FINANCIAL FRANKENSTEIN 2020

Allow me to define the current global financial situation: It’s a monster that, at one point, will swallow the Earth.
Fact: never in the history of the financial markets have greater distortions existed than today – nothing even comes close.
We are living in a distorted reality. Massive malinvestment has run rampant for over a decade. A time of reckoning will occur. The only question is, “When?”
Today, the biggest financial monster of all exists in the debt market. The debt market bubble is, unquestionably, the mother bubble of them all. This debt market bubble has inflated an epic stock market bubble.
Many people do not understand that asset prices, like stocks, derive value from what is occurring in the debt market. One should think of the stock market as a derivative of the debt market. Bond yields dictate stock market price action, period.
For example, artificially suppressed rates create a mechanism by which cash moves directly into the stock market, thus inflating a bubble. The subsequent  stock market bubble goes on to become hyper-inflated as euphoria and a fear of missing out (FOMO) then grips the market and stocks inflate even further.
Today’s stock market, because of the debt market bubble, FOMO, and euphoria (a.k.a. “irrational exuberance,” a phrase coined in the ‘90s, during the dot-com bubble, by then-Fed Reserve Board chairman Alan Greenspan), is in an epic bubble.
FOMO and irrational exuberance cause stock prices to inflate further, and there is no way to determine when these forces will stop driving the market even higher. Still, the main driving force behind all of it is artificially suppressed rates.
What we can be certain of is this: the global stock markets, none more so than the U.S. market, are in a “Maximum Distortion” phase. The Maximum Distortion phase can exist for a long period of time, but the longer the phase lasts, the more profound the next phase will be: Total Meltdown.
Market forces are enormous, and they feed off themselves. For example, the current Maximum Distortion phase is being driven by artificially suppressed rates and has created FOMO and irrational exuberance. The next phase will be driven by Fear – fear of losing – and then everyone will run for the door.
When the stock market begins its next phase, Total Meltdown, waves of selling will happen all at once. Why? The reason markets rise as “on an escalator” and “drop like an elevator” is simple: no one wants to be the last person out the door.
In the 2011 movie Margin Call, there is a now famous quote: “Be First, Be Smarter, or Cheat.” It’s always easier to be first!
Moreover, the first investors out the door always outperform, by order of magnitude, the last ones. This is yet another self-feeding mechanism: selling in the market creates more selling… and then, simultaneously, everyone is running for the door.
In a market meltdown scenario, often there are no buyers. That’s right – no buyers! People are trying to sell shares, and no one is buying. When this happens, the last people “out the door” often must sell at staggering losses, and for those trading on a margin, that is borrowed funds and they may end up losing multiples more than their current investment.
As a Trends Journal subscriber, we want you to be the first ones out the door, either before or at the onset of the Market Meltdown. Stay tuned to my column here and at my blog, TradersChoice.net, for the latest “insider” market information.
by Gregory Mannarino