This article from the Wall Street Journal confirms that retail investors are buying stocks with both hands while institutions are selling in massive quantities. Which is what happens at EVERY stock market top. Once again, retail investors waited until the end of the cycle to plow record amounts of money into stocks at record over-valuations this time with NO Fed safety net. It's financial suicide:
"This year’s stock market volatility has turbocharged a favorite strategy among individual investors: buying the dip"
Many individual investors who bought the stock-market dip are sitting on losses...This year, the S&P 500 has fallen 16%, its worst start to a year in nearly a century"
Vanda estimates the average individual investor portfolio peaked late last year and has since tumbled, giving the average individual a paper loss of about 28%"
In other words, individual investor losses roughly equal Nasdaq losses. So far. The lack of panic is highly evident in the subdued Nasdaq VIX:
Investors have been systematically conditioned by central banks to buy the dip despite ever-increasing risk. They no longer look at valuations or economic information, they just blindly buy stocks whenever they fall. On the assumption that this strategy will ALWAYS pay off. The last time this strategy REALLY failed of course was in the 1930s. After the market peaked and crashed in 1929, it eventually lost 90% of its value by the lows of 1932. The high of 1929 was only regained 25 years later.
Ironically, Warren Buffett was born in 1930 so he began his investing career AFTER the worst bear market in history. Therefore he believes that stocks always go up as well. Of course Japan and China give us much more recent examples of what happens when monetary policy fails. In both those cases, stocks remain far off their all time highs.
You don't have to be a genius to predict how this all ends:
The Fed pushes global markets over the cliff until the global asset bubble explodes - a process which is already well underway. Retail gamblers will be trapped with MASSIVE losses. The Fed is slow to react at first, but eventually reverses. In the meantime markets continue to implode. Consumer confidence collapses. Global depression ensues.
Here we see that consumer confidence has already collapsed to where it was at the bottom of the last housing bubble. This time, it has collapsed at the top of the housing bubble. Meanwhile, the Fed is tightening monetary policy at the fastest pace in history.
A disaster in the making.
Ultimately, investors will lose confidence in the Fed and in markets and they will bail at the bottom. I don't predict a 90% loss however because this time the Fed is going to Japanify the bond market which will ultimately put a bid under stocks. Something that was not attempted in the 1930s. Nevertheless, the degree of dislocation will ensure that investor confidence is fully shattered.
This is by far the most likely scenario given the information we already know. And yet, not even ONE mainstream pundit sees it coming. They all see Fed interest rate hikes for the rest of 2022 and into 2023. Zerohedge always has the bipolar "depressionary hyperinflation" angle covered. Which is an asinine theory of course. There will either be recession or inflation, not both. 2008 is the closest analog. Back then, inflation expectations collapsed along with the commodity markets. This week we learned that China is likely going to cut interest rates as soon as next week. And they may soon lockdown Beijing over COVID. In addition, Europe has backed off the idea of a Russian oil ban. So the argument keeping oil bid no longer exists.
We can see there is now a massive divergence between crude oil and the Canadian dollar, which is a proxy for global growth:
The markets are going to do the Fed's job for them, only FAR FASTER. They are going to take away the punch bowl and collapse inflation expectations. Which means that most of today's pundits will be catastrophically wrong as to how this all plays out. And most investors in risk assets will get wiped out.
The dislocations we've already seen this week in Crypto currencies should have been a warning as to what is coming to other markets. Crypto is currently 95% correlated to the Nasdaq. The Crypto losses to date are $1.7 trillion which is more than subprime losses in 2007 ($1.3 trillion).
The next big shoe to drop will be in Emerging Markets which have been getting monkey hammered by the rising dollar.
And are now BIDLESS.
In summary, the losses are racking up in IPO junk, ARK ETFs, Emerging Markets, Cryptos, and Mega Cap Tech. However, complacency is rampant.
Retail investors are just buying the dip lower and lower into the economic abyss. And sadly, there is no one who will tell them it's a bad idea. The amount of economic hardship this will cause is totally unthinkable.
The age of easy money is OVER and now the age of democratized fraud is ending far worse than the majority expect.
Who knows if it was meant to be this way.
"In the broadening top formation five minor reversals are followed by a substantial decline."
In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage"
Indeed.
