The New Gilded Age

It takes money to make money.  Capital is more valuable than labor.  Labor is just not that valuable when there such an excess supply.  You can argue that there is an excess of cheap capital, but most people cannot access that cheap capital.  Banks lend money to people with collateral, people who have money, not people who need money.

We are living in an age where managing your money is much more important to wealth creation than having a good job.  Most jobs just don't pay enough to allow for a lot of savings.  Not many people get wealthy anymore from saving part of their salary.  Interest rates are too low and wages haven't kept up with inflation.  

The lower and middle class is in a difficult situation, where most labor is becoming less and less valued.  In order to raise money to buy a house or a nice car, or just to keep up with their friends who brag about making 500% in 2020, they are resorting to rampant speculation, lotto tickets like YOLO calls, buying volatile and overvalued meme stocks, EV bubble stocks, and arguably worthless cryptocurrencies.  

They are starting to feel some pain, as the big move higher in those momo stocks earlier this year have all been given back, even as the SPX keeps going higher and higher.  They will probably feel more pain in the years to come if they insist on having diamond hands.  I'll have the paper hands to live to fight another day when I am wrong than stubborn diamond hands that take you out of the game with 1 bad investment. 

The sudden explosion in stock and crypto investing among retail changes the dynamics of this bubble.  Even a mere 2 years ago, you didn't have too many newer investors looking to put money into EV, biotech, big cap tech stocks, or crypto.  Now it seems more unusual to find someone who doesn't have money in those assets.  

A popping of this bubble will now have devastating effects on the economy.  Unlike a few years ago, now almost everyone has jumped into the pool, with the latest people being the ones who are putting blood money in there, less wealthy individuals who are buying the worst companies following message board advice, following the herd.  When this bubble pops, there will be blood. 

What's so sad about this environment is that a lot of these newer investors, who are in some of the worst stock investments imaginable, are completely delusional, while the assets that are most likely to appreciate in value over the next 5 years in the US is housing, making it even harder for them to buy a house after their portfolios get crushed when this bubble pops.

I hear talk about the US housing market being red hot, a lack of supply, houses selling within days of being listed, selling for above listed prices, etc.  Many see this and think this is another bubble like 2005-2006.  They think it will end badly like 2008.  What I see is smart investors, selling overvalued stocks, getting liquid, and putting some of that money in a better investment to protect against inflation, which is real estate.  

So after the dust settles from this giant bubble, the rich will get richer, and the poor will get poorer.  

The supply demand fundamentals are much more favorable for US real estate than US stocks.  You are not seeing much new supply coming on to the market, and if you've seen how homebuilders build new houses in the US these days, with tiny front and back yards, houses right next to each other, then you can see why existing home prices would go much higher.  And these newer homes are way out in the suburbs, making a commute to downtown a nightmare.  Whether it be lumber shortages, lack of housing permits, or lack of desirable land to build houses, you are not seeing much increase in supply coming on line. 

On the other hand, in the stock market, the demand for speculative stocks, is being met with tons of supply, in money losing companies doing IPOs or getting bought by SPACs.

All of this is very reminiscent of 1999, when the stock market was in a raging bull market, a bubble was getting closer to its peak, and real estate prices were also going up, as the economy was booming.  After the dotcom bubble popped in 2000, real estate prices held steady despite the recession in 2001-2002.  And then you saw a huge increase in house prices during the recovery from 2003 to 2006.  

On the market.  After the volatility of the last 2 weeks, SPX is back near 4200 and getting boring again.  Trading some individual stocks but staying away from index trading.