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America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

Summary:
Summary  The U.S. stock market is the most overvalued in history using our valuation metric of stock market capitalization-to-GDP The U.S. has failed to address four major issues, which have now passed their tipping points and has destabilized the American Street The murder and lynching of George Floyd was the spark that tipped the nation over into instability Stability is unlikely to return until the nation’s political leaders address the country’s structural problems of racism, wealth inequality, intergenerational conflict, and it’s political leadership If not addressed soon, the U.S. risks becoming a failed state The spike in day trading, the new sport of America,  is helping to move the stock market higher NO PEACE WITHOUT JUSTICE, NO JUSTICE WITHOUT FORGIVENESS– Pope John

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Summary 

  • The U.S. stock market is the most overvalued in history using our valuation metric of stock market capitalization-to-GDP
  • The U.S. has failed to address four major issues, which have now passed their tipping points and has destabilized the American Street
  • The murder and lynching of George Floyd was the spark that tipped the nation over into instability
  • Stability is unlikely to return until the nation’s political leaders address the country’s structural problems of racism, wealth inequality, intergenerational conflict, and it’s political leadership
  • If not addressed soon, the U.S. risks becoming a failed state
  • The spike in day trading, the new sport of America,  is helping to move the stock market higher

NO PEACE WITHOUT JUSTICE, NO JUSTICE WITHOUT FORGIVENESS
Pope John Paul

In our April 25th post, America’s Bearish Day At the Beach, we promised you,

We will share in a post soon about a conversation we had back in early February that confirmed to us the country was in deep shit. — GMM, April 25th

First, let’s review what we believe has caused the events of the past few days.

America Burning

America’s cities are burning due to the confluence of four major tensions, in our opinion, which has finally reached the tipping point and kicked over the edge by the modern-day lynching of George Floyd.   Don’t make the mistake the senseless and gross murder of Mr. Floyd is the only reason why America is burning,  but rather think of his tragic death as the spark that lit the torch.

We warned to expect this type of political instability in our post last Thursday, Time To Fear The American Street.   Even in our small hometown in Northern California,  a day of peaceful protests turned violent when a local high school student plowed his pickup truck into a group of protestors.

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

“He denied trying to run down any protesters, but indicated that he wanted to fly an American flag past the crowd,” Kucker said. “Due to the fact that no victims came forward, the driver was released pending further investigation.”  – Press Democrat

Watching the video of the red truck draped in America flags plow into the crowd of peaceful, passionate, and angry protesters exercising their First Amendment rights is pretty disgusting.

We can only think of the words of the English writer, Samuel Johnson, who had something to say about this kind of false patriotism, in 1775, 

Patriotism is the last refuge of a scoundrel. – Samuel Johnson 

Flying, wrapping yourself in, or hugging the American flag doesn’t make you a patriot.  Au contraire. Fighting for and defending the principles that have made America great does.

The Explosive Toxic Cocktail Of Four Major Tensions Converging 

We see four major tensions that have exploded in the past week, which we’ll only briefly touch upon and provide you some links for further follow-up.

  1. Racial – culminating in the murder of George Floyd. America has never really dealt with its original sin of slavery and racism.  It’s total bullshit for a white man like myself to know what it is like to grow and live as a black person or minority in America.  The empowerment of white supremacists and dog whistles by the leaders of the U.S. government to the racists that their actions are tolerable and OK has futher fueled tensions and going to be a huge strain on the country for a long-time.
    COVID Hitting African-Americans Hard In addition, go no further than the COVID statistics to see how disproportionately hard the African-American community is being hit.
    .
    America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble 

    Collectively, Black Americans represent 13% of the population in all areas in the U.S. releasing COVID mortality data, but they have suffered 25% of deaths…In New Mexico, the Indigenous death rate is 8 times as high as the White mortality rate. In Arizona, it is more than 5 times the rate for all other groups.  — APM

    Where is the outrage?  Why isn’t the White House all over this?  The reality show has now turned real.  What say you, Mr. President?

  2. Wealth Inequality – we have written droves of posts about this issue, warning if the problem is not soon addressed, it was time to get long pitchforks and water cannons, and to start building moats.America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble
    Furthermore, a stock market close to its record high, driven by the newly rediscovered sport of day trading,  with unemployment soaring to Great Depression highs is not only a bad look but fuels an already combustible political situation.  It’s now real, folks.
    .
  3. Clash of Generations, OK Boomerdon’t say we didn’t warn you on this one. The GMM has been writing, exhorting, and warning about the disparity between the young and old the past ten years.  Here, we are imploring our fellow comrades to look after the young almost nine years ago,

    The next ten years will surely be interesting.    We at the Global Macro Monitor implore our generation, at least, those who can afford it, to take one for the kids.  If this means we have to play muni golf courses instead of Pebble Beach and Pinehurst and hitting Top Flites instead of Pro V1s (sorry FILA) in our twilight years, so be it.  — GMM, July 2011

    The obsession to “get ours” and change the rules of the game in our favor along the way will be addressed more in-depth in a post we have been working on for weeks, A Nation of Rent SeekersLook for it next week.

    America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble
    “Everybody in Gen Z is affected by the choices of the boomers, that they made and are still making,” she said. “Those choices are hurting us and our future. Everyone in my generation can relate to that experience and we’re all really frustrated by it.”

    “Gen Z is going to be the first generation to have a lower quality of life than the generation before them,” said Joshua Citarella, 32, a researcher who studies online communities. Teenagers today find themselves, he said, with “three major crises all coming to a head at the Gen Z moment.”

    “Essentials are more expensive than ever before, we pay 50 percent of our income to rent, no one has health insurance,” said Mr. Citarella. “Previous generations have left Generation Z with the short end of the stick. You see this on both the left, right, up down and sideways.” Mr. Citarella added: “The merch is proof of how much the sentiment resonates with people.”

    Rising inequality, unaffordable college tuition, political polarization exacerbated by the internet, and the climate crisis all fuel anti-boomer sentiment.  — NY Times, January 2020

    Similar to the other two issues discussed above, this is very complex and will not go away until its addressed.

    If you’re retired collecting a nice comfortable, but underfunded pension,  it’s time to stop deluding yourself that these kids are continue to make sacrifices to pay for your Carribean cruises.  Start to worry and then do something to help fix the problem.

  4. Anti-Trumpism Backlash – not going to spend much energy on this one as it is self-evident and reflected in his absurd, racist and pathetic recent Tweets.

    America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

    We wrote on Thursday,

    Rather than being a stabilizing force and a voice of reason and calm, the President of the United States delights in stoking the divisions and tensions in the country while spewing his conspiratorial garbage 24/7.

    In the words of Anderson Cooper,  “Man, we are in trouble.”  – GMM

    Put down the iPhone, Mr. President, start to lead and address the above issues. That is why the American Street is unstable.  Nefarious forces on both the hard left and right are stoking the viloence, but there would be no violence to stoke if the American Street was calm.

    The bunker in which you hide will not save your presidency.

    America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble
    WASHINGTON — Secret Service agents rushed President Donald Trump to a White House bunker on Friday night as hundreds of protesters gathered outside the executive mansion, some of them throwing rocks and tugging at police barricades.  – NY Times

The Conversation:  When I Knew America Was In Deep Shit 

In early February,  I drove to San Diego to attend a trade show.  I stayed overnight in the beautiful beach town of San Clemente,  the home of President Richard Nixon’s Western White House.

I awoke on Super Bowl Sunday and headed down to the ocean to grab some breakfast before driving down to San Diego pick up my good friend and colleague at the airport and to prepare to watch my 49ers give an ass-kicking to the Chiefs.  Wrong!

Bear Coast Coffee

I had been pretty bearish on the market at the time and thought how appropriate it was to eat at the Bear Coast Coffee.  I do believe in omens, by the way.

This was about two weeks before the market peaked on February 19th.  I snapped this picture and even thought about posting while I was eating breakfast.

San Clemente,  February 2, 2020

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

Clean & Pristine San Clemente

San Clemente wreaks of wealth (ranked 11th wealthiest city in the country), multi-million dollar ocean view homes, and I was very impressed by the clean and pristine character of the city.  I thought what a great summer vacation spot for my daughter and me.  Sat next to and had a great convo with a nice couple, who said their son commuted on the Amtrak to high school into Santa Ana.  Great morning.

San Clemente,  February 2, 2020

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

San Diego Convention Center

After nursing the wounds of the 49ers fourth-quarter collapse, we were about two days into the trade show when an elderly gentleman stopped in our booth and began to chat with my colleague.

Let’s call him Joe and my colleague Jim.  After exchanging niceties, the conversation went something like this.

Joe:   Can you believe what is happening to the world?  The homeless are overrunning the country.  Shitting in public.  You can’t even walk in San Francisco now without stepping in human feces!  Those god damn liberals can’t run anything.  The homeless have even overrun my town of the San Clemente.  God damn it! 

Jim (from back east)No, haven’t really thought about or noticed it. 

[I found out later Joe’s net worth puts him in the Top 1 percent and couldn’t really confirm if he was a college graduate.  I almost jumped in and told Joe he was full of shit and had been sniffing too much Faux News.  I was primed for such a debate as I’ve had many similar Twitter debates with people making the same argument about San Francisco but have, you guessed it, never set foot in the town.  Their perception was all painted by hard alt-right pundits.  

In fact, I was in San Francisco just the prior week and snapped the following picture to use in my Twitter debates.  If anyone can find a human turd in the photo, I will send you $1000.  The same goes for the pictures of San Clemente.  No photoshopping. 

San Francisco,  January 2020

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

Of course, every city has a homeless problem and San Francisco’s is more acute than most.  But the problem is not as ubiquitous as Faux News portrays.

I also wanted to wrap Joe on the knuckles with the fact that the People’s Republic Of SF sports the most billionaires per capita by a factor 8x the second-highest, NYC, and the city has the highest rents in the nation, which might help explain, in part, its homeless problem.  See our post here.   I bit my tongue and kept quiet.]

The Bombshell

Then the convo turned very ugly.

Joe:  My wife told me the other day she wanted to buy a gun.  I said, “honey, why do you need a gun?  I have several and we have a very good and expensive alarm system for the house.  What’s up.”   She told me, “I don’t want a gun for protection,  I want one to shoot the liberals!”

WTF?

O.M.G!

I thought WTF is wrong with this guy?  I am almost certain he was 100 percent serious.  The dude is not a poor uneducated cracker from some “‘Podunk’ Town In The Middle Of Nowhere”  He’s a one-percenter and lives in the 11th wealthiest city in the nation.

How could this be?  Didn’t he realize he could just have been easily born a crack baby in Harlem if not for being born into the Lucky Sperm Club?

Whatever happened to the noblesse oblige practiced by the likes of the Kennedy clan and George H.W. Bush, the unwritten obligation of people of means to act honorably and generously to others of lesser means?

Right then and there, I realized the country was near a very ominous tipping point.

What Next?

If you think the instability in the American Street is going away anytime soon, think again.  There may be an ebb and flow of calm and violence but unless the underlying issues discussed above are addressed and mitigated the country has crossed the Rubicon into failed state territory.

Trump can continue to talk tough and even send the M1 tanks into the streets but it won’t make a damn bit of difference but to make matters worse.

It’s time to get to work and begin to really address the issues at their very core, America.

All of us united, even if the goal is to save what’s left of our own personal and selfish interests.  The alternative is peril.

We are heading for a big reset, folks.

What About That Stock Market?  

What market?  We view the U.S stock market the same as we do the Venezuelan bolivar official exchange rate.  It’s not a market anymore and has become a tool of the state.

After the Fed effectively nationalized the bond markets, there is very little sense in trying to do analysis based on the traditional metrics and forecast potential returns.

It’s kind of laughable to watch the bulls on bubble vision spiking the football, believing they are such geniuses and fail to recognize the officials (monetary policymakers) throw the game and change rules in their favor on almost E.V.E.R.Y  S.I.N.G.L.E.  D.I.P.!

Moreover, day trading has now become the new sport of America, replacing the NBA and NHL playoffs and the start of the baseball season.  It is certainly fueling stocks higher.

Most Overvalued In History

Nevertheless, using our favorite valuation metric, stock market capitalization-to-GDP,  we estimate the stock market closed on Friday at 159.53 percent, the most overvalued in the history of the times series that we collect — the end-of-quarter Wilshire 5000 Total Market Index to GDP.

Given financial markets have been nationalized and are no longer real markets, we have no idea if stocks are going higher or lower. We’re not involved and have no desire to be.  If Mr. Market does decide to become a market again, look out the f$^k below.

We are the first to admit that we may be wrong, — it wouldn’t be the fitfth, or even the tenth time — and there are opportunities in certain individual stocks.  We are macro boys, however,  and if you want or need to be involved we refer to the opinions of our crack stockpicker, Coach C.

GDP Rebound

The GDP data should experience a record snap back in Q3 — very possible an annualized 20 percent plus Q3 print, which will help valuations a smidgen but the economy would still only have recovered about one-third of the output lost in the first half.   And this assumes America’s intifadah fades out and there is no second wave of COVID.  Bigger ifs by the day.

These stock levels are very dangerous, however, and unless your pricing model resembles that of Venezuela it’s hard to justify being long, in our opinion.

America’s Reality Show Gets Real: The Moment I Knew America Was In Trouble

Gregor Samsa
This site is designed as a “go to” source for traders, investors, policymakers and any interested in markets and the global economy. We provide informed opinion, timely market information, sources, and links.

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