We've met Jared Dillian before in these pages. He's an investment adviser and analyst with a highly respected track record in the industry. He's not a happy man these days.
You should never let your emotions get in the way of investing, but I am starting to get angry at this bull market ... You want my thoughts—I will give you my thoughts. But the one data point that you should know is that the stock market is now the most overvalued in history, more so than 2000 or even 1929.
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My friend Helene Meisler tweeted recently that if you weren’t around for the dot-com bubble, now you know what it was like in the dot-com bubble. The difference being that so many more people own stocks this time around. It is estimated that 62% of Americans own stocks. If we have a 50% bear market, it’s going to be Mad Max Beyond Thunderdome. We are really going to be questioning the wisdom of plowing all our savings into the stock market via 401(k)s. Let’s hope that doesn’t come to pass because the consequences would be too terrible to contemplate, but knowing markets and karma, that is probably exactly what is going to happen.
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I mean, the consensus view is that all this [AI] capex is going to go to waste, so maybe the out-of-consensus view is that it is actually needed. This is one of these situations in which I am glad I am 52 years old. The internet was also the future of the human race, but capitalism being what it is, there was overinvestment and malinvestment, and eventually supply caught up with demand, and everything crashed.
It looks like a tiny blip on a log chart (which is one reason why I hate log charts), but trust me, the crash was no fun. I lived through it and barely held on to my job. This time is no different. This time is never different! Whether it’s railroads, industrials/utilities, the Nifty Fifty, Japan, or any other bubble. The difference is that this one is bigger than all of them, and it looks like it’s not stopping.
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Back when I was at Lehman in 2006, I’d drive out in the country and take pictures of all the housing developments under construction that were completely vacant and then send them out in my Bloomberg messages. Maybe I should take a road trip and take some pictures of all the data centers under construction that will be Spirit Halloween stores in a few years.
I ordinarily don’t like to write rants. I like to write reasoned, thoughtful pieces. But I’m currently on a plane to Minneapolis, and S&P futures, which opened lower (because oil was up), just ripped to new highs… again. It’s truly incredible that the market goes up every day. It will be equally incredible when it goes down every day because that is what it felt like in 2002. A bear market without end.
There's more at the link.
I'm afraid I agree with Mr. Dillian. Stock market prices have been soaring into the stratosphere year after year, without any sound economic underpinnings. It's all been a leap of faith. "The Fed will provide!" Well, what happens when the Fed can no longer provide? What happens when the economic consequences of the Iran war begin to bite? What happens when international market turmoil makes it clear that, despite all the positive punditry from paid opinion writers, the emperor has no clothes, and nothing is or can be guaranteed?
The very real dangers confronting any and all Western economies aren't limited to the Iran war. Ambrose Evans-Pritchard focuses on China, and points out:
Europe's leaders are waking up to the terrifying danger that China could obliterate much of their industrial base within less than a decade, shattering the old political order and the EU project itself.
The Rhodium Group says the Chinese Communist Party is digging in its heels, doubling down on a strategy of systemic over-investment and over-reliance on exports that cannot be absorbed by the rest of the world, and certainly not a Europe already in semi-slump.
The original "Made in China 2025" plan a decade ago targeted a clutch of specific technologies. Beijing is now expanding this into an "industrial policy of everything": cars, machinery, chemicals, pharma, software, AI, you name it.
China is pursuing this ruthlessly, aiming to capture a larger share of global value added with vertical control of the entire lifecycle.
It is moving towards autarky in its home market while undercutting the West in its own market and in third countries – everywhere and in every product. It devours foreign technology without releasing its own. The Rhodium Group said the foundations of G7 manufacturing are under comprehensive threat.
The "China Shock 2.0" is bigger and more sophisticated than the original China Shock in the 1990s and early 2000s, which flooded the world with cheap goods and wiped out swathes of blue-collar manufacturing in the West.
America bore the brunt of the first shock. The pauperisation of the Midwest Rust Belt set the stage for Donald Trump.
This time China cannot dump its excess capacity on the US market so easily because of trade barriers. The tsunami is instead being displaced into the softer target of Europe. It is hitting with even greater intensity. China's trade surplus hit a record 1pc of global GDP last year. No country has ever reached such an imbalanced position in modern economic history.
Again, more at the link.
My wife and I aren't rich. Right now, our savings - and some extra debt through a second mortgage - are funding medical care. Assuming all ends up that ends well, we'll have to rebuild our savings, but I tell you right now, with the stock market as it is, we won't be putting one red cent into it. I want a store of value that will retain its value in a stock market slump, and for me that means precious metals. Even before that, I want to make sure we have enough of the essentials to survive a severe, prolonged economic downturn. If you want a useful list that most of us can use, click over to Lawrence Person's Battleswarm Blog and see his helpful list from last November. It makes a good start to review our preparations.
Want to invest in something that is likely to offer a reasonable return on investment in the short to medium term? Look at domestic essentials that may be in short supply during a prolonged downturn, and lay in a supply of them as trading material. Baby diapers. Feminine hygiene essentials. Soap. Toothpaste. Basic, essential canned food. Flashlights and battery powered domestic and camping lanterns. Think of what your family can't live without, and you've got the start of a useful investment list, right there.
Am I a pessimist? I don't think so. I'd rather call myself a realist. Regular readers will know that I, and many others, have been uneasy about our economy for years, if not decades. The numbers have been getting worse all that time, and now they're getting worse a lot faster. Forewarned is forearmed.
I'll leave the last word to an astute observer. Click the image to be taken to the original post on X.com, and read the more than 600 replies (so far).
Word.
Peter
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