September 2018 Insiders Report: The Everything Bubble
We have the next update for you in our five-part series going to the end of the year leading into the new year and it is our Insider’s Report. It is THE EVERYTHING BUBBLE.
The Insider’s Report is something that we do and it’s really macroeconomic. It’s a global economy look, what’s going on in the market. We do our market updates which are the micro outlook on what is going on in the local community and the counties in Metro Detroit, what the market looks like real estate wise. This insider’s report is something that is just that global 30,000-foot view when you’re really getting to see what is going on all over the place.
I want to go over a few things. We are trying to keep it short. I’m not gonna even try to go too long here. There’s a number of things I want to kind of read through and we can write down. It’s a big, big stuff going on in the globe right now. Right now the DOW is down a bunch. This is the time of year when things like that happening. Just quite frankly, the market goes down a lot of times in this quarter. A few things I want to kind of touch on and that you guys can see here.
Austria is looking for their gold, so gold going up. They want their gold. China and in Russia already have been doing this. They’ve already been doing this for a number of years, probably about 10 years now since the crash. So, China and Russia already an already doing this. “He who has the gold makes the rules.” So you know, most of us have heard that before and it’s the truth. Gold and silver are true money. So they’re looking for their gold back and they are building reserves, so they’re just another bank in this process or another country who’s looking to repatriate their gold and find their gold.
Then you have in part of this too, I want to show all sides, right? We have Mohammed Ali area who was the leader of Pimco and now he’s the Allianz and some of the biggest hedge funds in the world. He says that “Hey look if things are in trouble right now, but also people need America. People need us to be okay. People need to be investing in our debt because there’s nowhere else in the world that you can get an investment like you can in America.” You have bonds, you have the loans we put out which are bonds as a government or maybe entities in our society. You can’t get those investments anywhere else, right? So, he says, “Hey, US is a good thing.” Hey, we know that. The U.S. is a great thing, but you got to see Robert Kiyosaki. He always says there are three sides of a coin, right? You want to be able to lie on the edge and see both sides of the coin.
Muhammad Ali and his approach to it is, “Hey, things are good. Things really can’t crash because people need our debt.” Now. That might be true. I tend to think there are other things that will lead to a crash, but Mohammed Ali is great with bonds. The bond market is way bigger than the equities market, which is the stock market. So the bond market is massive and what he says is real. It’s right, it’s correct. But the whole point of this is to see both sides. That way people can make their own decisions or conclusions. So he says, “Hey, bonds here in the US, they’re awesome. They’re great. We want them, people want them, they want to invest.” Where else are you going to go invest? Where else is somebody gonna go invest. They want to go invest in the emerging markets and in third world countries or other places where that investments and just not as safe? We’re one of the only countries in the world that people feel safe enough to go to come to invest in, which is very good for us. It gives you that ability to sleep better at night.
So, and again, I talked about three sides of every coin. Some of the indicators, they have the Buffett indicator. You’re looking at the case Shiller, a home price index, stuff like that. Margin debt is the highest it’s ever been right now. So people using leverage in their account. So borrowing money, maybe they’re shorting stocks, things like that. They are leveraging themselves in the stock market. It might be like someone buying a home and buying many, many homes and leveraging themselves with 10 loans. Maybe they’re trying to flip them and they have a ton of margin out there, tons of leverage or using in mortgages. So you have this a margin debt being played out in the stock market right now. So that is a very interesting thing that we have going on right now in the market. So margin debt is at the highest it’s ever been. Incredible. So a lot of leverage, which, you know, that doesn’t always bode well, but you just never know, right? I want to put out the indicators and want to put up things so that way you can make your own decision that we can talk about these things and these are things that we can touch on.
But again, it comes down to everyone making their own decisions, what’s going to happen and what they think is gonna happen. Margin debt margin debt divided by GDP – highest it’s ever been. Margin debt divided by stock market capitalization – just under the highest, which was in 2008. So again, some indicators. There’s a lot of zombie companies right now. Mike Maloney talks about this a lot. Zombie companies are on the rise big time. We have them at 12%. So, zombie companies way up. These are companies that can’t pay interest on their debt. They can’t pay the interest. The lower the interest rate goes and encourages stock market buybacks. That’s why we’ve seen so many stock market buybacks over the last handful of years because interest rates are so incredibly low that it’s enticing companies to buy back their stocks which are pumping up their sale or their stock prices.
So it’s making it look a little like making it more inflated than it really is. That’s why they say that when interest rates drop, it’s the biggest gift on earth to the ultra rich. The point is everyone should be ultra rich. This is the point of this. It’s how do we know what’s going on that way we can then take ourselves to that next level and educate ourselves because those people got there somehow, right? How do you get there? How do I get there? How do we all get there? We got to know where we’re going, Zombie companies that were at 12% of the SMP, 1500 in 2009, 2010. We’re now up to 15 percent and that was a few years ago. That stat actually. Those were the largest companies in the world. So, the zombie companies are way up, can’t pay the interest on their debt. Then when the companies go down, the taxpayer will get hit with the bill. Bail-ins, not bailouts are coming. They did it in Cyprus, bail-in. They came in and scooped money already off the people’s bank accounts, right out of the bank accounts. So they already set the stage for that. They’ve done it now, a handful of years ago. There are bailouts, there are bail-ins, there’s money printing, quantitative easing, there are many ways they can do things. But the tools in the toolbox are dwindling though. The next time there was a crash or a correction that the toolbox is dwindling because they’re raising rates now. A lot of people think it’s because that they need somewhere to go when the market does correctly again, they need somewhere to go. They need to be able to drop them again.
Demographics play a role
So again, very, very interesting when and how that’s gonna play out. Demographics are playing a huge role obviously right now as well. There’s not a lot of people talking about that demographics. There’s a lot of baby boomers retiring, having to start taking from there. At 70 and a half, you have to start taking from your social security and you have to start taking from that and what you had been building up your entire life. So people are having to start selling what they have saved. So you’ve got to kind of see what’s coming when it comes to those demographics. There are not as many people in the workforce right now comparatively, even though you’re going to see in stock, unemployment at all time lows, things like that. Well, truly, there’s not. That’s what the government tells you. It doesn’t matter whether Democrat, Republican, the government still does government things, right. So we have to cut through that.
10 or 20 years?
The average length of expansion is four and a half years. We’ve had an expansion. It’s been well over four and a half years ago and just another indicator of what’s going on. CBO, the Congressional Budget Office said we won’t have any recession until 2029. So the average is 8 to 10 years of recession and they’re saying 2029. So they say 20 years. We’re not having a recession from 2009 to 2029. So take that for what it’s worth. CBO, no recession until 2029. Is that something you believe? Do you see that happening?
Total debt to GDP is at the highest it’s been in 2008 as well. Another indicator, just like we were talking about all the other indicators and margin debt, stuff like that. All the charts, highest it’s ever been since 2008. Many of these things are above and many of these things aren’t just as high as it was in 2008. A lot of these indicators are above where we’re at. Again, you can prolong things for a long time and you can even go over the mean or the average and things like that. We are above those things a lot like I just mentioned, but you have to be able to understand where things are going, use the things that I’ve been trying to learn and trying to seek out.
How bonds work
I just learned about bonds really in the last month or two, last couple of months. I just really started to understand bonds. That took me a week or two, a couple of weeks to even understand how bonds truly worked. The bonds are working inverse. So when interest rates go up, bond prices go down because it’s just very backward. It’s inverse. So when the interest rates go up, that means new bonds are coming out and generate a higher yield because interest rates have gone up. So it means the existing bonds in the market are now cheaper because they’re not worth as much because they’re not putting out as much money. Their coupon rate is not as good as the new bonds that are being issued. So it’s an inverse relationship. It’s complicated. Like I said a couple of weeks and watching video after video. This stuff is complicated on purpose guys. It’s absolutely complicated on purpose so that it’s hard to understand.
Velocity of Money
As I said, the tools and toolbox are dwindling. Obviously, we don’t know the Federal Reserve and the government don’t have many more options in order to tame the markets and what’s happening. The velocity of money is at the lowest it’s been. So the velocity of money is the number of goods going around being sold. Every time you go, how far does your dollar go? You go spend a dollar to the restaurant that the waiter goes and gets paid with that dollar that you spend. Then he goes and buys some gas and that gas attendant goes and then goes and buys some food in the grocery store. So how fast is that money dollar move around? What was the velocity? That’s the lowest it’s ever been right now as well.
So that’s a huge one. A huge one as well. So the velocity of money is down and only three times and only three times as the unemployment been this low before. Then every time after that recession have started. So again, there are a million indicators that we could go over and so many things we could talk about. Like I said this is the everything bubble. This is kind of going through, like I said, margin, talking about bonds a little bit, interest rates. We didn’t even touch on credit card debt, student loan debt, which is a massive trillion dollar of bubbles that were in. This is the everything bubble. The real estate is the highest it’s ever been. Going up in many areas, real estate, stocks, paper assets are at the highest they’ve ever been to smashing records.
Bonds, as I said, you have the bond market going crazy and school debt, credit card debt, all these bubbles are huge. They’re massive and there are things that we have to deal with and they have to be resolved some way or another. We have pension problems. The pension situation needs to be figured out in this country and solved somehow. Calpers, the biggest California public pension, that is getting like 1% return that needs seven days. They bank on 7% return a year. Because interest rates have been so low, all the pensions are getting destroyed. I mean, just ask Detroit, ask our city, asked Dallas where the people are just leaving and taking their severance because they know the money’s not going to be there in 10, 20 years.
So these are huge, huge bubbles all coming together and this is why it’s called “The Everything Bubble.” Mike Maloney coined it that and it’s very, very important to kind of see what’s going forward and what’s coming. This is life. We’re not experiencing anything necessarily different. It’s different in a way because we’re going to experience some different things inside that, but crashes and booms and busts and all these things happen. They happen over and over and over again. But it’s how do we position ourselves, how do we get better? How do we hedge ourselves? We’ve talked about hedging ourselves lately in numerous different ways. You can hedge yourself and you can make yourself more resilient to the things that are coming. Another great guy is Chris Martinson to check on and check out. He has a crash course, a book called Prosper. He is an awesome person when it comes to just being resilient and making sure you’re prepared for things to come.
So I appreciate you guys. Your time, your energy. We’ve got almost 15 minutes here. I don’t want to take much more of your time. Some of these videos can go 45 minutes, an hour long. The next one again, who knows? The next one could but these Insider’s Reports are huge. I appreciate your time, your attention and energy. Let me know the comments, concerns you have, and maybe we can mastermind together and come up with some more solutions and maybe some other stuff that you’re studying as well. So I appreciate you guys so much and I look forward to bringing you more of this and we will talk to you very, very soon.