Dave Pollard has just made an excellent case explaining why the stock market is a Ponzi scheme. I agree with his thesis, but until the masses come to the same conclusion (which may already be happening) the scheme will be alive and well. I won’t worry too much about the market falling apart though — when the trend turns down, I’ll be long gone from the market. (That’s what moving averages and other trend identification tools are for.) The folks who believe in ‘buy and hold’ are the ones who will be in the most trouble, not the (good) traders.
Excellent article! But what are you trying to do – turn us ALL into permabears!
If what this guy theorizes is correct, the market is likely to have a cataclysmic collapse that will take a long time to reverse back to the upside (I can’t see us going to such low levels in the market all in one day, clear out the sellers, and then start the happy trails of recovery).
Anyway, who knows when “sanity” and “rationality” will ever seep into the markets, but I decided to scroll back to the crash of 1987 to check whether it is practical to think you can be out of the market long before the ponzi scheme catches up to everyone. Sure enough, the S&P first drifted below the 50DMA a week or two before big crash. It dipped hard below the 200DMA the day before the crash. I mention this because I think we ALREADY have such sell signals brewing, right? A lot of important indices have already given up trying to stay above the 50DMA, more and more are now struggling to stay above their 200DMAs. Most of them have not struggled like this since the lows in March of 2003.
Like I said, are you trying to us into bears?!?! Good job!
Great article! The only way the markets can keep going up is to have more and more cash come in, valuations go up, investors pour their 401K into funds and stocks until one day the house of cards comes downs.
My guess is when the baby boomers start to retire, they’re going to a first (like a trickle of water) start taking thier money out stocks and put them into bonds and income vehicles. Then as more and more of them start retiring a major shift of cash will happen and panic will ensue!
But before that happens I’ll be living in a tar paper shack somewhere in Montana.