At $49.1 Trillion, the U.S. Stock Market Is Larger than the Combined GDP of the U.S., China, Japan and Germany

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by Pam Martens and Russ Martens, Wall St On Parade:

When the motherlode of stock market bubbles finally pops, exposing the corrupt edifices on which it was built, you can count on one thing for sure – there will be lots of testimony before Congress that no one could have seen it coming.

The simple chart above, that took us 30 minutes to prepare in an Excel spreadsheet, is proof that anyone among the legions of Wall Street bank regulators at the Federal Reserve, the OCC, the FDIC, and the SEC can see what’s coming.

The chart compares U.S. GDP to the total stock market value at December 31, 1999, prior to the bursting of the dot.com bubble; at December 31, 2007, prior to the bursting of the subprime and derivatives bubble; and on December 31, 2020, prior to the bursting of whatever the bailout boys decide to call this bubble.

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Our data for total stock market value comes from Siblis Research. Our data for GDP comes from the U.S. Bureau of Economic Analysis as compiled by the St. Louis Fed. (Put your cursor on the graph line in the St. Louis Fed link for the GDP numbers by quarter.)

The data shows that just prior to the dot.com bust on December 31, 1999 that resulted in the Nasdaq stock market losing a stunning 78 percent of its value from peak to trough, the total stock market value was 1.77 times GDP.

At year-end 2007, prior to the greatest Wall Street collapse since the Great Depression, the total stock market value was 1.34 times GDP.

As of December 31, 2020, total stock market value represented 2.10 times U.S. GDP. Siblis Research further shows that as of March 31 of this year, total stock market value in the U.S. stands at a breathtaking $49.1 trillion. (That includes U.S. based public companies listed on the New York Stock Exchange, Nasdaq Stock Market or OTCQX U.S. Market.)

A $49.1 trillion stock market is larger than the combined GDP of the four largest industrialized nations (U.S., China, Japan and Germany) according to International Monetary Fund data.

The absurdity of the valuations in the U.S. market are captured in this statistic: just five companies (Apple, Microsoft, Amazon, Google’s parent Alphabet, and Facebook) account for a total of $7.85 trillion of the $49.1 trillion total stock market value. That’s five companies out of thousands and yet they represent 16 percent of the total stock market value. And here’s another deeply troubling thought: each of those five stocks are being traded in the Wall Street banks’ secretive Dark Pools.

The U.S. economy and millions of our fellow Americans suffered terribly during each of the last crashes, which must be placed directly at the feet of the regulators who failed to do their job on behalf of the American people, opting instead to audition for lucrative jobs on Wall Street.

In the midst of the dot.com crash, Ron Chernow described what was happening for New York Times’ readers on March 15, 2001:

“Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year —  that it amounts to nearly four times the carnage recorded in the October 1987 crash.”

Chernow called the Nasdaq stock market a “lunatic control tower that directed most incoming planes to a bustling, congested airport known as the New Economy while another, depressed airport, the Old Economy, stagnated with empty runways. The market functioned as a vast, erratic mechanism for misallocating capital across America,” Chernow wrote.

But it wasn’t a free market defect that was directing investors’ capital to brand new businesses with no realistic plans for long-term survival. The “lunatic control tower” wasn’t a lunatic at all. The men behind the curtain in the control tower were making millions of dollars as crooked analysts at some of Wall Street’s largest investment banks. They were snake oil salesmen pushing “hot IPOs” on unsuspecting customers of the Wall Street banks while calling the offerings “dogs” and “crap” in internal emails.

On April 28, 2003, the SEC, which conveniently has no criminal powers, settled the rigged research practices with 10 Wall Street banks for $875 million. Let that sink in for a moment: Nasdaq investors lost trillions of dollars but Wall Street got off with a payment of $875 million. And no one went to jail. Just two individual analysts were charged: Jack Grubman of Citigroup’s former Salomon Smith Barney unit and Merrill Lynch’s Henry Blodget. Both men were barred from future affiliation with a broker-dealer and paid fines that were just a fraction of the bonuses they had collected.

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