As Good as it Gets

First, a flashing yellow light. Charlie Bilello warns that this might be “as good as it gets.” US stocks are up 260% over the last ten years. The S&P’s price-to-peak earnings ratio is the highest it’s been since 2000. Its price-to-sales ratio is twice what it was in 2000, and is the highest it has ever been, at 3.4.

The ratio of growth stocks to value stocks, the ratio of tech to the S&P generally, and the ratio of large cap to small cap stocks — all of these ratios measure how speculative the market has become, and all are back to 2000 levels.

Another thing that seems to indicate a bubbly top is the concentration of value in a very few stocks. The top three — Nvidia, Microsoft and Apple — represent 20% of the entire market’s value. The top 10 are worth 38% of it.

Anything can happen. But the thing most likely to happen is that these companies sell off — decisively — evaporating much of the ghost wealth now haunting US markets. Runner-up most likely is a persistent ‘70s style inflation that reduces their real values even as nominal prices remain elevated. In either case, this could be the last time to get out…before a crash.

If there is a crash, you can count on the Fed to lower interest rates. It is still committed to backing the Wall Street party, by putting more gin in the punchbowl when necessary. Whether that would set off another boom, or merely add to inflation, we don’t know.

Persistent, 1970s-style inflation, on the other hand, would prevent a rescue attempt. The Fed would have to hold its peace…and even raise interest rates…as inflation wore down the stock market.

Neither outcome is very attractive. And if either happens, please remember that we sent you this message warning you. If neither happens, we’ll claim we never sent it.

And whatever happens, we’ll stick with our positions in gold, counting on the unrelenting Primary Trend to keep bringing real stock values down. They’ve already lost about two-thirds of their value, in terms of gold, since 1999. Another 50% haircut, more or less, and stocks will begin to look good again. T’would be nice if it happened in our lifetime.

Meanwhile we are watching an extinction-level event. Light a candle. Put on a black arm-band. The last of his kind…a political neanderthal…the last true ‘conservative’ in Congress has been marked for elimination. Newsweek:

Thomas Massie’s polling numbers ‘turned upside down’ by MAGA campaign

The poll attributed Massie’s falling support to a barrage of ads from MAGA Inc, a pro-Trump super PAC that spent $800,000 on a recent TV campaign in his district, following an earlier $1 million ad buy targeting him.

Where did the money come from? Mostly from AIPAC and its supporters. Massie opposed more aid to Israel and voted against Trump’s Big, Beautiful, Budget Abomination. He became a hunted man.

Massie explained how easy it is for big money to make a conservative look bad:

“They pass these big bills, such as the Big, Beautiful Budget Bill. I couldn’t in good conscience vote for it because it would make America’s debt problem worse.

“But in that bill [it was more than 1,000 pages long] were provisions to give benefits to veterans and other things that sound good… as long as you don’t look at them too closely.

“And then with the support of the Trump machine and billionaire donors they can run ads that say “Massie sided with Democrats and voted against our veterans.”

That is not a message that the voters in the backwoods of Kentucky want to hear. If Massie had time to explain what was really going on, he could probably convince voters to stick with him. But politics works on soundbites, BS, and money. It’s no place for thoughtful conversation.

Party politics used to make long, difficult explanations unnecessary. The Democrats stood for something. Republicans stood for something else. Voters didn’t have to know much more. They could vote ‘the party line.’

One party was broadly ‘liberal’ — in favor of Big Government. The other party was broadly ‘conservative’ — believing, as Reagan put it, that ‘big government is the problem, not the solution.’

But it’s 2025. And now it’s the Republicans who are pushing for a bigger government. A few years ago, you would have never seen a headline like this, CNBC:

Trump administration weighs 10% stake in Intel via Chip Act grants, making government top shareholder

Politicians on the board? Big government as the principal capitalist?

How is that likely to work out?

But Republicans have evolved into a new species. Conservatives leave their footprints and their bones in the Capitol. The Big Man and his furry little followers take over.

So take cover, and await the ‘great reckoning’…when Big Government inevitably makes a mess of things, the Dow/Gold ratio sinks down to 5, and we can safely buy stocks again.

Regards,

Bill Bonner,
For Fat Tail Daily