美股不会再跌了？高债务时代的「大融涨」陷阱

Original Title: Hitting Escape Velocity in the Great Melt-up

Original Author: GRAHAM STEPHAN

Original Translation: Peggy

Editor's Note: This article begins with a viral Reddit post that was subsequently deleted, discussing an increasingly tempting thesis in the current US stock market: in the context of high national debt, expanding fiscal deficits, and continuous dilution of purchasing power, has the stock market entered a new state where it "really can't go down"?

The logic of the Reddit post is simple: the US debt is already too massive, and the government's only option is to print money and inflate its way out. As the dollar depreciates, stocks and hard assets priced in dollars will rise accordingly. Therefore, stocks are no longer just risk assets, but rather a hedge against currency devaluation.

The author analyzes this thesis within the framework of "The Great Melt-up" – the late-stage acceleration of asset prices driven by liquidity, momentum, and FOMO, detached from fundamentals. Historical examples, like the dot-com bubble and Japan's asset bubble, show similar moments: a narrative based on new technology or real growth takes hold, then leverage and emotion take over the market, and investors begin to believe that traditional valuation rules no longer apply.

The article's key reminder is that a high-debt world is indeed more favorable to assets than cash, but this doesn't mean stocks are "mathematically unable to fall." Inflation can boost nominal asset prices, but doesn't necessarily translate to real wealth growth; stocks can hit new all-time highs while still experiencing drawdowns of 30%, 40%, or even more along the way. Historically, in extreme inflation cases like Germany, Zimbabwe, and Venezuela, stock market gains didn't equate to investors getting richer; many were forced to sell just to cover living costs before asset prices could recover.

The author's final conclusion is not extreme: the US is more likely to face neither a debt default nor hyperinflation, but a prolonged period of financial repression – inflation slightly above interest rates, gradual debt dilution, persistent erosion of cash purchasing power, and nominal asset prices continuing to rise, albeit with real returns potentially lower than what investors have gotten used to over the past decade.

For investors currently drawn to narratives about AI, US tech stocks, and "every dip will be bought back," this article's real purpose isn't to debate whether to be bullish on US stocks, but how to avoid betting one's entire financial future on a story that seems too smooth. Assets can rise, but that doesn't mean risk disappears; markets can be bailed out, but that doesn't mean everyone will hold on until the next new high.

The following is the original text:

This might sound crazy, but what if I told you that, mathematically speaking, the stock market might truly never go down again?

Last week, a post on Reddit suddenly went viral, presenting a fairly compelling argument. Although the post was deleted after gaining popularity, its gist was: "Stocks only go up" is no longer just a meme; it's a law. Like gravity, but in the opposite direction, and it applies to money.

The US now owes $40 trillion in debt. Our interest payments alone are soon to exceed GDP. This means that just to service the interest, the government's only recourse is to print enough money.

This would lead to hyperinflation. But if you hold Palantir or Tesla stock, what does it matter? These stocks will inflate proportionally. That is, from now on, stocks are mathematically incapable of falling. If they do fall, the entire world economy would collapse.

This is why you see any "crash" get repaired within half a trading day. The stock market, literally, cannot go down. This isn't a deathbed boast; it's a new market law.

This isn't the first time a similar view has emerged, but this time, the economic environment genuinely warrants serious consideration. So we need to discuss clearly: what is happening now, why the government seems forced to continue printing money on an unimaginable scale, and what the consequences would be if this theory holds true.

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

Before we officially begin, if this is your first time reading my article, welcome to joining over 40,000 subscribers in understanding the market ahead of time. You'll receive one email per week, completely free.

The Great Melt-up

The notion that "stocks only go up" is built upon a theory economists call "The Great Melt-up."

The logic is that every bull market rallies until it enters a phase of frenzy. Prices are no longer driven by fundamentals like earnings or cash flow, but almost entirely by momentum. At this stage, it feels like everyone around you is getting rich, and you're the only one being left behind.

The belief is simple: prices will continue to rise because they have been rising so far.

This phenomenon is not as rare as you might think. During a "melt-up" phase, returns can be spectacular, until they suddenly are not.

Take the dot-com bubble of the late 1990s. From 1995 to March 2000, the Nasdaq rose 400%, with gains of nearly 90% in the final year alone. Companies with no revenue, no profits, and often no real product were valued at hundreds of millions of dollars.

In December 1999, the CAPE ratio reached 44, its highest level in 140 years. Investors believed the internet had changed the rules of the market. "AI will change everything." Sound familiar?

Then, the Nasdaq crashed 78% over the following two and a half years and took over a decade to return to its peak.

Look at Japan. Between 1975 and 1989, Japanese stocks surged 900%. At the top, the P/E ratio of the Japanese stock market hit 60 times. Land prices in Tokyo became absurd: the value of the land under the Imperial Palace was supposedly worth more than all the land in California.

This is obviously ridiculous, but no one wanted to be the first to leave and miss out on further gains. When Japan started raising interest rates, the entire economic system collapsed, and the stock market fell 60% in less than two years. It took the Japanese economy 34 years to finally return to its former peak.

However, this doesn't mean every rally is a melt-up.

Every melt-up's early stages are usually driven by real factors: new technology, genuine economic growth, or a different policy environment. But when FOMO and leverage enter the market, valuations get stretched, and everyone starts believing the good times will never end.

So, are we in a melt-up today? We need to first look at the stock market in 2026.

The Reddit Melt-Up Theory

The core of the Reddit theory is debt.

If the US government owes $40 trillion in debt and is running a $2 trillion annual deficit, how exactly does the US get out from under this debt without destroying the economy?

The simplest path is to dilute the debt via inflation. The dollar's purchasing power falls until the $39 trillion debt becomes less burdensome in real terms. This tactic is called "financial repression" because it erodes the wealth created by ordinary people. The US government used a similar approach after World War II.

But when a government devalues its currency, everything priced in that currency tends to rise: stocks, hard assets, all look more valuable on paper. The problem is that this paper increase doesn't necessarily mean real wealth has increased, because the dollar itself has become less valuable.

So, when Goldman Sachs recently raised its year-end target for the S&P 500 to 8000, even if that prediction comes true, it's not necessarily a straightforward positive sign.

The alternative to infinite upside is a real stock market crash. But no one would be crazy enough to actively choose that path.

However, what's truly unsettling are these numbers: by almost every major valuation metric, US stocks are not cheap. In fact, the price investors are paying for every dollar of earnings is near all-time highs, roughly double the long-term historical average.

The CAPE ratio has only exceeded 40 twice in history. Once was during the dot-com bubble in 1999, and the other time is right now.

That means the current market isn't just pricing in a debt-driven melt-up; it's exhibiting a state seen only once before in 140 years of market history.

So, how do we determine if "The Great Melt-up Theory" is valid or about to collapse?

Crash Test

Some claims in that Reddit post need closer examination.

First, that interest payments will soon exceed GDP – this is incorrect.

What exceeds 100% is the debt-to-GDP ratio, not the interest payment-to-GDP ratio. These are not the same thing. The US has been in a similar situation historically and got out of it by "printing money," which helped the market recover and continue rising.

Second, that the only way to pay interest is to keep printing money – this is also incorrect.

The government can also sell Treasury bonds to investors, pension funds, other governments, and institutions to borrow money. Of course, this model cannot continue forever.

Third, that stocks rise proportionally with hyperinflation – this is also incorrect.

Historical evidence doesn't support this. Between 1918 and 1922, the German stock market lost 97% of its value before hyperinflation peaked. Many people were forced to sell stocks at the bottom just to pay for rent and food.

In Zimbabwe, the stock market did rise 500-fold, but the local currency fell 99.8% against the US dollar. Similar events occurred in Venezuela in 2018.

So, what we really need to understand is: a great melt-up is not necessarily good news for stock holders.

Stocks can rise during inflation, but this doesn't automatically mean you are getting wealthier. If your portfolio is up 10%, but everything you buy is also 10% more expensive, you haven't actually gained anything.

So, given this information, what should we really do?

The Exit Plan

History tells us the most likely scenario is: The US will not default on its debt, will not experience unprecedented hyperinflation, and won't engage in endless money printing purely due to treasury issues, driving stocks into an infinite melt-up.

A more realistic outcome is a long, slow period of financial repression: inflation slightly higher than interest rates, making debt more manageable, while the dollar's purchasing power gradually declines compared to the past.

The cost is that savers will be quietly squeezed. Cash loses value, prices continue to rise, and asset prices keep going up in dollar terms, but real returns after inflation may be significantly lower than what investors were accustomed to over the past decade.

For the stock market, prices are likely to continue rising over the long term, because when the dollar's purchasing power falls, nominal asset prices usually rise.

But a long-term rising stock market doesn't mean it won't crash along the way. The market could still fall 30%, 40%, or even 60% from current levels. But it could also hit new highs afterwards.

These two seemingly contradictory facts can be true simultaneously at different times: the market is expensive, and a single event could trigger a 20% sell-off. Nothing is risk-free. But on the other hand, high debt doesn't necessarily mean high inflation, nor does it necessarily mean stocks will be continuously propped up. Most importantly, you shouldn't build your entire financial future on the hope that "the next bailout will happen."

In my view, the Reddit post was right in direction, but it misunderstood the path to the outcome.

In a high-debt world, governments do have a strong incentive for inflation to bear the brunt of the pressure. Over a long enough time horizon, this tends to favor assets over cash. But this in no way means "stocks are mathematically incapable of going down." That is a dangerous assumption.

This assumption leads people to rush into every market frenzy, thinking it's their last chance to get rich. They buy at extreme valuations with no margin of safety, no diversification, and no plan for what markets have repeatedly done – fall.

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

But historically, those who truly come out ahead during inflationary periods are usually not those who bet everything on the most expensive, highest-multiple stocks. The winners are often those who hold a collection of productive assets: stocks, real estate, some cash, perhaps gold and short-term bonds – and who are not forced to sell when the market turns bad.

In a high-debt world, stocks may outperform cash over the long term. But this could also mean your portfolio sees little to no real growth, after inflation, for 10, 15, or even 20 years.

So, instead of relying on your willpower to get through decades of stagnation, it's better to build a system that doesn't require you to treat "hope" as an investment strategy.

In summary, the answer isn't panic, nor is it selling everything. But the answer also isn't going all-in, using leverage, and assuming every decline will be rescued.

This is a very emotional time, and you might be tempted to put all your chips on what seems like a "once-in-a-lifetime opportunity." But risk is always two-sided.

I believe the better choice for most people is to remain diversified and not be overly concentrated in the most expensive companies. Hold enough cash so you are never forced to sell at the worst possible time.

Most importantly, please do not build your entire financial future on a viral Reddit post.

Stick to your regular investment plan. Stay diversified. If you found this article helpful, feel free to like, share, or forward it to someone you don't want to be left behind by the market.

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