Investors are either very smart... or very stupid.

[Bill Bonner’s Diary]( Investors Are Either Very Smart… Or Very Stupid. By Bill Bonner Tuesday, December 14, 2021 Birds do it Bees do it Even educated fleas do it – Let’s Do It, by Ella Fitzgerald [Bill Bonner] YOUGHAL, IRELAND – What a wacky world! The stock market is more overvalued than at any time since 2000. Any sane person would think twice before buying more stocks. And then, along comes the worst possible news – that inflation is running at a near-40 year high. What kind of dope doesn’t know what that portends? The Federal Reserve will be forced, like it or not, to tighten credit. Businesses that are heavily in debt will have to roll over their debts at higher interest rates. We look up. And there’s our [Crash Alert flag]( flying sheepishly… the ol’ black ‘n blue… warning investors to watch out. 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And now, its scouts are staggering back to camp, wounded and hungry. Cathie Wood’s Ark Innovations exchange-traded fund (ARKK) is down 40% from its peak last February. Bitcoin is 30% off its peak. Goldman Sachs’ index of unprofitable tech companies is off 25% over the last month. And yet, there is still no sign of a broad retreat. Stocks rose on the latest inflation news. And now, commentators are calling for more victories ahead. Here’s Barrons’ headline: Stocks’ Rough Patch Could End Soon. The Fed’s Next Move May Be Priced In. [Featured: The Truth Behind the Global Chip Shortage]( Daredevils and Dimwits What to make of it? There are two possible interpretations. First, investors are very stupid. Second, they are very smart. You have to be pretty dumb not to see that asset prices are way out of line with economic reality. By all measures, stocks are at the top of their range. Despite all the loose talk about “disruptive technology” and the “metaverse,” real output is still produced by people who do real work, either physical or mental. And it’s still measured by GDP. So the simplest way of keeping track of stock prices is to add all the stocks together and compare them to GDP. This is sometimes called the “Buffett Indicator,” after legendary value investor Warren Buffett, who popularized it. This measure shows you that stocks are usually worth about 80% of GDP. And between 1950 and today, they only crossed the 150%-of-GDP line twice – in 1999 and again in 2017. After January 2000, the dotcoms crashed and stocks quickly fell back. But recently, they just keep going up. And now, the ratio stands at 213% – an all-time high. How much upside is left, we don’t know… But whatever it is, it is only suited to daredevils and dimwits. Recommended Link [Free Pick from Jeff Brown: “Buy S.C.G.”]( [image]( Jeff Brown picked Tesla in 2018 before it jumped 1,390% He picked Nvidia before it jumped 3,545% And he picked Bitcoin before it skyrocketed 22,750%. And now he’s saying S.C.G. will be the next big tech play. He’s not the only one. Apple’s CEO even called it “the next big thing.” [Click here and get the name and ticker symbol of a major player in the space, 100% free.]( -- Everyone’s Doing It Stocks are only where they are because the Fed has been pumping them up for more than 10 years. And now… it is still lending money at an inflation-adjusted interest rate of about MINUS 6%. But with inflation on the rise, the only sensible thing for the Fed to do is to raise interest rates – which would bring stock prices crashing down. And this is where the very smart investors may be outsmarting themselves. They realize that the Fed faces an “[Inflate or Die]( choice. It encouraged everyone to borrow. A recent Bloomberg article, for example, told readers that they should emulate the Argentines – borrow as much as possible… and get rid of their cash as quickly as possible. [Featured: (Why America Is Failing) — 1,000+ Pages of Evidence Collected]( On the pampas, as well as the Great Plains – everyone does it. Households are once again “taking out equity” by borrowing against the inflated value of their homes. Corporations do it – almost doubling their debt since 2007. And who does it most of all? The government! The feds have tripled their debt load since 2007. And now, so many people have borrowed so much money that the Fed can’t normalize rates – at least, that’s our “Inflate or Die” hypothesis. Recommended Link [Welcome to an empire of debt]( [image]( Our credit system is currently sitting at $68 trillion. It’s the largest debt ceiling in the history of the world – in fact, it’s more than twice the value of every single home in America put together. It’s the most crucial part of our economy. And despite stagnant wages and rising costs, America still appears to be getting richer and richer (at least on paper). And there’s the problem… This massive credit system is about to collapse. But this system has a dark secret about where they’re going to get money to pay off this massive debt. This will affect EVERY American citizen! [Click here before it’s too late.]( -- Why the Fed Can’t Raise Interest Rates Inflation hurts savers (and thus, hurts the entire economy, which relies on savings to fund expansion). But it helps debtors. Their debts evaporate as the value of the U.S. dollar goes down. Who’s the biggest debtor in the whole world? Right again. The U.S. government. And with inflation running at almost 7% (it is actually much more, if you calculate it honestly), and the federales paying only about 2% on their loans, it means they are gaining about 5% on their outstanding debt. With a total debt of more than $28 trillion, that means they are reducing their obligations by about $1.4 trillion each year, grosso modo. The very smart money is betting that this is too sweet a racket to give up. The Fed suppresses interest rates by buying bonds. As long as the asset-buying goes on, presumably, stocks and bonds get a bid, even as inflation rates go up. The value of the debt goes down. The value of the elite’s stocks and bonds goes up. Everybody’s happy. Well, everybody except the 90% of the population that pays higher consumer prices. What could go wrong? Tune in tomorrow… Regards, [signature] Bill --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Investors are either very smart… or very stupid.). --------------------------------------------------------------- FEATURED READ [Where Inflation Is Hitting Households the Hardest]( areas of household expenses have been hit the hardest by recent inflation. You're likely feeling all of these financial pains yourself... and it's expected to continue for a while... MAILBAG Dear Readers respond to the mailbag question as to whether they are still wearing their face masks… I’m still wearing a mask in public settings. Covid is a respiratory virus and thus is primarily spread in that manner. Retired RN last year (after 42 years), I will not receive the so-called vaccine (we all make that individual choice and I respect your choice). Masks and handwashing greatly improved surgical outcomes well over 100 years ago for a true scientific reason. Nobody wants another to cough in their face but if they do wouldn’t you prefer they were wearing a mask when they did? – William S. A facemask, even an N95 one, is like trying to stop a mosquito with a chain link fence. It's not science involved here; it is engineering. A virus is literally a thousand times smaller than the holes in the very best surgical masks available. Think about that for a second. IF the masks worked the line representing the infections would have flatlined when masks were introduced. They would NOT have continued up on the SAME trajectory as BEFORE the mask mandates were introduced! It ain't rocket science. – Alan S. How has rising inflation impacted your personal financial welfare and security? Does inflation hurt savers, as Bill writes about in today’s Diary? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Investors are either very smart… or very stupid.). 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