it could also transform the American economy forever. [Click Here To See Elon's Reveal]( Robbing Hoods going public is a scriptwriter's touch. (Forgive me if I got the name wrong, I'm working from memory.) Stocks never go down is absolutely true, take it to the bank, until they do. Every share of stock ends up in somebody's account, and the ideal bagholder is one who adds more on every downturn (buy the dip) and who refuses to sell (diamond hands), holding on for the inevitable Fed-fueled rally to new highs. That's how accounts are destroyed, and the wreckage isn't just financial. The scars of being a bagholder can last a long time. But Wall Street is patient, and a new crop of bagholders eventually catches Fed Fever, and the transfer of over-valued equities to a new generation of bagholders will play out according to the same script. The One Thing the Fed Can Do The Fed can print money but it can't create collateral, nor can it make insolvent entities solvent. All the Fed can do is increase the debt and leverage, which is not the solution, it's the problem. Speculation is also inherently unstable, as the euphoric herd, once startled, turns in panic and stampeded in fear. Markets which appeared liquid — i.e., sellers could count on someone buying as many millions of shares as they desired to sell — become illiquid, as buyers vanish like mist in Death Valley. With buyers gone, prices plummet to levels the herd reckoned "impossible" just days before. The Fed's entire strategy in the 21st century has been to inflate asset bubbles that generate the illusion of wealth — the so-called wealth effect which is presumed to inspire voracious borrowing and spending. The U.S. economy is dependent on the Fed for the "juice" of monetary stimulus. It’s dependent on incredibly unstable bubbles in assets, debt and leverage, bubbles which have generated extremes of wealth/income inequality that are destabilizing the social and political orders. The fragility and instability are well hidden until it's too late: bubbles, debt, leverage, budgets and revenues can only click higher because the system breaks down if there is any sustained decline (the rising wedge model of breakdown). Once the subsystems fail, there's no putting the eggshell back together. The loss of redundancy, the decay of maintenance, the loss of experienced workers — all of these are hidden from public view until the system breaks down. But by then it’s too late. Regards, Charles Hugh Smith for The Daily Reckoning Editor’s note: The stock market is certainly in a bubble. So are many other asset classes. It’s all part of the “everything bubble” that the Fed has inflated. But Jim Rickards has identified an [alternative that doesn’t involve the stock market or any of the other overinflated markets.]( It involves instead a massive, $6.6 trillion daily flow of capital that you can tap for potentially large gains. You see, [Jim recently developed a proprietary secret]( for profiting from this gigantic, yet often overlooked market. [It’s called C.O.B.R.A.]( Jim and his team have built a new computerized [Tactical Operations Center]( to track this massive cross-border capital flow. Jim thinks it’s something you need to learn about. We agree. [Click here now for details.]( --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Charles Hugh Smith][Charles Hugh Smith]( is an American writer and blogger, and serves as the chief writer for the blog "Of Two Minds". Started in 2005, this site has been listed No. 7 in CNBC's top alternative financial sites, and his commentary is featured on a number of sites including Zerohedge.com, The American Conservative, and Peak Prosperity. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! Follow us on social media: [Facebook]( [LinkedIn]( [Twitter]( [RSS Feed]( [YouTube]( The Daily Reckoning is committed to protecting and respecting your privacy. We do not rent or share your email address. By submitting your email address, you consent to Paradigm Press delivering daily email issues and advertisements. To end your Daily Reckoning e-mail subscription and associated external offers sent from The Daily Reckoning, feel free to [unsubscribe here.]( Please read our [Privacy Statement](. For any further comments or concerns please email us at feedback@dailyreckoning.com. 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