The Great Bull Market Pyramid Scheme Continues

by: Satwaves

By Brandon Matthews

The current bull market has taken on a whole new meaning for myself and others, no longer referring to a raging bull, but rather what the bull leaves behind. I know my own frustrations are shared by many. Against a backdrop of poor economic data, historic outflows of mutual funds, and panic in the muni bond market (which Monday caused an 81% increase in stocks trading at 52 week lows intraday, as people start to question the financial health of local and state governments), stocks continued higher.

I'm beginning to see signs that the retail investor is feeling omnipotent, refusing to accept any data with negative connotations in favor of the belief that all the experts are wrong. The retail investor has now been fully brainwashed into believing such nonsense that "jobs are a lagging indicator" following a recession, and repeat this phrase like trained parrots whenever faced with negative job reports. If this were 1950, the statement would be true. The statement was true for every previous recession, which occurred when the U.S. economy was driven by manufacturing. Now that the economy is driven by consumer spending, it is an absolute fallacy. Without jobs, there is no spending, and without spending, there are no jobs.

Hindsight being 20/20, it isn't surprising that stocks have risen. The billions held in long term funds that were withdrawn were simply put to work in individual equities. Now, as we witness a mass exodus from muni bonds & funds, money once again is being redirected towards equities. The top of the pyramid is within reach, and the slippery slope on the other side awaits.

I always loved the term "asset bubble," which is just a nice way of stating a pyramid scheme. Smart money buys in early, and then promotes the "investment" to big money. Retailers then buy into it, seeing the tremendous potential of this "asset" (like why it makes sense to pay $1,000,000.00 for a $250,000.00 home), at which time the smart money and big money pull out.

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The current equity bubble we are seeing, which is nothing short of government-sponsored market manipulation on the part of the Federal Reserve, now has retail schmucks believing that stocks will rise forever... just as they did with the Internet bubble pyramid scheme, the real estate bubble pyramid scheme and now the Bernanke QE pyramid scheme. This is always the top of the pyramid, and where the greatest retail losses occur.

Retailers may again push equity prices to even greater levels, and this can go on for long periods of time. The experts that warn of economic peril are ridiculed, only to be proven right in the end. Caveat Emptor!

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.