If "Getting Ahead" Depends on Asset Bubbles, It's Not "Getting Ahead," It's Gambling

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If "Getting Ahead" Depends on Asset Bubbles, It's Not "Getting Ahead," It's Gambling

The only difference between bigshot financiers and J.Q. Citizen was the scale of the leverage and gamble:  J.Q. Citizen could leverage a few grand into hundreds of thousands, while the financier could leverage a bit of collateral into mega-millions.

The goal wasn't home ownership, the purported "official" goal of subprime mortgages: it was short-term speculative gains via "flipping" the house in a few months.  Just like the bigshot financiers, the subprime mortgage market enabled marginal borrowers to take control of assets far in excess of their actual capital and sell them to a greater fool for a quick profit far in excess of their earnings.

After the mortgage-securitization-fraud-housing bubble popped, a secular trend-- wages for the bottom 95% of wage earners stagnating--accelerated. "Getting ahead" via earning a college diploma, working hard and counting on merit no longer worked; families with privileges and capital got wealthier, and everyone else found the purchasing power of their earnings declined even as stocks and housing soared.

The economy has changed dramatically for the worse:  getting a graduate degree no longer guarantees getting ahead (millions of other workers globally have the same credentials); working hard is equally iffy, and traditional investments in one's family either no longer yields gains (higher education) or they are gambles in the guise of "investments" (housing).

Given that the economy is now totally and completely dependent on inflating asset bubbles, it makes no sense to invest for the long-term: a short-term gambling mentality is required to avoid getting destroyed when the bubble-du-jour pops.

This Is the End of the Cycle

Everyone wants every cycle of expansion to last forever, but alas every cycle ends. The growth cycle that began in 2009 is finally coming to an end. The signs are everywhere, notwithstanding the torrid 3.2% GDP growth for the first quarter of 2019 (which as others have noted, is less than meets the eye.) 

Prices are reaching unaffordable levels across the board: homes and rents in big cities are unaffordable, fine dining is unaffordable, property taxes are unaffordable, construction is unaffordable, autos and trucks are mostly unaffordable, fast food is increasingly unaffordable, college tuition is beyond-unaffordable, healthcare and healthcare insurance are insanely unaffordable-- the list includes the vast majority of the costs of living. (Cheap TVs are getting a bit cheaper. Yea for low inflation!) 

As for the stock market: 

Blow-off top based on the misplaced confidence that strong growth is starting up again is also classic late-cycle action.  

The first doubts triggered the decline from October to December, and the sharp rebound this year once the Federal Reserve signaled "we'll do whatever it takes" is very typical of the late-cycle topping process: price sags as doubts emerge about the aging expansion, then notches a nominal new high to assuage everyone that the long-in-tooth Bull is starting another multi-year expansion.

DYI:  At the end of the month I’ll be updating all of DYI’s value indicators.  Undoubtingly they all will be signaling a massively overvalued U.S. stock market.  Except for gold/silver and precious metals mining stocks that are of reasonable value short term bonds [cash] is the place to be waiting for better values ahead.  Unfortunately The Great Wait continues, however, it does appear it is no longer later as sooner is now the operative word to use.

Patience…

DYI