Margin Debt Surges to Record High

The Federal Reserve will lower interest rates to keep that big, beautiful bubble. Donald Trump thinks interests should be 1%. There are 2 FRB governors (jockeying for a new chair) that have publicly called for lower interest rates. One FRB member (Adriana Kugler) unexpectedly resigned a couple weeks ago and will be replaced by the WH economist.

Just yesterday, the guy who was found liable in court for financial fraud demanded an FRB (Lisa Cook) resign after being accused of mortgage fraud. Do you suppose somebody in the WH is digging up dirt?

And of course, weekly rants, accusations of fraud, and musings of firing JPo.

What if we just stopped being so greedy and just bought/invested in what we actually need instead of playing silly games ? Find a plot of land, build a house, &c. a safe space for your kids and their kids.

I know people stressing 24/7 about their money, diversifying their crypto shitcoins into pokemon card collections, buying watches or old apple computers in the hope they'll be able to sell them for more to the next sucker, buying and selling defense company stocks secretly hoping more poor souls will get annihilated in Ukraine or Gaza because it's good for their $$$. They're loaded like never before but I've never seen them so tired and miserable, I bet they don't even know why they want more money, hairless apes seem to like when numbers are getting bigger

And on top of that if shit truly hits the fan the vast majority of these will be completely useless.

Chinese Yuan. Have a better idea?

There are many options to hedge the known market risks today (as for hedging black swans, tail hedging is also an option, although more explicitly negative value adding long-term).

I'm assuming you are talking longer term.

A permanent allocation to gold is one option. These days it can also be done via overlays so that equity exposure can stay the same.

TIPS work as inflation protection. Move some bond exposure to TIPS.

CTA/trend following is a great addition to a portfolio when it comes to protecting against stagflationary scenarios. Again, this is fairly easy to access via ETFs these days.

How about international diversification? This is something even super conservative voices like Bogle would recommend. Again, easy to access via ETFs.

Another good idea if hedging is on the mind is stepping away from the market cap weighted indexes to some degree. Add some small-cap value for example.

There are other options as well that can be done on a portfolio level, but it can get more advanced from there.

The most important thing is to have a consistent framework that one can stick with for decades. Especially when it comes to having a truly diversified portfolio, it tends to be that unfortunately some people have a hard time handling it. If you are truly diversified you should always have assets in a portfolio that are performing poorly, and performance may be bad for entire decade-long market cycle or two. Ex: if trend is performing badly during a strong equity boom, it was protecting against lines that didn't happen to play out, but that doesn't mean that the realized situation nullifies the holistic diversification benefits.

Also, it gets more difficult if part of the equation is matching or exceeding S&P returns on an absolute basis. S&P has high returns but sees high drawdowns up to 50%, well more diversified approaches maybe less volatile and see more mild drawdowns. Because of that, usually most people would be better off with some mild leverage if they take a more diversified approach that switches out equity for less volatile assets like gold. Ex: 60/30/20/20/10 (equity/bonds/CTA/Gold/TIPS).

gold is overvalued too!

It sucks because eventually they're right (and the rest of us were still laughing at the earlier podcasts).

Golds been rallying really aggressively recently

Yeah, frankly I think there is no truly safe place for investments at this point.

We might as well just enjoy the ride knowing at least when it hits the bottom, we'll all of us be in the same tough spot.

> Gold? Dead asset

What? Gold is at a record high, and with inflation it will only go higher.

https://www.macrotrends.net/1333/historical-gold-prices-100-...

Instead of cash, I hold treasuries. The rest is spread out among low holding cost index funds (watch out for fees... they will kill your profits) and use dividend re-investment. Split things between tax advantaged and non tax advantaged depending on your short and long term goals (ask a certified financial advisor with fiduciary duty for strategies that work for you. It's worth the small fee)

Every time the market takes a crap, I buy. I rarely sell. Keep enough cash or near cash assets in a no penalty account(s) to cover unexpected costs so aren't forced to sell.

A luxurious set up for sure (which took about a decade to get set up) but it's repeatable and fairly stable.

Now, if you have real wealth (like $10s of millions of liquid assets) then look to setting up a MFO or SFO and focus on tax efficiency, etc. That's a whole different set of strategies.

Invest in a fund which underweights bubble stocks by tracking a suitable alternative index:

https://www.bogleheads.org/wiki/Alternative_indices

Dividend weighted indexes are the classic option, and fundamental weighted index are a newer one.

Maybe unfashionable equities? Utility stocks, Japan/S Korea, BRKB etc?

Give it to entrepeneurs/researchers doing intrinsicly cool things like cancer research, without knowing how you will get any of it back right at the start. The problem is NOT lack of productive investments, its that Uber rich people think its not fair if they ever lose.

Military manufacturers are a reasonably safe haven these days as Europe is desperately trying to re-arm itself following the Russian invasion of Ukraine, the Middle East is in flames once again and there's a ton of uncertainty and small scale hostilities around China/India/Pakistan.

Urban residential real estate is also a safe haven assuming you still are allowed to invest there. Demand is not going to shrink any time soon (as most Western governments are running rural areas to the ground for them being too expensive to bring on modern standards and expectations in infrastructure), and supply is so scarce that even large developments and re-zoning will hardly make a dent in demand.

Sure, if you bet against the crowd with leverage or a tight funding leash.

Global equity index ETF have reliably yielded 5% returns over 12-15 year periods for ~75 years.

> which is why Trump is raising tariffs.

I question this bit. (That may be why he's raising tariffs; I question whether it will work.)

When tariffs go up, prices go up (delusions that "other countries will pay" notwithstanding). That shows up in inflation statistics, which in turn will (probably) show up in T Bill rates, but as a higher rate, not a lower one.

Except... tariffs might be a one-off increase. They may not compound the way "regular" inflation does. So maybe it will work in the medium term?

> But they can't do this for much longer, inflation is the first sign, which is why Trump is raising tariffs.

Trump is raising tariffs because he thinks they are a good idea and has since the 1980s:

> “The fact is, you don’t have free trade. We think of it as free trade, but you right now don’t have free trade,” Trump said in a 1987 episode of Larry King Live that’s excerpted in Trump’s Trade War. “A lot of people are tired of watching the other countries ripping off the United States. This is a great country.”

* https://www.pbs.org/wgbh/frontline/article/trumps-tariff-str...

Trump's mindset is a 1980s NYC real estate guy (zero-sum, one-off games), which when applied to global trade, is basically mercantilist:

* https://en.wikipedia.org/wiki/Mercantilism

Meanwhile, in the real world, commerce is often non-zero-sum (both parties get something of value, i.e., "win-win"), and you play multiple rounds with each trading partner and reputation matters (rather than one-off, where burning your bridges could be an actual strategy).

> you're also long economic weakness due to having locked in yield

You’re more precisely short rates.

There are a number of "Chief Analysts" who are saying "A Correction is Coming" in ~2-3 years.

Soooo, yes there will always be future recessions, annnnd "professional experts" are saying it's coming sooner rather than later based upon the amount of over-inflated investments in less-well-run companies as they chase the profitability of the more-well-run companies.

> I am all in cash outside of startup shares.

Completely (retirement and 'regular' brokerage)? What criteria (if any) will you use to get out of cash and start buying again?

Assume a market weighted index fund, not an equal weighted index fund.

On a P/E basis neither Meta nor Alphabet seem overvalued.

> I assume you mean an S&P500 tied index fund?

I would assume VT and/or BNDW. Most sane index fund fans aren’t all in on s&p 500.

High capital expenditure like this is viewed favorably. Investors are investing in AI, and high cap-ex is a strong signal that the companies are going after AI i.e. doing what investors want them to do.

> a fixer upper small house in a less desirable area

A lot of an area's desirability has to do with crime rate. Bulgaria has a homicide rate of 1.088, and the US 5.763. So what would be considered a very safe, friendly neighborhood in the US, would be average or worse in Bulgaria. In this sense, "luxury" is flipped - what Bulgarians would consider basic, would be "luxuriously safe" in the US.

> Hell, even if the average American stopped taking expensive vacations!

Lmfao what world do you live in where they haven't?

This is true.

Bernays did more to end the Great Depression than Keynes, and to prevent its recurrence post-war. Sad truth.

A post-truth environment adds to the ickyness of the feeling: on top of the bubbles, we've got RFK Jr. deciding the fate of biotechnology companies. Having a tech bubble at the same time science is being vandalized at NIH and in universities looks pretty damn dark.

I had no idea Keynes had similar ideas, so I definitely should read his work (and economics literature in general).

I probably should generalize my thoughts though to say “expectation of economic growth” (instead of just “money printing”) seems to me necessary to yield “opaque market insanity”, as opposed to “transparent evil sanity”.

As a thought experiment, consider a (practically impossible) scenario where there is universally no expectation for long-term economic growth/contraction — regardless of whether it’s “real” or just monetary. Then by definition, a long term market simply cannot exist at all. No amount of wealth inequality can cause market insanity if there is no (long-term) market at all.

Wealth inequality in such a situation can still yield hoarding, domination, conquest, control, scams, manipulations, etc. But I wouldn’t call that “market insanity” so much as “evil sanity”.

In practice, the real impact of wealth inequality on the common people would likely be the same either way. However, without long term economic growth/inflation, the “sane evil” of the greedy wealth can no longer hide behind the veil of “market insanity”.

> there is just nothing to invest into.

I think you have just defined gold and bitcoin to be "nothing".

Sounds about right.

Money printing does directly impact inequality, via the Cantillon effect; in most cases, the printed money is put into the system in a way that disproportionately increases prices of assets that are held disproportionately by the wealthy.

Index funds won't necessarily save you. 7.5% of the S&P 500 is NVidia, 7% is Microsoft, etc. Almost 40% of the S&P 500 is in the top 10 stocks, and of the top 10, only #9 Berkshire Hathaway is not big into AI.

  1 Apple 4.1
  2 Microsoft 3.4
  3 Alphabet 3.3
  4 Berkshire Hathaway 2.3
  5 Amazon 2.2
  6 Meta Platforms 2.2
  7 JPMorgan Chase 2.1
  8 Exxon Mobil 2.0
  9 Bank Of America 1.4
  10 Chevron 1.3

  1 Nvidia 7.1
  2 Microsoft 7.0
  3 Apple 5.7
  4 Amazon 4.0
  5 Alphabet 3.7
  6 Meta Platforms 3.1
  7 Broadcom 2.4
  8 Tesla 1.7
  9 JPMorgan Chase 1.5
  10 Eli Lilly 1.3

  Date         HMWO   PSRW
  07/24-07/25  15.77  13.49
  07/23-07/24  18.46  14.35
  07/22-07/23  13.86  13.87
  07/21-07/22  -9.06  -4.93
  07/20-07/21  35.31  38.57

there's very little psychology left in most of the market.

There's computers and computer logic.

You are right - it's about the inequality of holding the money, not the rate at which it's printed. Money printing is relevant to the extent it mostly flows towards the already rich. If money was printed and distributed to everyone evenly it would have the opposite effect.

That can easily be explained away in that the wealth concentration was a symptom of vertically integrated hard network based implementations (railroads, logistics, shipping, extraction), and the Gold Standard may have braked some level of wealth inequality acceleration and centralization to a degree, but that the trusts and business structuring were the cause moreso than any inherent tendency toward gold as basis to full fiat.

That explains why we're seeing what we're seeing now. It's all about network monetization.

Not sure why you're being downvoted. Word "gamble" too inciting? Maybe if you'd used "much more risky investments" instead, but I'm not here to quibble about your language but to agree with you and extend what you're saying. I actually think the $10 million number is also relative to age because someone who's 30 and "merely" a millionaire can and will invest up the risk ladder as if they're a 50-year-old risking their above-$10 million capital. And the population of people who are millionaires vs decamillionaires is of course a healthy multiple so there's a lot more risk appetite than the relatively small number of decamillionaires would suggest.

As an aside I feel like there's this terrible trend where folks focus so much effort and energy worrying about whether billionaires should exist, whether they should be taxed more aggressively, etc. that we've lost the plot on just how much loot even a net worth of $10+ million is. And at the risk of me writing a too-long comment (bad habit), think of the risk appetite someone has when their decamillionaire parents pass away, and they're given, sometimes overnight, millions of extra dollars. Sure, maybe they'll buy a house, but oftentimes those funds go straight into the market. With boomers starting to leave this mortal coil and their trillions of dollars being passed down you can start to understand why the market seems disconnected from historical fundamentals.

I wish I could print 400,000€ to buy a house with 40k in my account.

Reserve ratios have not been the major capital constraint for a very long time. Loan to deposit ratios have been. And those have stayed in normal bounds since the great financial crisis. Both bank regulators and importantly bank investors keep on top of this because they are the ones to lose the most if it gets out of wack.

The reserve requirement had to be loosened because banks became too conservative, largely because their investors were skittish about ldr.

Another source in the last half a decade or so is digital coin "mints."

Quick look on coin market puts the total market value at ~$3 trillion. Yet that money effectively was created from nothing. It's basically money printing.

With credit cards that accept digital coins as financial sources it's also started to affect the actual markets significantly.

From the charts shown, markets have also gotten quite a bit frothier, with larger swings and spike / drops in margin, since 2020 when coin valuations really took off.

Personal view, it probably also contributes since it's less "real" from a certain perspective. Just digital numbers to wager, that don't really mean the same as mortgaging your house. "Eh, just wager like 10 or 20 digi-coins on margin." Except that's like $1-2 million these days.

This is a misconception afaik, yes there is no longer a literal percent reserve requirement but banks are still required to be “adequately capitalized”, the metric is just more complicated now.

Doesn't our federal government set reserve ratios? They may not be creating money, but by setting the ratio (and other limits), they at least have a strong influence on creation.

Yes, but with the “revolving door” between private financial institutions and government financial policy/regulation, there’s little real distinction anymore between the two.

Those private banks can print that money out of thin air because government allows them to. And the government officials (many formerly financial executives) allow them to because they “have to” to prevent “disastrous” private banking/financial collapse.

But if you or I wanted to play the same games to print our own money they way they do? No, that would be wrong and dangerous and illegal!

So it’s pretty clear that both government and private financial institutions are tightly coupled partners in a mostly corrupt, intentionally obfuscated shell game that primarily serves to keep money and power steadily flowing into the hands of the already wealthy and powerful.

Just look at who is actually held accountable for financial crimes. Some individual trader that finds and exploits some glitch that allows them to profit from the wealthy? Straight to jail. High ranking institutional powers (government and private) that implement often illegal schemes that continuously siphon wealth from common people into their hands? Slap on the wrist at most.

Time flies, and he’s been on my to-read list for… a while. Need to finally get around to it I guess.

What is your definition of "independent economist"?

Claiming that even a majority or plurality of economists overall agree with Piketty, who advocates for some wildly unpopular economic policies and is a literal socialist, is absurd, so your group of "independent economists" must be pretty homogeneous and small.