Transcription
The stock market should have already crashed. Every indicator is flashing red. Consumers are drowning in debt. The economy is cracking. Yet, the market is still rising. And I'm going to show you exactly why. Because once you understand what's quietly propping this market up, you'll see why the crash hasn't happened yet and why that delay is the most dangerous part.
I'm Seth. I've worked in fintech and banking for decades. And even with a finance degree and an MBA, I used to look at the markets and think none of this makes sense. Headlines screamed recession. Inflation was out of control. But the market kept drifting upward. Then I discovered something, and this is the part almost nobody talks about. Markets don't crash when things look bad. They crash when the forces holding everything together finally break. And once you understand those forces, everything happening today suddenly becomes predictable. So, let's break this down.
First, the relevant indicators point to a market correction. The indicators say the stock market should have crashed by now. Are the indicators wrong or is the market legendary investor Warren Buffett is sitting on cash because one of his favorite market valuation guidelines, one that most people don't [music] know, is telling him to. Buffett looks at the market capitalization of all public companies divided by the US gross domestic product. The market cap of all US public companies is $66 trillion. The US GDP is about $30 trillion. Divide 66 by 30 and you get 220%. But the really scary part, anything over 100% is considered overvalued. To put this in perspective, before the dot crash in 1999, the ratio was 115%. Not 200, not 150, 115%. and the market crashed by over 60%. That alone would make one think the market should be crashing.
And here's the part no one's talking about. Do PE ratios even matter anymore? Apparently not. And it's just not how high they are. It's something else that is even scarier. Historically, S&P 500 companies have PE ratios around 15 to 16. Today, it's 25 to 28, already high. But that's not the real problem. The real problem is the companies driving the S&P 500. And here's where it gets unsettling. Nvidia's PE ratio is 53 to 55. A normal stable mega cap company would be 20 to 25. Granted, tech companies generally run a little higher than normal, but not 200% plus. Amazon's PE ratio is 35 to 37 and Microsoft's is 35 to 40. And the one that will really shock you, Tesla's PE ratio is 286. This means investors are paying $30, $40, or $50 for each dollar in earnings. Would you pay $50 for a $1 candy bar? Seems crazy, but people still buy. And here's something that should make people nervous. Before the dot crash in 1999, SNP 500 PE ratios were running 29 to 32, roughly the same as they are today. All these signs indicate a market crash is overdue. yet it hasn't occurred.
Next, the hidden forces holding the market up. Even though all the indicators have been flashing red, high inflation, rising consumer debt, slowing job market, layoffs, corporate earnings slowing down, elevated PE ratios, and a grossly overvalued market. The market still hasn't collapsed. Why? And here's the part that most people miss. It's because two major forces are working to hold it up.
Force number one, the government keeps stimulating demand quietly. Officially, stimulus checks ended years ago. But look closer. The government is still injecting money into the system in ways the average person never sees. Expanded credit programs, quietly increased government spending, and corporate support mechanisms like corporate tax cuts and what some people call corporate welfare. It's stimulus wearing a disguise because they don't want you to see it. Take government spending. The government collects about $5 trillion every year in tax revenue and spends about $7 trillion. Much of that $7 trillion finds its way to companies and then to employees. Consumers then buy things, elevating corporate profits. So, massive government spending is propping up our economy. And what many people don't realize is that when the government boosts demand, even indirectly, stocks stay inflated longer. But with $38 trillion in debt and annual interest costs of more than $1 trillion, how long do you think the government can keep spending like this before we have a reckoning? Likely not much longer. And here's the crazy part. This isn't even the main force.
Force number two, dollar devaluation and inflation. If you've been following the news, you know the current administration wants to see a weaker dollar so our exports are cheaper. That's no secret. But other less obvious factors are at work decreasing the demand for dollars. Here are two most people don't recognize. First, some countries, notably the bricks led by China, want to see international transactions settled in currencies other than dollars. And it's happening at an accelerating rate that decreases demand for the dollar. Next, US treasuries are not seen as the flight to safety, risk-free assets they once were. That also decreases demand for the dollar. When demand for the dollar decreases, the value of the dollar also decreases. Couple that with the current administration's desire to make our exports more affordable and downward pressure on the dollar is twofold. And it gets worse. We all know inflation has been stubborn and a weaker dollar enhances that. And when the government floods the system with dollars, inflation and dollar devaluation accelerate. Why? Because you have more dollars chasing the same goods and services, which causes prices to rise. And anytime the supply of anything increases, the value or price of that thing generally goes down. That's what is happening with the dollar right now. So, every dollar you have is silently bleeding value, even if your bank account balance hasn't changed.
But you're probably asking yourself, how is this propping up the stock market? Let me break it down. One, government spending is supporting consumer spending and contributing to inflation. Two, the dollar is decreasing in value. The net result is that companies raise prices. When prices rise, corporate earnings rise, not because they've become more innovative or productive, but simply because the dollar doesn't buy as much anymore. This is why companies can report record earnings even when fewer people are buying their products. It's not growth. It's inflation disguised as growth. But earnings still go up. And here's the kicker. Wall Street knows this. This can lead to higher corporate valuations, which is what some big investors may be betting on. And here is something else very few people understand. If you borrow money to buy assets like stocks, and inflation rises, two things happen. Your debt becomes cheaper because you pay it back with less valuable dollars. Your asset values increase because the replacement cost or revenue potential, your ability to raise prices increases. And here's what most people will never hear on the news. Inflation works in the favor of people who buy assets with debt. And money is still historically cheap and likely to get cheaper. Again, big investors such as hedge funds and other institutional investors are hiding in plain sight, borrowing large sums of money to buy stocks. If inflation stays high or increases, they win big. These two forces are working together to prop up the market and keep the large investors in the game. And this leads to one of the things the government, the banks, and even the wealthy don't want you to know. The top 10% own almost 90% of all stocks, 90%. So, as inflation and dollar devaluation take hold, the rich get richer, while the bottom 90% see their cost of living rise and their dollar not stretching as far, bending until they break.
But here's the part most people aren't thinking about. These forces propping up the market won't last forever. They delay the crash, not prevent it.
Third, why this crash is taking longer than expected to arrive? Let's address the biggest question. If all the signs are bad, why hasn't the crash already happened? This is where most people misunderstand how markets actually work. Crashes don't happen when conditions get bad. Crashes happen when confidence breaks. Think of confidence like an overloaded bridge. It doesn't collapse when the first crack appears. It collapses when the final bolt snaps. Right now, confidence is being held together by three threads, and all three are starting to fray.
The first thread, consumers are still spending money they don't have. [music] The US economy is consumer-based with consumer spending making up roughly 70% of GDP. But personal savings are near record lows, and credit card balances are at record highs. People are spending money they don't have, and that's not sustainable. And when consumers finally stop spending, earnings fall and markets follow.
The second thread, the labor market has persevered but is showing cracks. The no hire, no fire labor market is going away. Hiring has slowed significantly and layoffs are increasing. It's not a strong labor market. It's a lagging labor market which always happens right before downturns. Less people employed means less consumer spending. And this next part should seriously concern every investor.
The third thread, rate cuts won't save us this time. In previous cycles, lower rates gave markets a cushion. But today's economy is running on high debt, high costs, and squeezed consumers. Lower rates won't magically fix that.
And this brings us to the most important part, the cycle of false confidence that always appears right before the real crash.
Finally, what happens right before every major crash and why it's already happening. Here's the uncomfortable truth. Crashes don't appear out of nowhere. They're always preceded by the same sequence. And here's the part that will shock you. All three phases are already happening right now.
Phase one, markets stay high for longer than anyone thinks is rational. We're in that phase right now. People are frustrated because the market feels disconnected from reality. That's exactly what happens before every major downturn.
Phase two, investors become numb to bad news. It's called crash fatigue. People hear bad headline after bad headline and eventually stop caring. The public hears inflation, corporate layoffs, earnings warnings, and thinks whatever. This is classic pre-crash behavior. [music] Bad news stops moving markets right before the moment it matters.
Phase three, a confidence-breaking event hits. It's not always dramatic. Sometimes it's small. A bankruptcy, a credit event, a major company missing earnings. That single event triggers a chain reaction. Confidence collapses. Selling accelerates and the crash everyone expected months ago finally shows up and confidence may already be breaking. The University of Michigan consumer sentiment index preliminary reading for November was [music] 50.3, a significant decline to nearrecord lows and below economist forecasts.
And the reason the crash feels sudden when it does occur is because people mistake delay for safety. But delay actually sets up something worse. The longer a collapse is delayed, the faster it happens when it arrives. And here's the part they really don't want you to know. The market hasn't crashed yet. Not because the economy is strong, but because of temporary forces propping it up. And when those forces weaken, the market won't gradually decline. It will snap back to reality. The crash isn't cancelled. It's cued. And the longer it's delayed, the bigger it becomes.
This isn't about predicting doom. It's about understanding the cycle so you can protect yourself, stay rational, and make smarter decisions when others panic. Let's build on your momentum. I've got another great video called Do This Every Day and It's Impossible to Stay Poor. It's on the screen, so click it and I'll see you there. If this breakdown helped you gain clarity from the chaos, subscribe and like. We publish fresh, practical, nononsense content weekly to help you grow and protect your wealth. And if you want to get control of your finances, I put a link to a financial fundamentals bundle in the description that may help. Check it out.