The U.S. stock won't fall again

Original title: Hitting escape development in the Great Melt-up

ORIGINAL BY GRAHAM STEPHAN

Original language: Peggy

The editor discussed an increasingly attractive judgment in the US stock market: In the context of the high level of United States debt, the continuing expansion of the fiscal deficit and the weakening of the purchasing power of currencies, has the stock market entered a new state of “no real decline”

The logic of Reddit’s post is simple: US debt is already too large, and governments can eventually dilute debt by printing money and inflation; and when currencies depreciate, dollar-denominated stocks and hard assets will rise. As a result, equities are no longer merely risky assets but rather a refuge against currency devaluation。

The author places this in the "melt-up" framework (which refers to asset prices rising faster than basic, driven by liquidity, momentum and FOMO). The historical Internet bubble and the Japanese asset bubble have all had similar moments: new technologies or real growth have provided the narrative basis, then leverage and emotions have taken over the market, and investors have begun to believe that the old valuation rules have lapsed。

The key reminder of the article is that the high-debt world is indeed more asset-friendly than cash, but this does not mean that stocks “cannot fall mathematically”. Inflation can push up the nominal price of assets without necessarily bringing about real wealth growth; long-term stock market innovation is high and does not prevent a 30%, 40%, or even deeper retreat. Historically, in extreme inflation cases such as Germany, Zimbabwe and Venezuela, stock-market increases did not amount to real enrichment for investors, and many were forced to sell even before asset prices were restored to pay for their living costs。

The final judgement given by the author is not extreme: rather than debt default or hyperinflation, the United States is more likely to experience a long period of financial depression – a period of slightly higher inflation than interest rates, a gradual dilution of debt, continued erosion of cash purchasing power, and continued nominally high asset prices, but real returns may be below what investors have been accustomed to in the last decade。

FOR INVESTORS WHO ARE NOW ATTRACTED TO AI, USU, AND THE NARRATIVE OF EVERY CALLBACK, WHAT THIS ARTICLE REALLY WANTS TO DISCUSS IS NOT WHETHER TO LOOK AT THE BEAUTY, BUT HOW TO AVOID PLACING THE ENTIRE FINANCIAL FUTURE IN AN OVERLY SMOOTH UPSWING STORY. ASSETS WILL RISE, NOT TO MEAN THAT RISKS WILL DISAPPEAR; MARKETS WILL BE SAVED, NOT TO MEAN THAT EVERYONE WILL SURVIVE UNTIL THE NEXT HIGH。

The following is the original text:

This may sound crazy, but what if I told you that mathematically, the stock market would never fall again

Last week, Reddit had a post that suddenly exploded, presenting a fairly convincing argument. Although the post was deleted after it went red, it was to the effect that "stocks will only rise" was no longer just a barrage, but a law. Like gravity, it's just the opposite direction, and it's about money。

THE UNITED STATES NOW OWES $40 TRILLION. OUR INTEREST SPENDING WILL SOON EXCEED GDP. THIS MEANS THAT IN ORDER TO PAY INTEREST ALONE, THE GOVERNMENT ' S ONLY WAY IS TO PRINT ENOUGH MONEY。

This leads to hyperinflation. But what does it matter if you own Palantir or Tesla stock? These stocks also show proportional inflation. In other words, from now on, stocks will no longer fall mathematically. Once it falls, the entire world economy collapses。

That's why you see any one crash will be quickly repaired within half a trading day. The stock market literally cannot fall. This is not a death sentence, but a new market law。

This is not the first time that a similar view has emerged, but this time the economic environment deserves serious reflection. So we need to be clear: what is happening now, why is the Government forced to continue printing money on a larger scale than it could have imagined, and what will happen if this theory is established。

Because if this theory is correct, we may witness the largest wealth transfer in history. If it's wrong, it's a harvest。

Before the official start, if this is the first time you've seen my article, you're welcome to join more than 40,000 subscribers to understand the market in advance. You get an email every week and it's completely free。

Big Bang

The term "stock only rises" is based on what economists call the Great Melt-up。

The logic of this theory is that every round of cattle will rise until it enters a phase of fanaticism. Prices are no longer driven by fundamentals such as profit, cash flows, but almost exclusively by momentum. At this stage, you'll feel like everyone around you is getting rich and you'll be left alone。

This conviction is simple: prices will continue to rise because they have so far been rising。

It's not as rare as you think. During the "blacking" phase, the rate of return can be exaggerated until it suddenly ceases to exist。

Like the 20th century, the late 1990s, the Internet bubble. From 1995 to March 2000, NASDAQ rose by 400 per cent and in the last year alone by nearly 90 per cent. At that time, many companies without income, profits or even real products had access to hundreds of millions of dollars in valuation。

IN DECEMBER 1999, THE CAPE RATIO ONCE REACHED 44 AND REACHED ITS HIGHEST LEVEL IN 140 YEARS. INVESTORS BELIEVE THAT THE INTERNET HAS CHANGED MARKET PATTERNS. "AI WILL CHANGE EVERYTHING. DOES THAT SOUND FAMILIAR

Then NASDAQ fell 78% in the next two and a half years and took more than a decade to get back to the high point。

Look at Japan again. The Japanese stock market rose by 900 per cent between 1975 and 1989. At the top, the Japanese stock market was once 60 times more profitable. The price of land in Tokyo is so absurd that the value of the royal residence in the land is even considered to exceed that of the entire California。

This is obviously absurd, but no one wants to be the first to leave and miss the subsequent rise. When Japan started to raise interest rates, the entire economy collapsed and the stock market fell 60 per cent in less than two years. It took 34 years for the Japanese economy to finally return to its height。

This does not mean, however, that every rise will rise。

THE EARLY STAGES OF EACH BOOM ARE USUALLY DRIVEN BY CERTAIN REAL FACTORS: NEW TECHNOLOGIES, REAL ECONOMIC GROWTH OR DIFFERENT POLICY ENVIRONMENTS. BUT WHEN FOMO AND LEVERAGE BEGAN TO ENTER THE MARKET AND VALUATIONS WERE CONSTANTLY RAISED, EVERYONE BEGAN TO BELIEVE THAT GOOD DAYS WOULD NOT END。

So, are we in the middle of a boom today? We need to look at the stock market in 2026。

Reddit's theory of melting

The core of Reddit's theory is debt。

If the United States Government owed $40 trillion in debt and was running a deficit of $2 trillion each year, how would the United States get out of that debt without destroying the economy

The simplest route is to dilute debt through inflation. The purchasing power of the dollar declined until the 39 trillion dollar debt became less substantial in real terms. This is called "financial repression" because it erodes the wealth created by ordinary people. The United States Government has used a similar approach since the Second World War。

But when a government devalues its own currency, all what is denominated in such a currency increases: equities, hard assets, will become more valuable on the books. The problem is that the appreciation of these assets on paper does not amount to an increase in real wealth, as the dollar itself has become worthless。

So when Goldman Sachs recently moved the end-of-year target of the Standard 500 index up to 8000 points, it might not be a simple profit, even if the forecast eventually came true。

Another alternative to an infinite rise is a real collapse of the stock market. But no one is crazy enough to take the initiative to choose this path。

However, what is truly disturbing is the following figures: the United States share is not cheap by almost all major valuation indicators. In fact, the prices paid by investors for each dollar's profits are close to the highest ever, about twice the long-term historical average。

CAPE RATIO HAS ONLY TWO BREAKTHROUGHS IN HISTORY. ONE WAS THE 1999 INTERNET BUBBLE, THE OTHER IS NOW。

In other words, the current market is not just pricing a debt-driven boom, but is showing a state of affairs that occurred only once in the 140-year market history。

So, how do we figure out whether the Big Bang theory is in place or will collapse

Collapse Test

Reddit had some statements in that post that needed to be examined more closely。

FIRST, INTEREST SPENDING WILL SOON EXCEED GDP -- THAT'S WRONG。

WHAT IS REALLY MORE THAN 100% IS DEBT AS A PROPORTION OF GDP, NOT INTEREST EXPENDITURE AS A PROPORTION OF GDP. THESE TWO THINGS ARE NOT THE SAME. HISTORICALLY, SIMILAR SITUATIONS HAVE OCCURRED IN THE UNITED STATES, WHICH HAS COME OUT THROUGH "PRINT MONEY" TO BOOST MARKET RECOVERY AND CONTINUE TO RISE。

Secondly, the only way to pay interest is to continue printing the money — which is also wrong。

Governments may also borrow from investors, pensions, other Governments and institutions through the sale of State debt. Of course, this pattern cannot last forever。

Thirdly, equities will increase proportionately with hyperinflation — and that is equally wrong。

History does not support this. Between 1918 and 1922, German stock markets lost 97 per cent of their value before the peak of hyperinflation. Many were forced to sell shares at the bottom only to pay rent and food。

In Zimbabwe, the stock market did rise 500 times, but the local currency fell 99.8 per cent in dollar terms. A similar situation occurred in Venezuela in 2018。

So what really needs to be understood is that a large-scale increase is not necessarily the gospel of stockholders。

Equity can rise during inflation, but that doesn't automatically mean you're richer. And if your portfolio goes up 10%, but everything you buy costs 10%, then you don't actually get the money。

So what do we really do with this information

Exit plan

History has taught us that what is most likely to happen is that the United States will not default on its debt, will not experience unprecedented hyperinflation, and will not cause endless printing of money and push the stock market into an infinitumination。

A more realistic outcome is a long and slow period of financial repression: inflation is slightly higher than interest rates, debt becomes easier to manage and the purchasing power of the dollar is gradually lower than in the past。

The price is that the savers will be squeezed silently. Cash loses value, prices continue to rise, and asset prices continue to rise in dollar terms, but real gains after inflation may be far below the level that investors have been accustomed to in the past decade。

For the stock market, the price probability will continue to rise in the long term, as the nominal price of assets usually rises when the purchasing power of the dollar declines。

However, the long-term rise in the stock market does not mean that it will not collapse in the process. The market could still fall from its current position 30%, 40%, or even 60%. But it can also be more innovative later。

These two seemingly contradictory facts can be established at different times: the market is expensive, and an event could trigger a 20 per cent sale. Nothing is zero risk. On the other hand, high debt does not necessarily mean high inflation, nor does it necessarily mean that stock markets will continue to rise. Most importantly, you should not base your entire financial future on the hope that the next rescue will happen。

It seems to me that Reddit was right in the direction, but it was wrong about the path to the outcome。

In a high-debt world, Governments do have a strong incentive to place major pressures on inflation. In a sufficiently long time dimension, this usually benefits assets rather than cash. But it doesn’t mean that “shares cannot fall mathematically”. It's a dangerous hypothesis。

This assumption allows people to rush into each market boom as if this was their last chance of becoming rich. They buy under extreme valuation, have no security margins, are not decentralized, and have no plans to deal with recurring market events — falling。

I'm not here to predict a crash. Many very smart people believe that the market can continue to rise。

Historically, however, those who actually eventually won in periods of inflation are not usually those who put the entire warehouse position on the most expensive, multi-valued stocks. The winners are often those who own a group of productive assets: stocks, real estate, some cash, and perhaps gold and short-term bonds, and they are not forced to sell when markets deteriorate。

In a high-debt world, equities may win cash in the long run. But it could also mean that your portfolio, after deducting inflation, has barely grown in 10, 15, or even 20 years。

So instead of relying on your will to survive decades of stagnation, a system should be put in place so that you do not have to look at hope as an investment strategy。

In conclusion, the answer is not panic or selling everything. But the answer is not full of bets, leverage, and assuming that every drop will be saved。

It's a very emotional period, and you might be tempted to put all the chips on what's called "one chance in life." But risks are always two-way。

For most people, I think, the better option is to keep the mix of configurations and not focus too much on the most expensive companies. Keep enough cash so that they will never be forced to sell at the worst。

Most importantly, please don't base your entire financial future on a fire-blast Reddit post。

Stick to your regular investment plans and keep it decentralized. If you find this article helpful, you welcome it, forward it, or share it with someone you don't want to be left behind by the market。

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