The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It

ARK Innovation ETF chart courtesy of StockCharts.Com, Annotated by Mish

Investment guru Cathie Wood’s ARK ETF topped at 158.82 in February. Since then, the ETF has fallen 55%.

Big Betting Against ARK

Those shorts will cover sometime, but when and at what price?

ARK Innovation ETF Weekly

ARK Innovation ETF weekly chart courtesy of StockCharts.Com, Annotated by Mish

There is technical support for ARK in the low 30s. And that’s where I think it’s headed, but with no time frame in mind. 

If you want a different view, Wood says “Disruptive innovation is often not priced correctly by traditional investment strategies because people may not understand how big the ultimate opportunities are going to be. They aren’t sizing the opportunity and they aren’t analyzing the disruption.”

She sounds remarkably like the roaring 2000s “Gorilla Game” wisdom that implied “You can never pay too much for a gorilla.”

Investment gurus come and go in every stock market cycle. Most look like geniuses until suddenly they don’t. 

Tweets of the Day

“The wealth is lost on the way up” by investing in bubbles.

What the Fed Achieved

Cramer’s Magnificent Seven

Second Consecutive Wild Ride in the Stock Markets, This Time Closing Lower

In case you missed it, please consider my post on January 25, Second Consecutive Wild Ride in the Stock Markets, This Time Closing Lower

Many people think the Fed will keep hiking until it breaks something.

I have news. The markets and the economy are already broken by the Fed’s policy errors.

For discussion of how bad inflation really is, please see Home Prices Jump Another Percent, Fed Extremely Behind the Inflation Curve

Home prices rise another percent according to Case-Shiller. The Fed does not even count that as inflation.

The seeds of decline were sown in bubbles already blown. And it’s not just the stock market. It’s also junk bonds, housing, and cryptocurrencies.

It’s far too late for the Fed to prevent another deflationary asset bubble collapse.

This post originally appeared at MishTalk.Com

Thanks for Tuning In! 

Please Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

If you have subscribed and do not get email alerts, please check your spam folder.

Mish      

Subscribe to MishTalk Email Alerts.

Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.

This post originated on MishTalk.Com

Thanks for Tuning In!

Mish

Subscribe
Notify of
guest

50 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments
Treepower
Treepower
2 years ago
This time their hands will be tied.  Just as they never understood that QE was inflationary in theory but deflationary in practice, they will be aghast when QT results in more CPI, not less.  Their response will probably be more QT and spiraling CPI.  They simply won’t be allowed to rescue assets, but even worse they won’t know how.
Stan888
Stan888
2 years ago
Fed won’t let it drop too far. They’ll print like hell to prop it up.
RonJ
RonJ
2 years ago
“The Huge Stock Market Bubble Just Popped and the Fed Can’t Rescue It”
I guess Musk sold at the right time. Funny how insiders manage to do that. You will never see a captain of industry go down with his ship. Always first to the life boat, leaving the passengers to sink with the ship.
Jackula
Jackula
2 years ago
Reply to  RonJ
Freeing up survival capital, according to Musk he came within days of going BK with both of his big operations last go around.
Treepower
Treepower
2 years ago
Reply to  RonJ
Musk will be behind bars within five years.
Scooot
Scooot
2 years ago
This isn’t a good sign.
ohno
ohno
2 years ago
Reply to  Scooot
Just in time for an excuse as to why the markets are going to hell?
Scooot
Scooot
2 years ago
Reply to  ohno
Bond yields are up too, so I’d say it’s more to do with the Fed continuing with their plans. 
Christoball
Christoball
2 years ago
The demographics are not looking good for growth right now. In 1947 there were 1.1 million additional births compared to 1945. The birthrate osculated at higher numbers for the next 17 years. Going forward with 2019 as the base year; there will be an additional 500,000 to 1 million additional deaths per year with or without covid. Many people will be missed, but this is not a disease, it is just ones personal sand in the hour glass naturally flowing from the top crucible to the bottom. During this process tremendous amounts of health care dollars will be spent to prolong life. This will put an additional strain on the economy and investment. This trend is something that cannot be stopped.
KidHorn
KidHorn
2 years ago
Reply to  Christoball
The only part of the world with much population growth is sub Saharan Africa. The world will gradually become more and more black.
Christoball
Christoball
2 years ago
Reply to  KidHorn
I was mostly addressing the US economy and it’s rapidly ageing population. Africa does have tremendous birth rates, but so did the US, Asia, and Latin America at one time. I think Africa will have lower birthrates eventually. 
Cocoa
Cocoa
2 years ago
February and March have been pretty bad, maybe because of tax season. I don’t think the FED can afford the markets to crash as well so they will manipulate the “market” forever
Maximus_Minimus
Maximus_Minimus
2 years ago
There is no bear market without some investment strategy spectacularly imploding. I know, forward guidance self-assigned mandate and all, but these things happen.
Esclaro
Esclaro
2 years ago
Don’t worry. The Plunge Protection Team is hard at work and will never let the market crash. They will buy it all if they must and just print the money. Gotta keep the bubble inflated! To infinity and beyond!
ohno
ohno
2 years ago
Reply to  Esclaro
Remember a few years ago you were a nutcase for mentioning the ppt? What a joke.
TexasTim65
TexasTim65
2 years ago
“The wealth is lost on the way up by investing in bubbles.”
This is obviously a silly statement. Wealth is only lost on the way down since on the way up your making money.
In any case, wealth is neither created nor destroyed. It’s just transferred around to different people.
Christoball
Christoball
2 years ago
Reply to  TexasTim65
Money is always made buying at the right price. If an asset is bought at too high of a price there is not much to be made when markets run out of steam. If markets recede below purchase price you really lost your money upon the original purchase of the asset.
Jack
Jack
2 years ago
Reply to  Christoball
Since we are being picky…..
Money is made only when you sell.
When you buy, money is traded away for a share of a company – which could lead to making or losing your money.
Doug78
Doug78
2 years ago
Reply to  TexasTim65

Three invest
bankers were stranded on a deserted island for a year. They managed to salvage
three trunks, one filled with hats, one filled with coats and the last filled
with gloves. Since they were investment bankers they started trading hats, coats and gloves among themselves and
by the time they were rescued they had all become billionaires.

Scooot
Scooot
2 years ago
Reply to  Doug78
Start without the hats, coats and gloves and they would’ve become crypto billionaires. 
Doug78
Doug78
2 years ago
Reply to  Scooot
Good one!
Jack
Jack
2 years ago
Reply to  Doug78
…only because the Fed bailed them out
StukiMoi
StukiMoi
2 years ago
Reply to  TexasTim65
“Wealth is only lost on the way down since on the way up your making money.”
Real wealth is lost any time it is misprized. The greater the misprizing, the greater the loss.
Money has no bearing on wealth whatsoever. If it did, Zimbabweans would be rich as F. As would Americans, compared to 1971. Both statements being trivially completely absurd.
An unavoidable side effect of The Fed’s main means of redistributing all wealth to connected zero-talenters; in exchange for them doing nothing to earn any of it; being just debasement; is specifically such misprizing: All things which increased in price as a result of Fed printing, is misprized. And, the misprizing has only gotten worse. Ever since the dollar was $20/oz. With attendant wealth losses all the way up.
Undistorted, accurate prices of stuff are somewhere in the neighborhood of Dow 50 or so, at most. With any decrease down to that level, only adding to real wealth.
No oil wells will dry up as a result of some pumped up paper pieces becoming more correctly valued. Grain won’t stop growing. Noones productive skills will be forgotten. No bridges nor houses will fall down. No factories go up in smoke, etc. Hence, first order, there will no change in real wealth at all.
But the secondary effects, of these real sources of wealth becoming priced more correctly, are not zero. Instead they are positive. Economic actors being misled to believe that a falling down shack; which anyone sentient could reproduce for a few thousand over a weekend; is somehow worth the equivalent of an entire lifetime’s worth of  labor, is not cost free. The misallocation of scarce resources resulting from such massive errors in relative valuation, has huge costs. Hence decreases the total returns from current resources. Hence reduces total wealth. Conversely, reducing this misprizing, increases wealth.
Hence, the net, sum total, change in wealth of prices becoming lower; as long as they still remain too high (dow above 50); can not be anything but a positive as far as total wealth is concerned.
Billy
Billy
2 years ago
Cathie Woods warned us about inflation. She just forgot to tell us she was referring to ARK. 
Eddie_T
Eddie_T
2 years ago
Reply to  Billy
I really, really dislike Cathie Woods and everything she stands for….but the truth is she’s fine and the money has been spent, and her investors are going to be the ones who pay.
TexasTim65
TexasTim65
2 years ago
Reply to  Eddie_T
I got a laugh when I saw on Zero Hedge that there is a now a fund that does 2x leveraged ARK and it said who would ever want to double the performance of that fund 🙂
Steve_R
Steve_R
2 years ago
Reply to  Billy
I do not own the ARK fund, but she is up over 200% over the last 5 years, has out preformed most fund managers 
km72
km72
2 years ago
I agree with the long term view that stocks are in a bubble and need to come back down to reality.  For me, the jury is still out on whether or not we’ve reached the final top.  I give Mish a ton of credit for publicly making the call that the bubble has now popped!
Eddie_T
Eddie_T
2 years ago
Reply to  km72
He’s got a 50/50 chance of being right. In any case, if the markets don’t crash, the tech high flyers are toast, and rotation to value is now underway.
TexasTim65
TexasTim65
2 years ago
Reply to  Eddie_T
I definitely think we are getting a short term top right now. Whether it’s long term depends entirely on whether the government turns back on the spigot in terms of more stimmy money (whether directly or indirectly via BBB).
Doug78
Doug78
2 years ago
I always wanted to do this in a job interview.
Eddie_T
Eddie_T
2 years ago
Reply to  Doug78
I love it. I always tell my wife that everything she’s thinking doesn’t necessarily have to come out of her mouth the next time she opens it.
Felix_Mish
Felix_Mish
2 years ago
Reply to  Eddie_T
Oh, Eddie, that is such a self-own. 🙂
Doug78
Doug78
2 years ago
Historical Home Prices: Monthly Median Value in the US from 1953-2021 Nominal and ADJUSTED for INFLATION. 
Christoball
Christoball
2 years ago
Reply to  Doug78
It seems like the crashes bring it back down to the long term trend line which is where it should be. I see this in a lot of markets.
Eddie_T
Eddie_T
2 years ago
Reply to  Christoball
You always give back some on corrections but I don’t expect to give much back on the houses I own. Because of how much they’ve gone up, and because of where  they are. 
Tony Bennett
Tony Bennett
2 years ago
Housing not liking higher rates.
WASHINGTON, D.C. (Janaury 26, 2022) – Mortgage applications decreased 7.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 21, 2022. 
“All mortgage rates in MBA’s survey continued to climb, with the 30-year fixed rate rising for the fifth consecutive week to its highest level since March 2020. The 30-year fixed rate is now 77 basis points higher than it was a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Unsurprisingly, borrower demand for refinances subsided, with applications falling for the fourth straight week. After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance. Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them.”  
PreCambrian
PreCambrian
2 years ago
An interesting way to look at the bubble from Keith Weiner. The market is up early today so perhaps it will sell off opposite from being down early and rallying like it did previously. I just don’t see how profits will stay up in 2022 when $5T of stimulus is gone and I don’t think that the private economy will gain $5T this quarter.
Tony Bennett
Tony Bennett
2 years ago
“It’s far too late for the Fed to prevent another deflationary asset bubble collapse.”
Yep.  This needs more … Cowbell …
A while back I said keep an eye on inventories (building inventories “recessionary”).  With inflation running hot (and negative real earnings) I expected them to build … no matter that all the “experts” were / are singing supply train constraints.  December inventories out:
Wholesale inventories
expected … +1.3%
actual … +2.1% … with November revised from +1.2% —> +1.7%
Retail inventories
+4.4%! 
Serious sales on deck
KidHorn
KidHorn
2 years ago
In bear markets, most days are down, but there are days where the market explodes higher. It’s due to short covering. I think we’re entering that phase now.
Tony Bennett
Tony Bennett
2 years ago
Reply to  KidHorn
I really don’t pay attention to equities, but I do recall back in October 2008 a near 1000 rise in the Dow (TARP passage?).
whirlaway
whirlaway
2 years ago
Reply to  KidHorn
Yes, the biggest one-day and intra-day rallies occur during bear markets, not bull-markets.  I did a paper on that in a data analysis course.   My fellow students were astounded to see the results and to see how most if not all of the 3% plus one-day/intra-day rallies over the last 20 years took place during bear markets.
whirlaway
whirlaway
2 years ago
Whoa!!!!   This Cramer guy is still selling his crap on TV?    Didn’t he pick his 10 “winners” during the internet bubble too?    The “best” of his picks lost “only” 90% or so!

link to equitymates.com

Trying to get investment education by watching Cramer is like trying to get sex education watching X-rated movies.  

randocalrissian
randocalrissian
2 years ago
Reply to  whirlaway
It’s actually far less desirable than your comparison.
1-shot
1-shot
2 years ago
“The huge stock market bubble just popped” – I think you may be 6 months to a year early on this call.  This has been a long, strong bull run and it won’t get killed off so easily. Same with cryptos. I’d say they’re more like walking dead. The heart stopped beating from the fatal shot, but the body hasn’t hit the ground yet. There are still too many “buy the dip” die hard gamblers out there.
As for the FED, they NEVER lead the market.  They ALWAYS follow, as they should. Their mandate isn’t to lead and control market direction, but rather to make adjustments to it, much trimming the sails of a sailboat depending on the strength and direction of the wind.  Credit markets have been tightening since mid 2020. the FED is just following the lead from the real market – way to late and way too slowly, in my opinion. 
  
Eddie_T
Eddie_T
2 years ago
Wednesday, Fed day, open is massively green, which suggests another sell-off might follow. Some gurus are calling for a “face-ripping” upside reversal after Powell speaks. I’m  pretty agnostic
dbannist
dbannist
2 years ago
Reply to  Eddie_T
I have absolutely no idea what he will say.

If he’s firm on language that seeks to curb inflation I think precious metals will have a very bad day.  However, long term I believe if that happens it will all be talk, attempting to calm the markets but ultimately doing nothing to save it.

I’m weighted a little heavier than normal on precious metals for the long haul because I am pretty firm in my belief that no matter what the fed says, it cannot raise rates more than a token amount.

Scooot
Scooot
2 years ago
Reply to  dbannist
“If he’s firm on language that seeks to curb inflation I think precious metals will have a very bad day.”
They’ve got to hike rates a lot before real rates even turn positive. In the meantime I’d much rather have Gold than a devaluing piece of paper representing a slice of Government debt, even if they paid a minuscule amount of nominal interest on it. 
Gold did quite well in the last hiking cycle.
dbannist
dbannist
2 years ago
Reply to  Scooot
Exactly.  It won’t last more than a day.
Once people realize that the Fed is all talk and no action gold will do very very well, even in a rate hiking cycle.
With inflation at 7% currently does anyone honestly believe the FED will raise rates to 8% to counter?  No way.  Even if inflation moderates, which seems  likely to me, it will be elevated and even 3% rates will kill off the debt addicted economy.
That’s why I’m overweight precious metals, real estate and cash (to buy up deals).
dbannist
dbannist
2 years ago
I have never fully understood the crypto craze.
It reminds me much of the Dot com bubble.  The rise of the internet has surely helped the world and we’ve all benefitted from it, but so many non-functioning companies (even ones that were mere ideas and hadn’t sold the first product) went public, raised billions, and ended up going belly up.
Just because someone has an idea that is useful doesn’t mean you should invest in it.  At least not until it makes a profit or has a plan of some kind.
I view crypto that way….it’s possibly useful and so a myriad of choices popped up (like the dot com era) and people poured money into them without regard to normal investment rules.  My own thought is that the crypto bubble will go far lower than anyone ever thought possible and only a few will rise from the ashes years from now.  I would not be surprised to see BTC fall under 100 a coin or be completely abandoned altogether in favor of something else.  I also wouldn’t be surprised to see it go to 100k.  I’m not investing in it either way, it’s clearly a bubble.

Stay Informed

Subscribe to MishTalk

You will receive all messages from this feed and they will be delivered by email.