|
Elvis Presley and the Stock Market |
|
|
|
Dear Reader, |
Only fools rush in, as crooned Mr. Presley in his 1961 song. |
The year is 2025. And the fools are rushing in — not into love — but into stocks. |
As a percentage of net worth… United States households presently own more stocks than real estate. |
This phenomenon has only transpired on two previous occasions spanning 65 years. |
Equities and mutual funds presently constitute some 31% of household wealth — a record high. |
By way of comparison, the 2000 technology bubble's peak came in at a mere 25%. |
Cash Allocations Are at Record Lows |
Global fund managers are likewise rushing in. Their cash allocations presently gutter along at 3.3%. |
That is the lowest percentage since such data collection began in 1999. |
For the sixth consecutive month cash allocations have hovered at or beneath 4% — one of the lengthiest streaks in the annals. |
Cash allocations at or below 3.6% have been previously observed on a mere nine occasions. |
Mr. Elyas Galou is an investment strategist at Bank of America. Here is what he says about present cash allocations, his teeth chattering some: |
Even at the height of previous bubbles, investors did not dare to go to these levels. It means positioning is fragile to any bearish developments . . . any bad news is going to do a lot more damage. |
|
|
I hazard this fellow is correct. Yet fools are rushing in. |
| | SPONSORED: PARADIGM PRESS | Whenever Elon Musk goes "all in" on something | His latest project, Starlink – with its mission to provide satellite Internet to every corner of the globe – is no exception. | And one man says it will soon go public, at an estimated $100 BILLION valuation. | That would make it the biggest IPO in HISTORY… | Roughly 228X BIGGER than Amazon's IPO.Investing legend James Altucher has uncovered a smart, unconventional way to potentially benefit from the impending Starlink IPO… | Before it even hits the market. | This backdoor play lets savvy investors like you engage with Starlink's promise without the need for direct initial IPO access. | And the best part? | You can buy into this pre-IPO opportunity for less than $100 right now. | Click here to learn how. |
| | |
|
Margin Debt Is Also at Record Levels |
And would it surprise you to learn that United States margin debt comes in at a record $1.21 trillion? |
And that United States margin debt has jumped for seven consecutive months… by $364 billion? |
It would not surprise me one jot. And it does not surprise me one jot. |
Adjusted for inflation, The Kobeissi Letter informs us, year-over-year margin debt has expanded by a record percentage, 32%. |
The same Kobeissi Letter informs us that margin debt — as a percentage of the M2 money supply — rises to its highest summit since 2007. |
Only during the 2000-01 deliriums was that percentage greater than the present percentage. |
I could continue, yet you have the flavor of the stew. You require no additional seasoning. |
The Great Divergence Between Wall St. and Main St. |
And so you have the taste of the stock market. Shall we now gauge the test of the broader economy it supposedly reflects? |
We shall. And we once again turn to the The Kobeissi Letter's culinary experts: |
The US consumer sentiment assessment of current economic conditions has declined to 50.4 points, the lowest level on record. |
|
|
This is 5 points and 8 points below the lows seen in 2022 and 2008. |
|
|
By comparison, the index stood 11 points higher in 1980, when annual inflation was at 13.5%. |
|
|
This comes as Americas' perception of current buying conditions for big-ticket items deteriorated to the lowest level on record. |
|
|
An ongoing affordability crisis and a weakening labor market continue to weigh on household finances, dragging consumer sentiment lower. |
|
|
Consumers have rarely been this pessimistic about the economy. |
|
|
More: |
The number of Americans employed part-time for economic reasons jumped +909,000 in October and November, to 5.5 million, the highest since March 2021. |
|
|
This counts workers who want full-time jobs but cannot find them, usually because hours were cut or full-time work is unavailable. |
|
|
Since June 2022, the number of people working part-time for economic reasons has risen +1.9 million, or +51%. |
|
|
As a consequence, this metric now represents 3.2% of the total labor force, the highest since May 2021. |
|
|
This is in-line with levels seen at the beginning of the 2008 Financial Crisis and above the 2001 recession peak of 3.0%. |
|
|
Watch out for "Mean Reversion" |
If the term "mean reversion" has anything in it — I have stated before that I believe it does — the fools rushing into the stock market are in for a good, hard whaling. |
I simply cannot announce the day or the hour. |
I concede it is possible that the stock market may rampage clear through 2026 — and perhaps even beyond. |
That is because manias can defy all logic, all sense. And market manias are often the most maniac of all manias. |
Yet the stock market will dash inevitably upon the rocks of mean reversion. As I have argued before: |
Scales balance ultimately, that which goes up comes down, that which goes down comes up… |
the mighty fall, the meek inherit the earth. |
I hazard stock market and economy will meet once again on fair ground. |
I further hazard they will meet upon the economic level — not the stock market level. |
Reality Will Catch up to the Stock Market |
Mr. Lance Roberts of Real Investment Advice: |
Stocks cannot indefinitely grow faster than the economy over long periods. When stocks deviate from the underlying economy, the eventual resolution is lower stock prices… |
|
|
For example, in 2000 and again in 2008, earnings contracted by 54% and 88%, respectively, as economic growth declined… |
|
|
As earnings disappointed, stock prices adjusted by nearly 50% to realign valuations with weaker than expected current earnings and slower future earnings growth. |
|
|
So while the stock market is once again detached from reality, looking at past earnings contractions suggests it won't be the case for long. |
|
|
That is, the stock market will revert to mean — and perhaps soon. In conclusion: |
The deviation from long-term growth trends is unsustainable. Such was caused by repeated financial interventions by the Federal Reserve. Therefore, unless the Federal Reverse is committed to a never-ending program of zero interest rates and quantitative easing, the eventual reversion of returns to their long-term means is inevitable. |
|
|
The Only Way Fools Learn |
I would note merely that the Federal Reserve may commit to a never-ending program — of quantitative easing at least. |
Just this month it has begun the business anew… absent the official designation. |
Yet I am with Mr. Roberts. I believe that stock market deviation from long-term growth trends is inevitable. |
Mean reversion is the rock of my belief. Yet once again, the fools rush in. |
And as old Benny Franklin noted long ago: |
"Experience runs a hard school, but fools will learn in no other." |
Regards, |
Brian Maher |
for Freedom Financial News |
P.S. Buying Gold At $4,500? You're About To Make A $50,000 Mistake. |
Gold is expensive. And it's about to get more expensive. But here's the problem: you'll only capture a fraction of the gains. Smart investors are using a different strategy that delivers 11X the profit of buying gold directly. Don't make the expensive mistake of following the crowd. |
Click Here To Learn The 11X Gold Strategy Now! |
|
0 التعليقات:
إرسال تعليق