Sadly, the climax to this Trumptopian fantasy is arriving eight months too soon. Ironically, the stocks fueling this end stage rally and the ones that will explode it with extreme dislocation are the trillion dollar MAGA stocks: Microsoft, Apple, Google, and Amazon. All Tech mega caps. In a widely ignored omen of what is about to come, the companies that are correlated to the actual Trump economy have been entirely left behind. Like everything else in the MAGA Kingdom, diversification is a quaint concept from a bygone era...
When an aging society can no longer accept facts, reality, or the inconvenient truth they turn instead to fantasy and delusion. They look around for whatever fraudster will tell them that the future will be great again by repeating the mistakes of the past, this time on 10x leverage. The leverage that created the housing bubble pales in comparison to what has been deployed in this cycle.
Gamblers are now convinced that no amount of risk is too great for any amount of concern, because central banks can bail them out with printed money. Which explains how the collapse of the world's second largest economy is now viewed as a buying opportunity. The unquestioned belief in the unlimited powers of free money is the fairy tale that guides all of today's investment "gurus". In the process they have successfully inverted all of the usual laws of economics.
As I showed recently, global growth is now inversely correlated to stock market prices, for the first time in world history. The worse the economy becomes, the more low interest rates "support" higher valuations amid expectations of greater central bank liquidity. The concept of cycle risk no longer exists. This longest cycle in U.S history, will last forever. The concept of conflict of interest has likewise been wholesale abandoned. The fact that Wall Street keeps raising their price targets every time the momentum herd stampedes past their annual target, has been completely ignored. You wouldn't want to have a price target lower than the current level, because that would imply a prudent rotation to cash. Which is why the wholesale abandonment of valuations was the next thing that had to go by the wayside.
The concept of "value" investing no longer exists. Now it's all about growth and momentum. Which should come as no surprise in a pre-recessionary environment addicted to central bank liquidity. Which is why economic cyclicals have been left far behind by the passively indexed growth/momentum trade, now featuring a handful of stocks that have now become "the market".
Ironically, the true MAGA stocks are not confirming this rally, having peaked two years ago:
"The innovative strategy behind the MAGA ETF that allows you to invest in companies that align with your Republican political beliefs. The MAGA Index is made up of 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates."
Ironically, the true MAGA stocks are not confirming this rally, having peaked two years ago:
"The innovative strategy behind the MAGA ETF that allows you to invest in companies that align with your Republican political beliefs. The MAGA Index is made up of 150 companies from the S&P 500 Index whose employees and political action committees (PACs) are highly supportive of Republican candidates."
Which is also why the concept of diversification is no longer an operating principle for sound investment, according to today's Idiocracy:
"It’s an old theory, with shaky proof, that always gets louder right around now. The stock market is so overrun with dumb index money and exchange-traded funds that it can’t even tell when something bad’s happening."
You hear it from old hands and stock pickers, lamenting a lost edge in a world where even a pandemic barely registers on charts. Something sinister must be afoot when 30,000 people are infected with coronavirus, the global economic expansion is threatened, and the S&P 500 has its best week in eight months."
“The passive flows are set on a schedule the way they come in...They don’t care if they buy the market at 10-times earnings, 20-times earnings, 30-times earnings, 50-times earnings.”
Active managers aren’t doing themselves any favors with their picks. Perhaps sensing a turn was due, they came into the year with relatively light exposure to the high-flying technology firms that have ruled the bull market.
That was a poor decision. Five companies alone have accounted for 55% of the S&P 500’s returns year-to-date"
Got that? There is nothing sinister about a melt-up into pandemic. And it was a poor decision to get out of a Tech bubble now featuring five stocks driving over HALF of the returns of a 500 stock index.
Make no mistake, we live in a Terminal Idiocracy that has abandoned every basic principle of sound investing in favour of printed money and non-stop bullshit.
Make no mistake, we live in a Terminal Idiocracy that has abandoned every basic principle of sound investing in favour of printed money and non-stop bullshit.
"The defense spending request contains the Pentagon’s largest research and development budget in 70 years"
