Originally published at: https://peakprosperity.com/equities-are-churning-while-bonds-are-burning/
We’re in a really weird market moment. Stocks, as Paul Kiker and I have been somewhat repetitively chronicling over the past six months, are not just stupidly expensive but the most expensive in all of history (by several measures).
Moreover, over that same time, stocks have moved from being heavily concentrated in just a few names to being extremely concentrated with just ten names accounting for nearly all of the headline index gains.
Over the past month, you can clearly see that it was Tech and Big Banks carrying the load (with banks feasting on the Trump trade volatility):
NVIDIA (NVDA) is an especially outlandish case, having poured on 20% in the past month, which means that the “”market”” values it more highly than the entirety of Germany’s stock market
Apparently, NVDA is worth nearly a trillion dollars more than the entirety of all listed companies in the German index.
Even as stocks are powering higher, bonds are showing increasing signs of severe distress. One measure of that, besides rapidly spiking yields on long-dated sovereign bonds, is this absolutely mind-blowing chart:
Bond liquidity is currently worse than at any other time over the past 18 years, including the worst moments of the GFC and even the great bond collapse of 2022.
Yikes.
Last week, Paul and I discussed the disgusting scams and schemes that people are increasingly facing. This week we discussed something that could put those scams to shame for being puny by comparison.
We agreed that Wall Street isn’t aggressively selling these products to retail at this moment in time out of the goodness of their hearts. Instead, they’ve got product to clear off their shelves, which means they’ve got bigger clients who want out of Private Equity for some reason. We went out on a limb and opined that the reason probably wasn’t because the returns were too juicy for their taste.
Other topics discussed:
- Monetary Policy and Political Risks:
- Rumors of President Trump drafting a letter to fire Federal Reserve Chair Jerome Powell sparked bond yield reactions, with Trump advocating for a 300-basis-point rate cut, which could fuel inflation and weaken the dollar.
- Critics argue such moves prioritize short-term market gains over long-term economic stability, exacerbating wealth inequality and punishing savers.
- The Federal Reserve’s interventions since 2009 have favored asset holders, contributing to wealth concentration and hindering younger generations’ ability to afford homes or start families.
- Moral and Societal Implications:
- Economic policies and market manipulations are seen as moral issues, eroding opportunities for younger generations and rewarding speculative behavior over prudent decision-making.
- The Epstein case is highlighted as a moral and market issue, with public demand for justice (68-69% across political spectrums) potentially impacting political stability and markets if unresolved.
- A lack of accountability for financial fraud and market manipulation undermines trust in institutions, with calls for stricter consequences to deter scams and protect investors.
- Investment Strategy Recommendations:
- Paul Kiker advises caution, emphasizing “patience as a position” given speculative market conditions and historical valuation risks.
- Investors should avoid chasing narratives driven by fear of missing out, diversify portfolios, and consider undervalued assets like commodities or emerging markets in case of a currency crisis.
- Understanding one’s financial strategy and risk tolerance is critical, as historical data suggests significant downside risk in overvalued markets.
- Broader Societal Issues:
- Regulatory barriers and high costs (e.g., childcare, insurance, business startup fees) hinder small businesses and individual economic mobility, favoring large corporations.
- The lack of education on monopolies and financial literacy exacerbates societal vulnerabilities, with calls for public engagement to hold politicians accountable.
- A moral imperative exists to restore justice, rule of law, and economic fairness to prevent further societal and market instability.
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