Last week, I spent a good amount of time reading articles and watching documentaries featuring the smartest and most experienced investors. Scott Minerd, Global CIO of Guggenheim Investments, captured the gist of it: “This will eventually end badly. I have never in my career seen anything as crazy as what’s going on right now. It was crazy in 2006 when I was pounding the table saying we were going to have a financial crisis of biblical proportions.” (Global CIO Outlook, February 13, 2020) I wholeheartedly agree.
Markets are at all-time highs—completely disconnected from their fundamentals and reality—corporate stock buybacks are insane, credit has reached absurd levels, something is broken in the repo market that has required the Fed to inject more than a half trillion dollars since September. Fed Powell publicly acknowledged that they can never raise interest rates, and are definitively on a path to quantitative easing and lowering rates. The velocity of money has been on a relatively steep decline while stock markets move straight up. This likely means the end of a long-term debt cycle.
In the midst of my reading, I got a breaking alert from CNBC, “Trump administration considers tax incentive for more Americans to buy stocks, report says.” Excuse me? Now? With the biggest “everything” bubble in U.S. history? With outrageously valued growth stocks that are loaded with debt and don’t make any money (i.e. Tesla)? With pension funds that will fail if the market goes down, and grossly over-extended borrowing in corporate America? Not to mention the coronavirus, and China practically shutting down. Or talk about negative yields? Why on earth would Trump NOW want tax incentives for more Americans to buy stocks? What about bonds? After they’ve spent the last 12 years bailing out banks, it occurred to me that they must know exactly what’s coming. Allow me to explain.
In 1989, the top 1 percentile owned 39% of the stock market. In 2016, they owned 50% of the market. Today? Published in the Financial Times, “The richest 1 per cent of Americans now account for more than half the value of equities owned by US households, according to Goldman Sachs. Since 1990, the wealthiest have bought a net $1.2tn in company stakes, while the rest of the population has sold more than $1tn.” Say again? MORE THAN HALF THE STOCK MARKET IS OWNED BY 1% OF THE POPULATION. And that’s not all, 85% OF THE ENTIRE STOCK MARKET IS OWNED BY 10% OF THE POPULATION. This means the rest of us only own 15% of the market. How insane, right? If you understand that buying stocks makes prices go up and selling stocks makes prices go down, then you understand why Trump and his administration want people to buy stocks.
Putting two and two together, the top 10% who own 85% of the market need buyers, or rather “bag holders,” since it’s the end of a long-term credit cycle and time to sell. In fact, a few months before he was elected, Trump said he got out of the stock market. According to CNN Business, he warned of “very scary scenarios” ahead for investors. If it was scary in 2016, what is it now? And why did he completely change his thinking? I don’t know if there are words to express, but anyone who flip flops like he did is scary. I do not invest in traditional equities or bonds, or anything that’s fueled by money printing, and therefore missed out on the huge bull market over the past four years. Sadly, I lost a lot money shorting the market, since I’ve been expecting a crash for a very long time. I don’t know when it will come, but unfortunately, it’s going to affect us all.