TSP Smart: Unstainable

There is only one factor correlated to the surge in stock prices.  Central bank printing money out of thin air to buy financial assets… not to help the economy, but to prop up those financial assets instead of helping the real economy. 

They primarily care about the financial economy which the top 10% capture 97% of capital gains. And who pay a fraction of the tax rate that working class pay on wages.

And the winner is?

The recent surge happened during the real economy’s shutdown with record unemployment.  

But there is a problem with this… how to maintain stock price valuations that far exceed 1929 and 2000 bubble levels?

The only answer is to keep printing and buying until something breaks. Meanwhile almost all the effects go to the top.

This next chart is a valuation chart produced by Dr. Hussman. See the surge in valuations from the 2000 bubble level to another 50% higher in 2020.  If the stock market simply returns to the MOST EXPENSIVE bear market bottom (2003) it will sustain a 70% loss from this level. That is the best case even if it can climb higher prior to the reset.

So what is the alternative.  US Treasuries yield has been suppressed by central bank buying driving real yields to deep negative levels.  Hedge funds are buying up single family homes by borrowing at 1% and outbidding families because this set up is an inflationary bubble machine.  

The Fed can not normalize interest rates to protect savers without blowing up the massive bubbles in the stock market, the bond market and real estate.  They have corrupted and usurped the free market price discovery.

Millennials have a fraction of the wealth the boomers had at the same age.  College costs 10 times more today than when I went to college leading to college debt serfs.  Homes prices are up 500% since I graduated thanks mostly to suppressed interest rates creating home mortgage debt serfs.

Medical crisis create instant debt serfs. Capitalism at its finest.

Millennials and Gen-X are screwed.

Their only chance is for stock prices to drop 80%, home prices to collapse 30% and bonds to cover inflation plus and of course wages doubling in the next 10 years… without the economy crashing. Never been done.

As for market timing.  It has all been policy driven.  But buying or owning at 3.6 times revenue when 1.0 is the norm is nuts. 

In the meanwhile, the central banks keep printing wealth for the top 1% and telling us there is nothing they can do about it now. Too late. Man up. Debt up.

Invest smart,

Michael Bond

TSP Smart & Vanguard Smart Investor



Categories: Perspectives, The Smart Bird