Today's guest expert is concerned that too many investors, giddy with the ferocious market gains since November, are increasingly willing to pay prices for assets that only make sense if the pace of gains continues into the far future.
This is called "extrapolating the unsustainable" and is a hallmark of late stage price melt-ups.
Historically, this behavior has not ended well for those engaging in it.
Will it prove different this time?
To find out, as well as hear his outlook for markets, we're fortunate to speak today with Jesse Felder, founder & Editor of the respected market research firm: The Felder Report.
Jesse warns that while the market is currently priced for a Goldilocks economy, stagflation is much more likely.
Here are my top takeaways from my discussion with him:
Jesse warns against the dangers of assuming current unsustainable market trends will continue far into the future, highlighting that this is a classic hallmark of late-stage price melt-ups.
He's very concerned about the “three 50s”: the Magnificent 7 stocks are collectively priced at 50x free cash flows; there have been 50 titanic syndromes triggered in the last year (which has only happened at major market peaks); and the insider sell-vs-buy ratio is now 50x, the highest reading since 2012.
In assessing the global economy and financial markets, Jesse predictsstagflation lies ahead, but perhaps not the kind investors would expect. It’s quite possible that real GDP growth turns negative while nominal GDP growth remains positive, leading to good headline numbers but a declining quality of living (sound familiar?). This would be a “harder” landing than the market has currently priced in.
Jesse identifies demographic shifts, de-globalization, and cyclical factors like massive money printing as drivers contributing to sustained inflation. He cautions that current Fed predictions of lower future inflation levels this year may not materialize.
He sees us in an era of “fiscal dominance”, when the Federal Reserve prioritizes servicing of the massive federal debt over taming inflation. This would explain the Fed’s bias to cut despite the economy “doing fine”. We could see interest rates come down in the short term in response to Fed cutting, but then rise afterwards should inflation indeed re-surge.
Jesse sees significant growth opportunities in commodities and energy-related industries, citing tight supplies and increasing global demand as factors driving another commodities super cycle, especially in areas like natural gas.
Jesse finds fulfillment in dog rescuing/training. There’s nothing like the human-dog bond.
Watch the full interview here:
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