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Markets stayed numb in October and that was enough for people to start ignoring the risks again. One more time, the extraordinary rally was supported by misleading growth projections and printed money. But now it’s official. The Fed has set up a date to start tapering its bond purchasing program and raise interest rates. That means we’re closer to a massive stock market crash than most people dare to imagine. In fact, there’s a special confluence of factors indicating that an unprecedented stock bubble burst will come without people even noticing it. When they realize what happened, it will already be too late. That’s what Christopher Irons of Quoth The Raven’s Fringe Finance recently warned in an article entitled: “We Could Be Staring Down The Barrel of A Catastrophic NASDAQ Crash And Not Even Know It.”
For months now, economists have been comparing the current stock market bubble to the dot-com bubble that began inflating in 1999. At this point, stocks are extremely overvalued, just like it happened in the past, but most investors prefer to believe that it will be different this time. That’s why “I believe the next crash is going to come as a breakneck-style surprise. The point is still the same: the next big market plunge could be any day now, and will likely be led by tech,” Irons wrote.
Today, “the NASDAQ is literally the 1999 tech bubble on steroids,” according to Irons. People are weaponizing options, something that wasn’t being done in 1999, the financial analyst explains. Back then, investors’ mania alone pushed stocks higher. But between March 2020 and now, there have been multiple examples — including Goldman Sachs, Softbank, Bill Hwang, and Tesla — that the NASDAQ bubble is not being supported by real growth prospects and its mania may have started at a much higher level thanks to planned purchases that helped to inflate the bubble in the first place.
Moreover, and particularly when it comes to tech stocks, one lie feeds the other. That is to say when asset managers collect record profits because the tech stock market is in a huge bubble, they need to come up with excuses for why the markets are outperforming, even though production is collapsing. If we check corporate media news on any given day we will see asset managers saying that “valuations do not matter anymore”. This type of lie becomes a self-fulfilling prophecy and only attracts more victims to the slaughter.
In an exclusive interview with Quoth the Raven, EMA GARP Fund Manager Lawrence Lepard discussed the potential pins that could burst this massive bubble. When he was asked what could be the most likely cause for a market crash right now, he said: “Think of it as like an avalanche. What snowflake is going to be the last one before it breaks free? The market is insanely overvalued, but until now has proven that what is insane can become more insane. So you can’t short it. Frankly, all price signals are broken and we could be in a “crack-up boom”. I do see signs of weakness. Personally, I think we are near the end and close to a crash.”
Lepard argues that inflation is running hot and turning out to be way more persistent than previously anticipated. Therefore, it is bound to reduce profit margins and make the current multiples look even more insane. Inflation will become a catalyst when investors’ psychology changes at the moment they realize there’s no way to support the bubble any longer.
The moment interest rates begin to rise, investors will start to run for the exits and seek yield elsewhere. Lastly, one of the things making people believe this time is actually different is the fact that we just faced a crash one year ago, and now they believe we would never have two crashes in such a short period of time. They are truly expecting this bull market to go on for decades. But the truth is that most investors forget that recessions and crashes don’t take into consideration when the last bull or bear market was.
We’re seriously mistaken when we tell ourselves that another crash isn’t possible because one just happened a year ago. We have to remember that we have never recovered from last year’s recession, we simply used printed money to fill in the cracks opened in the system. But everything is starting to fall apart. The Fed knows it. Market veterans know it. And if you’re paying attention, you should know that too. So if you don’t want to be caught off guard by a surprise stock market crash, start acting now, because we’re a lot closer to a disaster than most people think.