Why the Stock Market Hasn’t Crashed Yet? What They Don’t Want You to Know

Summary

The stock market is defying all expectations despite alarming indicators signaling a crash. Seth, a finance expert, reveals that the market isn't crashing due to two hidden forces: government stimulus and dollar devaluation. Government spending supports consumer demand, while inflation and devaluation make assets more valuable, benefiting large investors. As the economy shows cracks in consumer spending, the labor market, and potential rate cuts, confidence in the market is fraying. The crash, however, is delayed—not avoided—and when it hits, it will be sharper due to the delayed buildup. Understanding these forces can help investors make smarter decisions before the collapse.

Takeaways

• 😀 The stock market should have crashed by now based on traditional indicators, but it hasn't. This delay is actually the most dangerous part of the current market situation.
• 😀 Historical indicators, like market capitalization to GDP ratio and PE ratios, suggest the market is significantly overvalued, but the crash hasn't materialized yet.
• 😀 Warren Buffett's market valuation guideline, dividing market cap by GDP, shows that the market is currently at 220%, which is far above the 100% threshold of overvaluation.
• 😀 PE ratios of major companies like Nvidia (53), Amazon (35), and Tesla (286) are far higher than traditional levels, indicating extreme overvaluation.
• 😀 Despite warning signs of a market correction, such as high inflation, rising debt, and slowing corporate earnings, the market remains inflated due to hidden forces.
• 😀 Force number one: The government continues to stimulate the economy through spending, even though official stimulus checks ended years ago. This involves increased credit, corporate support, and government spending.
• 😀 Force number two: Dollar devaluation and inflation are keeping the market propped up. A weaker dollar increases the value of assets, which benefits investors who buy with debt.
• 😀 Inflation can appear as growth, with companies raising prices to match inflation, which inflates corporate earnings without real growth in production or innovation.
• 😀 Investors who buy assets with debt benefit from inflation because their debt becomes cheaper while asset values increase, creating a favorable environment for wealthy investors.
• 😀 The top 10% of the population own nearly 90% of all stocks, meaning inflation and dollar devaluation disproportionately benefit the rich, widening the wealth gap.
• 😀 The stock market hasn't crashed yet because of these artificial forces. However, when these forces weaken, the market will snap back to reality, likely resulting in a sharper crash.

Q & A

What is the key reason why the stock market hasn't crashed despite all the negative indicators?

The stock market is being propped up by two major forces: government spending, which stimulates demand, and dollar devaluation, which makes corporate earnings appear better than they actually are. These forces delay the crash but don't prevent it.

Why do traditional market indicators suggest a crash is overdue?

Indicators like the market capitalization-to-GDP ratio and PE ratios are showing signs that the market is significantly overvalued. For instance, the market cap-to-GDP ratio is at 220%, much higher than the 115% before the dot-com crash, which suggests that a crash should have occurred by now.

What role does inflation play in propping up the stock market?

Inflation inflates corporate earnings as companies raise prices to keep up with rising costs. This makes it appear as though companies are growing and becoming more profitable, when in reality, the growth is driven by inflation rather than true business expansion.

How does the government continue to stimulate the economy without direct stimulus checks?

The government continues to inject money into the economy through expanded credit programs, increased government spending, and corporate tax cuts. This indirect stimulus boosts consumer spending and corporate profits, keeping the market elevated.

Why are high PE ratios no longer considered a reliable warning sign for a market crash?

Although PE ratios are historically a key indicator of overvaluation, today, high PE ratios—especially in tech stocks like Nvidia and Tesla—are being overlooked. Investors are willing to pay disproportionately high multiples because they expect continued asset inflation due to factors like cheap debt and inflation.

What is the significance of the US government's $38 trillion debt?

The US government's $38 trillion debt, along with its $1 trillion annual interest costs, creates a significant strain on the economy. While government spending continues to prop up the economy, the growing debt will eventually reach a point where it becomes unsustainable, triggering a reckoning.

How does the dollar's devaluation contribute to the market's rise?

As the dollar weakens, the cost of goods and services rises, leading companies to increase prices, which boosts their reported earnings. This inflation is often mistaken for real growth, contributing to higher stock valuations.

Why might a market crash be delayed for longer than expected?

Crashes are delayed because of the two forces mentioned earlier: government spending and dollar devaluation. However, these forces are temporary, and once they weaken, the market will snap back to reality. The longer this delay, the larger the crash could be when it arrives.

What is the 'cycle of false confidence' that occurs before a major crash?

The cycle of false confidence involves three phases: markets staying high despite negative news (phase one), investors becoming numb to bad news (phase two), and finally, a confidence-breaking event that causes the market to crash (phase three). All three phases are already happening now.

What is meant by 'crash fatigue' and how does it affect investors?

Crash fatigue is when investors become desensitized to negative news after hearing bad headlines for an extended period. This leads them to stop reacting to warnings, and when the crash eventually happens, it often feels sudden, even though it was years in the making.