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Drive It Like You Stole It

Updated: Jul 20, 2023

Markets are pretty well priced to perfection. As a percentage of gross domestic product (GDP), the overall stock market’s valuation is higher than it has ever been. Ever.

…Of course, GDP is expected to expand 7% in Q2, which would be the most rapid economic expansion since 1984, so maybe that’s justified? I don’t know.

But I do know that bond yields have skyrocketed recently, and the 10-year Treasury yield closed today at 1.72%, just a few ticks down from a week and a half ago when it hit its highest level in 14 months, with the 10-year up for eight consecutive weeks. Ten year breakeven inflation, which implies what market participants expect inflation to be in the next 10 years, has ballooned from 2% to 2.34% since the beginning of the year.

As we discussed last week, the market tends to cheer government stimulus, so we’re basically just trading with our pom poms at this point. In addition to the $1.9 trillion covid stimulus bill just passed, the White House has another $3 trillion for infrastructure coming, and the Fed is buying $120 billion of Treasuries a month. That’s a whopping 30% of GDP hitting the market as stimulus, and it’s very hard to fight that.

However, it will be entertaining to see how Americans spend the stimulus checks they started getting last week. If they go out and buy non-fungible tokens (NFTs) of Elon Musk scratching himself, it may not work out very well. …But that will happen. People for whom you may have once had a small amount of respect will actually spend their stimulus checks on more SPACs, digital currencies or non-fungible tokens sold to them by hundred-millionaires and billionaires. It’s going to happen.

And that I think is the most prescient point of the week. People do stupid stuff with their money-- that’s the history of the world and definitely the history of the last year. I hope people just go to The Froghouse; at tleast they'll get a legitimate deal.


Money supply is up 26% year over year-- an all-time record. (During the 2008 financial crisis, it was only up 10%. And as the economy continues to open up, you’ll see the 10 year Treasury climb well over 2%; our expectation is for that to continue to hurt tech stocks with high multiples and revenues that are all on the cum. (It’s significant to note that it will also, eventually, hurt residential real estate.) In contrast, we continue to prefer sectors that will benefit from inflation, such as banks, energy and raw materials.

Of course, that’s if we actually open up according to plan, which remains a giant if. Several regions in France recently entered a four-week lockdown as the country continues to battle the spread of the B117 coronavirus variant. Covid cases in Michigan are up more than 77% over the past month, and the seven-day national average of new cases is up by 7% over the past week. Oh, and I still can’t get an appointment for a vaccination-- although I appreciate that many of you have been more successful than I.


The bottom line is that this market is priced to perfection, but not everything is working perfectly. China recently spent a week in Alaska iterating why it is that they hate us so much for being upset that they dispatched a synthesized virus to our nation and then lied about it for months on end. Unemployment claims remain stubbornly high. Our domestic consumer is a collective idiot. The salary for those expecting no increase to their taxes was halved last week down to $200k a year. And our country is monetizing trillions of dollars of debt (and still will be even after a massive tax hike).

It is what it is. If the market is as many consider it to be-- just FANG stocks-- well, I continue to see that as pretty skimpy, even after their recent declines. Short-term for the real overall market, go ahead and drive it like you stole it, but we recommend that investors cover their brakes while seeking company-specific opportunities as opposed to pure beta.

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