Yesterday, I watched the opening of #US #stocks trading in literal disbelief as investors stampeded into $NYCB, sending the stock up 15% at some point. The scene reminded me of the movie “Independence Day”, one of my favorites, when you see people dancing on top of buildings right below the alien spaceship laser. Yet, when they saw the light, instead of sensing the danger they still believed something “beautiful” was about to happen.
Then the thought remained in my head, and I started to realize that this movie is actually a great representation of how the psychology of the masses works.
1 – Those who see the danger too early are never properly considered.
Professor David Levinson is the first to decipher the message hidden in Earth’s satellite system that was being used by the Alien mothership in space to coordinate the various spaceships sent on the ground. He starts scrambling to warn everyone, but how many listen? Zero. If the movie was filmed today, once arriving at the fences of the White House, he would have been likely arrested rather than allowed to speak to the President who, thanks to him, could save his life… But in the movie, he succeeds at the very last minute.
2 – Those who sense danger early on start leaving the cities to protect themselves rather than whatever “valuable” they will leave behind.
This is the equivalent of investors relentlessly moving cash into money market funds, now above 6T$, while the vast majority is still all-in #stocks
3 – Those who sense the danger too late remain stuck in the massive traffic jam and most of them won’t be lucky enough to find a last-minute shelter to save themselves.
Clearly, the market, overall, isn’t at this point yet. However, if you think you’ll find a bid to exit once it becomes clear the laser is about to pulverize everything, I have bad news for you: it won’t happen.
4 – What about governments? In the first part of the movie, every one of them is disillusioned that they will be able to deal with the issue in the conventional way.
Think about it, isn’t this what’s happening right now with everyone thinking they will be able to just print more money to bailout everyone again, like in 2008, without dealing with the consequences?
What happened almost one year ago with $SI $SVB $FRC and $CS was the equivalent of the alien ship that in the movie shot at the army helicopter that was trying to establish communication with the invaders. Despite it was clear the aliens didn’t have peaceful intentions at that point, the overall danger was still being overlooked, wasn’t it?
5 – Continuing on the same script, at some point the countdown ends and aliens attack creating widespread damage.
What do you think is going to happen to a market that is being propelled to nosebleed valuations by derivatives? As soon as the “event” triggers, these instruments will lose value almost instantly. The consequences? A sudden loss of (fake) “wealth” of unimaginable proportions
6 – After the first attack, the aliens carry on destroying city after city.
What do you think is going to happen when hundreds of billions of derivatives, or more realistically trillions, suddenly become worthless? Their underlying assets cannot escape the fallout and they will free fall back to earth. Do you want a preview of this already happening today? Just look at where #China and #HongKong #stocks are trading, please.
7 – Humans, driven by their innate survival instinct, will ultimately survive and start to rebuild everything from the ashes.
I AM #BULLISH ON THE FUTURE. This is not the first and neither is going to be the last bubble in the history of humankind. The real opportunities to build long-lasting wealth always come AFTER a bubble bursts, but to be able to catch them you need to be the one standing on your feet after the dust settles. Nowadays, because it isn’t different this time, everyone is going #FOMO believing they are missing out on a generational buying opportunity while all they are doing is instead increasing the likelihood of not (financially) surviving the upcoming catastrophe.
Do you know why #WarrenBuffet became a legendary investor? Not because he could successfully ride bubbles. On the contrary, every time things become euphoric he starts piling up on cash and preparing to pick up diamonds from the rubble once everyone won’t be willing to hold #stocks even for free. The key to building spectacular wealth like he did is avoiding losses, not short-term speculation. Despite he proved this over and over again through the decades, I don’t understand why so many still aren’t capable of learning from the likes of Warren.
Prepare yourselves, people, because the “Independence Day” is coming and you want to be there when the sunrise of the new era begins rather than falling into the sunset of the one that inevitably will end.