I told you to watch the FAANG stocks for signs of trouble

In this CNBC article today, they're talking how the big hit Facebook's stock took yesterday could very well be a sign that the "Trump Rally" is close to cracking.  For those not up on the acronym, FAANG is the vicious sounding word for the big tech blockbuster stocks, Facebook, Apple, Amazon, Netflix and Google.  Google's holding company in now named Alphabet, but FAAAN doesn't have a good ring to it, so FAANG is still the name people use to refer to these stocks. 

Here's the problem, stock indexes have been rising steadily since early 2009.  People like to forget that, but the charts tell the tale.  They rose through the most of the Obama presidency, and then accelerated after the 2016 election.  Donald Trump took credit for steepening rise in the stock markets, which was stupid.  The reason it's stupid is because if a president takes credit for stocks rising, he's going to get the blame when they fall, which they inevitably do. 

The real reason the stock markets rose quicker after Trump got elected is because with Republican control of the presidency, House, and Senate, they knew they would be able to pass the massive "tax reform" bill.  That bill was a huge giveaway to major corporations and ultra-wealthy people with lots of investments.  Quite literally, it was welfare for the super-rich and for major Industrial Age corporations who are having a lot of trouble adapting and competing in the 21st century information age. For the highly profitable tech companies, it was a huge bonus, unneeded, but helpful.

It's kind of like people getting a winning lottery ticket and then going on a shopping spree, because they know that huge check is coming soon. 

But since the stock market had been rising for 7 years straight before Trump got elected, and then rising a bit faster for 2 years since, prices are high, and things are running out of steam.  Once the "tax reform" bill passed in January, there wasn't a big reason for stocks to keep rising.  The major companies got their "lottery check," so to speak, and the anticipation period was over. Where did they spend most of the money?  On buying back their own stocks, so they own a bigger share of themselves.  Most of that huge amount of money saved, and brought back to the U.S. from overseas, has NOT gone into the real economy of everyday Americans.  It wasn't invested in new infrastructure, creating new jobs, funding small businesses, getting broadband to rural America, or any of the other things useful and helpful to the majority of people.

The FAANG stocks, which have been the rising more than any other group of stocks, have attracted more money, because they just kept going up more than everything else.  So now, as the long up trend in stocks is running out of steam, EVERYBODY owns the FAANG stocks.  And there's not just many more reasons for them to keep going up.  So when these few stocks do peak and head down, it's going to leave very few really good places for large amounts of money to go.  When the FAANG stocks start to head south, the whole stock market will most likely follow, and that, combined with huge amounts of debt, ultra low interest rates, other factors, will almost certainly send us into the next recession.  And that recession is looking like it will be a gnarly one, much like 2008, and maybe even worse. 

Facebook took a big hit on its stock price, and other things look pretty good... for now.  But the big hit FB took is a sign that the gravity of reality is being felt in the overinflated financial world, and a correction is coming.

Larry Kudlow during the 2008 collapse

President Trump named former CNBC host and news anchor Larry Kudlow as his Economic Advisor about a week ago.  Here's Larry Kudlow (clip above) during the 2008 crash saying that Congress forced banks to make the risky subprime loans to poor people.  Those loans were then sold, bundled into big investments called Collateralized Debt Obligations (CDO's) and sold to investors all over the world.  Most of the investors didn't really understand what they were buying.  But CDO's made a buttload of money for big banks and financiers.  So those big banks needed more and more loans to keep making CDO's to sell.  So they started buying sketchier and sketchier home loans.  So local banks made sketchier and sketchier loans, because they, too were making tons of money selling those loans.  Greed fed the whole thing, which turned into a crazy feedback loop.  Larry Kudlow knew this damn well, but his job, in the height (or depth, more precisely) of the 2008 economic collapse, was to shift blame away from Wall Street and the big banks, and blame Congress and poor people who got home loans they couldn't really afford.

Over the last ten years, there have been a relatively small number of subprime mortgage loans made.  That's because laws were passed to prevent this from happening again.  But, what has been happening is that $1.3 to $1.5 TRILLION in student loans have been made to students, many of whom can't pay those loans back.  Those student loans have been sold, bundled into investments called SLABS (Student Loan Asset Backed Securities, just like the CDO's of a decade ago), and a whole new financial house of cards has been built.  And it will collapse soon.  It could happen any time.  Maybe tomorrow.  More likely a week, a month, or maybe 3 or 4 months from now.  But it's getting close to that point.  And when it happens, Larry Kudlow, now Trump's Chief Economic Advisor, will blame Congress and average college students for this collapse.  Just watch. He's basically got the same job to do a decade later.

Meanwhile, big banks, student loan lenders, and colleges and universities themselves have made huge fortunes from all these student loans that never should have been made.  When it collapses, it will be 2008 all over again, and likely even worse.  And all of us average people will get screwed again.  Hard.  And they're not even going to spit first.  It will be tough economic times coming at a time when many parts of the U.S. have never rebuilt from the last collapse.

Confused?  Good.  You're supposed to be confused.  So here's Margot Robbie in the bubble bath scene from The Big Short movie to help explain it.  (NSFW)  Just replace the word "subprime" with "student loans," and you've got the idea of what's about to happen to our economy.  Except this time, there are a whole bunch of us who've seen this show before, and know what's about to happen.  And now you know.

"How Wall Street profits from student loan debt"  - Rolling Stone article from April 2016

Recession zine coming...

I started writing a small zine* the other day called, "How to Make the Next Recession Great."  From my own perspective, it looked like we're getting really close to the tipping point into the inevitable next recession (from Hell).  But these days, I try to make the most of opportunities.  Recessions suck for most, because people convince themselves that recessions will never happen again.  And then they happen.  But if you realize it's coming, and get ready for it, recessions offer a ton of opportunity. 

Oh yeah... the Dow Jones Industrial Average is down 700 points or so today.  Imagine that.

* For any who don't know, a zine (pronounced zeen), is a small, self-published booklet, usually handmade and done on a photocopier.