Loading ...At some point, people do come out from under this consensual hallucination. This can happen very gradually and unevenly, or suddenly and all at once. History is full of both events. And often it’s a combination, at first gradually and then suddenly, or vice versa.
https://www.zerohedge.com/markets/what-will-stocks-do-when-consensual-hallucination-ends world is full of stock markets where this has happened:
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The Japanese Nikkei index is down 42% from the peak in 1989. This 30-year saga had several big plunges and lots of long phases where stocks were just meandering lower, interrupted by rallies. Japanese stocks are a superb example of consensual hallucination through 1989, followed by a treacherous and gut-wrenching awakening.
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China’s Shanghai Stock Exchange is another perfect example of consensual hallucination that people eventually came out of. That market peaked in October 2007, then plunged as people came out from under it, then soared again but not quite has high, and today remains 52% below the peak 12 years ago.
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There are many other similar examples, including Italian stocks that are down nearly 60% from the peak in 1999.
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Or French stocks, down 18% from the peak in 2000.
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Or Spanish stocks, down 40% from the peak in 2007.
The cryptocurrency space has gotten crushed since the end of 2017, amid the enormous multiplication of cryptos.
In the US, the whole stock-market system is laid out to promote consensual hallucination.
Wall Street’s “research” reports are designed to promote it. Big-money interests that are heavily invested in it promote it. Warren Buffett promotes it. The President promotes it. The Fed promotes it.
The Fed promotes the idea that it has surgically separated stock prices from economic and business realities by trying to get everybody to believe that everybody believes that it has succeeded in doing so, that no matter what, stock prices will always go up. If that doesn’t work, and markets drop anyway, then everyone believes that everyone believes that the Fed will prop them up.
The entire financial advisory industry promotes it. Brokers promote it.
Corporate earnings data is out there for everyone to see, but no one wants to see it. Instead, everyone wants to see and believe the fairy tale that Wall Street and Corporate America spin with such skill. That can take many forms, such as promoting “adjusted” earnings that have obviously been adjusted for the sole purpose of driving share prices higher.
Or promoting “forward earnings growth,” which means earnings growth sometime in the future, and it is always huge, and everyone knows that as the reporting date moves closer, those expectations are lowered. But it’s those distant, wildly inflated “forward earnings” that are used to figure “forward” earnings per share estimates, that are then bandied about as rationalization for the gravity-defying stock prices.
That these “forward” earnings are the biggest hoax out there isn’t new. Everybody knows that everybody knows that they’re dragged out to bamboozle, well, exactly whom? Everybody else?
But it works – as long as everyone believes that everyone believes that this will drive stocks higher. Many people believing in the same thing creates momentum, and momentum creates more momentum, and chasing this momentum creates even more momentum. But then something invariably happens, and the process falls apart.
What’s astonishing is just how long consensual hallucination lasts, and how shocked and appalled people are when it ends.
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