Oxfam: Pandemic Created A New Billionaire Every 30 Hours
"There were 573 more billionaires in the world by March 2022 than in 2020, when the pandemic began, Oxfam said in a brief on Monday"
Fred: Wealth of 1%
Today's pundits all have one thing in common, they all have severe amnesia. Forgetting how we got here is necessary in order to pretend the future will be the exact same as the past. Be that as it may, once in a while it's important to remind ourselves of the level of delusion that is currently baked into today's Disney markets.
First off, anyone who wants a reminder as to how far off the trendline we have come in recent years should read fund manager John Hussman's blog from time to time:
April 2022:
"The most challenging financial event for investors in the coming decade will be the repricing of securities to valuations that imply adequate long-term returns, following more than a decade of reckless and intentional Fed-induced yield-seeking speculation"
There’s a strong possibility of an interim loss in the S&P 500 in the range of 50-70% over the completion of this market cycle"
Then he goes on in deep detail how he arrives at this conclusion. Most of his work compares recent returns to the long-term trendline. For those who believe that the macroeconomic future will be the past, I suggest that his analysis is as good as it gets. He explains in theory there are two ways to get back to trendline - time or price. Historically however, returns have NOT been negative for years at a time, so what usually happens is a "front loaded" crash and severe bear market followed by years of recovery. Not so bad for those who avoid the "re-pricing event".
However, my view of this situation is quite a bit more dire than that of John Hussman or any other paid financial manager. Why? Because I believe the past century to be an outlier with respect to overall returns on capital. And I believe that this coming period will unwind much of the capital friendly policies of recent decades. I am of course referring to "free trade", massive tax cuts for the rich, de-regulation of finance, debt-fueled stock buybacks, bailouts for the wealthy, and massive consumer debt accumulation. ALL of which have come at the expense of the middle class. If you back out all of those capital friendly policies and replace them with middle class friendly policies, it's easy to believe that we will undercut the multi-decade trendline and go much lower.
One thing I believe will continue is zero interest rate policy, which means that valuations in our lifetime may always be distorted by the asinine theory of "infinite" present value. Be that as it may, the "numerator" in the calculation will be collapsed aka. corporate profits. No question, central banks will NOT give up on this delusion easily. And for that experience we can look to Japan and China where they've done everything possible to prevent TRUE pricing in the markets. And yet they have failed. The long-term implication of 0% interest rates is 0% economic growth. This fate has so far been avoided in the U.S. ONLY by strip-mining the middle class to the benefit of the ultra-wealthy. In a zero sum game. A process which is reaching its inevitable terminus.
What I am trying to say is that there will very likely NEVER be a time when this market will appear "investable". Tradable yes, investable no. Why? Because all of the "capital friendly" factors I mentioned above have essentially blighted the economy. And I believe that once the stock market deflates back to the Hussman trend-line, we will begin to see an unwinding of the political tailwinds that created this massive one-time extreme over-valuation. In China they call it "Common prosperity". And I believe that theme is coming worldwide and will replace financial delusion as the predominant political force.
Granted, I could be wrong, but I for one believe this fairy tale has a very bad ending. And RIGHT NOW we are seeing ALL of the risks of the past 50 years coalescing at the exact same time, with a rabid Fed hellbent on detonating THEIR thermonuclear weapon of financial mass destruction. Fittingly, this delusion now has its best chance of giving back DECADES worth of ill-gotten gains in short order.
In summary, the roller coaster ride will begin as usual - with a huge drop. After that there will be a lot of volatility. For those who can stomach the ride, there will be decent returns to be eked out. In the 1930s there were TEN bull markets and TEN bear markets - each of 20% or more, in a SINGLE decade. Basically one bull market and one bear market per year on average.
Just don't puke on the way down.
