That's how British economist Jeremy Warner describes the US stock market at present.
According to the UBS Investment Returns Yearbook, US equities today account for more than 60pc of the value of global equities as a whole, up from around 40pc 15 years ago.
Yet in nominal terms, US GDP is just 26pc of the global total, and even less at around 15pc in purchasing parity terms.
The mismatch between equity valuations on the one hand and actual economic heft on the other could scarcely be more striking. It also looks increasingly hard to justify.
. . .
Yet impressive though this phenomenon may be, it is also indicative of something much more worrying: a giant, all-consuming investment bubble at the heart of the global economy.
Almost everyone wants a part of Silicon Valley’s investment boom. In hoovering up an ever-greater proportion of the world’s supply of available capital, it threatens a frenzied and devastating end to America’s 15-year-long bull market.
. . .
If everybody else is getting rich from America’s stock market boom, the temptation to join in becomes almost irresistible.
I’ve been following stock markets for longer than I care to remember, and though we can all claim to have had the occasional success in spotting the turning points, the big lesson is that prediction is a mug’s game. Hardly anyone manages it consistently.
Here goes, anyway. The telltale signs of euphoria and over-exuberance – and therefore of capital misallocation bound eventually to culminate in loss – are today everywhere to be seen.
There's more at the link.
The inexplicable thing, to me at any rate, is that there are so many hair-trigger moments baked into our current economic cake that any one of them could bring down the entire house of cards, virtually overnight. Think about it:
- Russia launches massive retaliation (economic and possibly military) against NATO states which are supporting Ukraine?
- China invades Taiwan?
- President Trump activates the US armed forces to tackle the drug cartels in Mexico, Venezuela and elsewhere?
- A new Middle East war severs oil supply routes from the Persian Gulf to the Indo-Pacific region and China?
- The Internet is shut down due to many incidents of sabotage, all of which may be suspected as coming from Russia, but which can't be proved as such in the initial stages?
Add to them major internal political disruptions in all the major nations involved (USA, Britain, France, Germany, and so on) where there is no national unity whatsoever on how to deal with the problems facing each country, or all of them together. Some are calling for "Governments of National Unity", but when there is no national unity, that's a wee bit tricky to achieve.
And through all this, business and commerce carry on blithely earning and spending money as if there's no tomorrow, no interruption possible. We're living in a house of cards, and utterly ignoring that reality all around us.
Therefore, dear readers, I can only suggest that we focus on the absolute basic needs of our lives and cover as many of those bases as we possibly can.
- Build and maintain a reserve of food and emergency supplies (toilet paper, light bulbs, candles, fuel, essential medications, etc.) to last as long as possible. My gut feel is that a minimum emergency stash should be able to take care of one's household for thirty days, and three months is even better. I'm not sure whether six months to a year is as important, because if the crisis (whatever it may be) goes on that long, others will come to our door intent on stealing what we've got, bringing with them a whole new set of problems.
- Know how to defend your home, your loved ones, and your emergency supplies, and have an adequate supply of the tools and equipment needed to do so, and don't hesitate to do so if this becomes necessary.
- Build up a local network of friends and associates who can help each other make it through hard times. I've been forcibly reminded of this during my current post-surgery recovery period. Right now my physical condition will almost completely preclude me from defending or working for my family and loved ones. Do I have other friends I can rely upon to "step into the gap" and do it for me until I'm on my feet again? I'd better have!
Get as many as possible of these building blocks in place before worrying about what the stock market is doing. Only when you've achieved that should you worry about things you can't control.
Just my $0.02 worth . . .
Peter
22 comments:
I agree. Too many 'get rich' schemes can leave your retirement nest egg gone. Ask the Houston based Enron investors who lost life savings because 'you can't lose'. Yes you can.
Your list of preps at the end sound good. Everything you need for the immediate regardless of what economy does would be smart to gather up and fill in gaps.
Well said, as always Peter...I face much the same issues, half-way thru a radiation and chemo cycle to kill a soft tissue throat cancer. Building any sort of food cashe is difficult on a fixed income is difficult swell- but we're trying!
Large communication outages are blamed on Russia or China; however, it would be reasonable to consider that the EU could do the same to force the good 'ol USA into another fight on their soil.
Dave
Make money in the market while you can.
You can't hide in the closet from "what might happen". It might, but it hasn't and likely won't.
The nuclear apocalypse might happen too, but while I am gonna prepare for it, I am not gonna "Hunker in my Bunker" and stop living .
Same -same finances.
From the article: "...have an adequate supply of the tools and equipment needed to do so, and don't hesitate to do so if this becomes necessary." Right there will be the sticking point for many people; have the means to defend one's family, but at the moment of truth will hesitate...because of 'civilization' or their poor preparedness to fire a shot in anger.
I have taken many friends to gun shows and gun stores with the intent of buying their first firearm. But I always tell them, "First you have to ask yourself, are you capable of shooting another human if they are attacking you or your family?" It always gives them pause.
Read somewhere earlier that, as dicey as the US economy is, it's even worse elsewhere - which is why some of the overseas money is being invested in the US. Mattresses are always an option :)
From Investopedia
Key Takeaways
Though war and defense spending can amount to a sizable portion of the U.S. GDP, wars often have little sustained impact on stock markets or economic growth at home.
Markets largely have ignored recent conflicts related to the Middle East and Iran.
A broader regional war, however, may have a more severe impact, especially on oil and other commodity prices.
Still, stock markets have often quickly recovered to pre-invasion levels only a matter of days or weeks after armed conflicts or standoffs begin.
please factor in inflation
a barista today is commanding a salary that a well-educated engineer with some experience would have to fight for back in the '50s
I'm looking at multiple arenas where prices are high and wondering what comes next: housing, gold, stocks, government spending.
A great example: traditionally, gold moves opposite the stock market, but right now it's moving with it.
These rising prices COULD be a market response to inflation - but I suspect there is more to it.
As far as US markets growing oversized, remember that a whole bunch of other countries are either doing worse than the US or are preparing either massive tax increases or expected to outright confiscate assets. As one example, remember the article you posted recently about Chinese people selling equipment cheap to get money out of the country.
The censorship regimes in Europe hanging onto power by any means they can doesn't bode well for their future; I haven't heard investors leaving there but given slow growth and unrest I'd be surprised if they weren't.
In many ways, the US is looking like the "least worst" option globally to many people with means (Australian and Canadian property markets are soaring as bad or worse than US ones because of this). I think we're in for a rough time globally and anybody claiming to know where things are heading is a fool. Be ready to ride out what comes.
Jonathan
That's actually a very significant portion of the current stock market "bubble", everyone else is doing significantly worse so the US is still considered the safest place to put your money if possible. It's hard to know just how much investment is from overseas as that is not tracked overall (individual investment firms probably know for their customers), as long as they get their cut the IRS doesn't care.
It is a mystery. Gold and silver have soared in the last 18 months. The stock market is at record highs. The housing market is hot in some parts of the country and cold as ice in others. Oil has held steady despite the geopolitical chaos in Europe (both Ukraine and Western Europe) and in the Middle East. Stock essentials and keep your clothes and weapons where you can find them in the dark.
The stock market is almost totally disconnected from the economy that most Americans live in. Been that way for a long time now.
Key word: 'British Economist.' That's like taking birth control suggestions from a woman with 12 children.
Take the warning. But take it with a grain of salt. The same people who say "US Market Woes!!!" also said "Xi/Putin has been replaced!!!"
From a stock market perspective, what trump is doing with forcing all the rest of the world and large corporations to invest trillions into America is very attractive. Small growth boom in manufacturing mostly.
Sadly some of that is going to AI which is already devastating the job market. I think 50% of current workforce will be replaced in next decade unless AI bombs so bad that everyone turns away from it. I don't see that happening though. Today's AI is already incrementally better than last generation and so on.. it will continue to improve over time. I still don't think it can replace for many things a well trained person but it will be able to do 80% of what they do as well as they do it now or in the near future and sadly I think the companies will just say fuck the other 20%, it's still saving us money.
So there is a forced economic boom starting. But it wont translate to a good chunk of the population that are becoming unemployed
Fuel is sorta down. (2.55 a gallon last tank where I am. Myrtle Beach SC area)
Food is up. Pick your reason.. there are about 4 or 5 i think.
Massive layoffs starting and to continue for the next decade
Medical costs are up.
Political unrest is through the roof and the guns have already come out. Mostly seems to be mental whack jobs but stuff lately has pushed them over the edge into doing stupid stuff. and listening to some of the more excitable people on here it worries me that more than wack jobs are wanting to talk with bullets instead of words.
Multiple nation states are mucking with us and we are as close to a war with Russia and China as I think we have seen in many years.
As to a war economy. If anyone bothered to listen to trumps speech to the military we are already on the beginnings of a war economy. He is pushing to manufacture ships, new fighters, bombers, missiles etc, and pushing the industrial military complex to increase production to handle all the sales he is arranging of those things to the rest of the world. I'm not sure whether to believe it genius to get the rest of the world to pay for our increased capacity or think it is insanity.
needless to say, personally, uncertainty is HIGH and unease is HIGHER. I just want to live a quiet life in my extremely small corner of the country and raise my children in a calm and safe environment.
To everyone of the idiots that keeps talking about picking up a gun and civil war. Either you have never seen what a group of organized people with guns can do.. It's horrible and usually involves lots of innocents getting killed in the crossfire. Civil war makes it 10x worse in that you have hundreds of groups doing it with a lot of them not caring about what you care about and just wanting to kill their personal enemy's and loot everyone else.
Ask Peter, he has seen it first hand. No one wins and your little children are the ones that starve and die along side everyone else. Also it doesn't just take a week or two. No conflict ever just took a week or two. Ukraine, years in with multiple generations of men gone and no end in sight. Gaza, 2 years in and 60000 plus dead. World war 1 and 2.. years and millions dead. Our civil war, years and a generation dead. Afghanistan first the British I believe, then the Russians and then US, years and years and years and they are still there and outlasted all of us.
Just.... don't... Keep talking, please.
The ‘50s? Try the late ‘70s or early ‘80s. I was starting my career in Silicon Valley then, and in 1980 $30K was a good starting salary and $50K a year was a decent salary for a mid-career engineer.
The current starting salary at Starbucks in San Jose is about $40K right now.
Of course, back in the early ‘80s you could rent a decent apartment and live fairly comfortably here on that $30K starting salary, too.
Si vis pacem, para bellum. "if you want peace, prepare for war'." Or, as they say, "Better to be a warrior in a garden than a gardener in a war."
The world's been at a tipping point for a long time now. I think the Scamdemic snuffled things for a while, kinda like turning off the lights at a bar fight. The caldron's boiling again though, and as you said, any one of a number of things could blow the hatch.
I'm retired Coast Guard. Our motto is "Semper Paratus." "Always Ready." It's not a bad way to live. Stay on top of things but go about life. There's only so much we can do...
Its actually worse than Warner says. A significant proportion if the US stock market capitalization and almost all of its growth in the last 5-10 years can be accounted for by around half a dozen tech companies. Tesla, Amazon, Google, Nvidia etc. If you calculate US market size and growth excluding those then the US doesn't look as impressive
As someone who is making money in the market while I can, it is prudent to plan for the other end of the cycle. Decades ago I was taught recessions and depressions happen, we seem to have forgotten that. Such events are necessary because people over-value certain investments, and when that happens a readjustment is necessary and desirable.
Now, we pump excess capital in the system. I gave up on the stock market and went with a financial planner because P/E ratios don't make sense. Prices are far above what can be earned back using an annuity model. Pump a bunch of money in the system and it has to go somewhere. So I do believe a correction is coming. How severe and what is the cause-I don't know. I put some of the money I'm making into being ready to muddle through. It seems only prudent to be ready for that historical cycle to come back.
PS-It's like burning a forest to remove fire load. Small fires are better than huge conflagrations. We haven't been allowing those small resets, so I plan on the next one being significant. Hope I'm wrong. But I don't have worries keeping me awake at night.
The problem with this is that there's ALWAYS someone predicting a crash, and there's always a crash coming up in the future, but the question is when? You don't want to dump stocks and get out a year or two too early--you lose money that way just as surely as if you waited too long. And when the crash does come, the market always bounces back, eventually--you just have to be prepared to wait it out. Don't take on debt unless you know for certain what you're doing, and always keep a reserve of money and needful supplies.
US stocks are overpriced due to the relative safety of American Companies. That said, where will the money flow to if market crashes? The money doesn't go up in smoke. It has to flow to other things. Bitcoin? That's just swapping bubbles. Bonds? Governments are overextended and in debt now. Real Estate? Another bubble. Not sure what the answer would be.
Google "tulipomania".
You will see this material again, kids.
Agree 150% with the need to be prepared. Having the basics around in bulk--to include bulk loads of good friends--is defense against almost any crisis.
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