Has a Stock Market Melt-Up Begun for a Stock Market Crash in 2016?
By David Haggith
TheGreatRecession.info
July 15, 2016
Melt-ups precede a major stock market crash, and by all appearances we may be in a melt-up right now that could cause a stock market crash in 2016. First, a small bit of euphoria kicked up permabull adrenaline in the US market when Brexit didn’t make the American sky fall overnight. At the same time, central banks scurried to buy stocks all over the world just to make sure markets didn’t crash. Then the world’s oldest banks began to topple in Europe, causing European money to flee into American stocks. (These banks had been falling a long time already, but now they started begging for bailouts.)
Then investors who shorted the market got scared to death because the stock market broke a nineteen-month ceiling, which had endured as if it were made of marble. So, the market shorters started to buy the stocks they had committed to now in order to close their positions quickly before the prices went up any higher. That created a massive short squeeze, which happens when a large number of investors who have shorted the market start buying the stocks they’ve committed to. That explodes demand, which drives stock prices up even faster, causing more investors to rapidly run for the exits of their short positions. In a short squeeze, investors accept huge losses in order to close out their bets before they lose even more money.
When Larry Fink, CEO of the world’s largest asset manager, announced Blackrock beat expectations for the second quarter, he summarized this week’s ceiling-breaking market as follows:
According to Fink, the recent rally has been supported by institutional investors covering shorts. “Since Brexit, we’ve seen ETF flows almost at record levels … $18 billion of inflows,” Fink said. What that tells you is retail investors are pulling out, he said. “You’re seeing institutions who were short going into Brexit … all now rushing in to recalibrate their portfolios.” Another curious fund flow: the ongoing rush into dividend plays. Fink said he’s been seeing huge inflows in fixed-income products. “So you’re seeing a risk-off trade, as we call it, around the world.” Fink also confirmed … that the true force behind the recent surge is a familiar one: central banks. Fink said extraordinary central bank asset purchases has been inflating stocks prices. (Zero Hedge)
That $18-billion dollar frenzy has the permabull speculators pawing the ground again and all the algorithms of the electro-speculators charged up and humming. Thus, the market perpetuates an all-out feeding frenzy. Very little of this flurry of buying is based on the economy. It is based on emotions causing actions, which cause more emotions that cause other actions. That’s why a “stock market melt-up” leads to the worst crashes in the history of the world.
This could be the final roundup of the bulls that corrals them into a 2016 stock market crash
A stock market melt-up always ends badly just like a Ponzi scheme. The market over-revs as everyone expects the other players to keep bidding the market up in scuffle to the top, until someone stops to take a breath, looks at the extraordinary height, says “Oh, my …” loses his grip in fear and falls. Suddenly other investors start doing the reverse of what they did before, making large panic moves to get out the way before the others fall. The pyramid that was balancing on its point all begins to crumble.
The Rest…HERE
