Between the end of September and the beginning of October 2023, the #MOAB (Mother of All Bubbles) house of cards was dangerously wobbling. In a great coup de theatre, Jerome Burns managed to pull a “FED ghost pivot” 🐇 out of his magic hat, which sent everyone on a #FOMO buying spree. This bought more time for the FED to fix the Banking Sector mess.
Not only is the banking sector mess close to bursting out of control now, but by continuously delaying the inevitable, we might have reached a point where the DotCom^2 and the GFC^2 (because they are respectively exponentially bigger than the previous two) burst at the same time 🙈
Today, we are going to see the FOMC minutes of the last meeting, the one that preceded the latest hot US CPI #inflation print, a few hours before NVIDIA’s Q4-23 earnings. On one side, the market is going to dissect the first one for any sign, hint, hope, dream of another free money tsunami from the FED that will heavy-lift banks out from the deeper and deeper hole of Credit Losses they fell into. On the other side, the market is going to superficially look at NVIDIA earnings, hoping nothing triggers any doubt about the chances of NVIDIA having a 100% market share of the semiconductor industry, with 110% profit margins, surfaces. 🤭
Psychology clearly is all that matters now. Let’s apply the “prisoner’s dilemma” to the current situation with a small tweak:
1 – In one room, you have 1,000 retail investors, all of them have at least one mortgage, 3 maxed-out credit cards, one student loan and no more than $300 savings in the bank account. However, all of them are 100% invested in #stocks that have an overall value greater than their liabilities plus extra gains on top.
2 – In the other room, you have 1 hedge fund manager that is running a 300% leverage between borrows and derivatives on the same #stocks basket of the 1,000 retail investors, but with 3x their gains.
Here is the tweak: both rooms have a big window. The “prisoners” can see into the other room and outside. Suddenly, everyone in the rooms starts seeing the likes of Jeff Bezos, Bill Gates, Warren Buffet, and Senator Tuberville leaving the #stockmarket building at a sustained walking pace carrying bags full of cash.
According to Game Theory, the best choice here is for the investors in both rooms to do nothing, and as a consequence, the bubble doesn’t pop. However, seeing billionaires fleeing the building can play nasty games with the human psyche. So this is how the game continues:
– The first retail investor says “I need to go to the toilet”, then he leaves the room and never comes back. 👋🏻
– The second retail investor says “I’m going to buy some food for everyone”, then he leaves the room and never comes back. 👋🏻
– The third investor receives a call from his Credit Card company because he is now 3 months behind on his debt. He leaves the room to pick up the call and never comes back. 👋🏻
– Then, 10 investors start worrying about their friends not coming back in. Maybe something happened to them, so they go to check and promise to come back. 👋🏻
– Now the hedge fund investor in the other room’s alarm bells are triggered. He dumps all his positions in the fraction of an HFT second and the game ends with 983 retail investors losing everything. 😕
Never forget, people can have all their fancy strategies, charts, algorithms, and theories, but in the end, we are all humans who need to eat, sleep, and go on with their lives outside the #stockmarket. The world didn’t end with the stock market crashes of 1929, 1987, 2000, 2008, or 2020 because survival instinct, like it or not, is at the core of every decision and life goes on.
However, decisions will impact the quality of a person’s life and as everyone who has been at least once in Las Vegas knows, if you spend too much time playing in a casino, you will likely end up losing all the cash you went there with. 🤷🏻♂️