Lets do this crash lesson again.
"Let's do this crash lesson again." The Big Short

On the night Trump was elected, the Dow Jones was at 18,000 points. Today, it hit 20,000 points. That is a 2,000-point increase. That shit is straight up crazy.


What you will not find in the real economy are activities that can answer to or justify those increases. What's happening, however, is no mystery. It has a very clear beginning and its end needs no scrying or haruspicating to predict.

The market is keen on Trump and the GOP-controlled houses for one reason only, and this has, sadly, nothing to do with some deregulation of markets or increased structural friendliness to market goals. No, this is all about what, in economics, is called "moral hazard" (or, "lack of incentive to guard against risk"). People with lots of money, and who have nothing better to do with their lives than make more out of what they already have too much of, as well as investment institutions that need returns of 8 percent to realize a profit on pension funds, are rushing into the equity markets because they are under the impression that risky betting, that utter foolishness, will not be punished by the current administration. This is the only game in town, son. This impression. If there was any fear that Trump or the GOP would punish them for making lots of nonsensical "investments," and transfer the losses to the public, this Trumphoria would be over just like that.

Now recall the five steps of a bubble, as theorized by the heterodox economist Hyman Minsky. The first stage, according to his thinking (which many consider an accurate reflection of the real world of finance) is a displacement event. A displacement is a disruption by some change in the law or fiscal policy or technology that essentially presents, by its surprise or newness, an opening to the only place where the returns that big (and institutional investors restlessly search for and can't live without) exist: the future.

The displacement for this current bubble was Trump's unexpected win against favored candidate, Hillary Clinton. This triggered a boom (stage two), and the current euphoria (stage three). Next, the smart money will begin departing the market (stage 4). But the dumb and desperate money, much of it heavily leveraged, will stay and cause the irrational persistence of high asset prices (see the last 30 minutes of The Big Short for a dramatization of this irrationality). Finally, panic will hit, and the whole thing will crash hard because the higher up you go, the further you have to fall.

The question is: Who will pay for Trumporia? You will. My recommendation? Begin paying off debts now, while jobs are still around. The next crash will be very painful.

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