While record valuations, unfavorable market internals, and recurring warning flags have held us to a bearish outlook since the June comment, You Can Ring My Bell, our investment discipline has benefited despite a further market advance since then, partly as a result of the hedging implementation we introduced in the fourth quarter (see the section titled “Good News and Good News” in the October comment, Subsets and Sensibility).
With regard to the record ratio of financial market capitalization to GDP, the government deficits of the past eight years have bloated the corporate profits on which investors are placing extreme price/earnings multiples while calling it “stock market capitalization.” Meanwhile, the highest income earners have also accumulated the cash and securities that the government issued to finance the deficits. As a result, the massive deficits of recent years are a significant portion of what the deepest pockets presently call “wealth.”
While both the federal debt and federal deficits have declined since 2021, as a share of GDP, even deficits of the present size are unsustainable. Still, it matters enormously how the shortfalls are created. What matters isn’t only whether one borrows, but how revenue is obtained, and how the funds are spent. Long-time readers may recall that I advised members of Congress during the pandemic, and suggested that recovery of subsidies should be largely based on actual economic damage sustained during that crisis. Instead, many businesses received PPP subsidies even though they continued to operate without any shortfall in business, while profit margins soared. As I’ve detailed previously, much of the government support acted as a pure subsidy to corporate profits.
I’m sorry, but there’s a certain irony in the ruse of billionaires consolidating their power under the pretense of “reducing deficits” when it’s exactly the massive deficits of recent years that have boosted their income, profits, and financial market “wealth.” There’s a certain irony to see foxes with mouths full of feathers claiming that they’re defending the henhouse; minding the store while their fingers are deep in the cookie jar of government contracts and foreign quid pro quo. They’re selling a house of cards, and everybody’s merrily picking out furniture.
It adds insult to injury to propose that corporate taxes should be reduced even further, despite the fact that higher corporate profit margins in recent decades have been associated with decidedly lower net business investment as a percentage of revenues. I’ll leave it to conscience to justify it as reasonable to cut meager support for humanitarian aid, social services, medical research, students with disabilities, and other vulnerable populations in order to finance further tax reductions, disproportionately for the wealthy, when 67% of U.S. net worth is already held by the top 10% of Americans and only 2.5% is held by the bottom 50%. Meanwhile, 50% of U.S. equities are held by the top 1% of income earners, with 87% held by the top 10%. Only 1% of U.S. equities are held by the bottom 50%.
While both the federal debt and federal deficits have declined since 2021, as a share of GDP, even deficits of the present size are unsustainable. Still, it matters enormously how the shortfalls are created. What matters isn’t only whether one borrows, but how revenue is obtained, and how the funds are spent. Long-time readers may recall that I advised members of Congress during the pandemic, and suggested that recovery of subsidies should be largely based on actual economic damage sustained during that crisis. Instead, many businesses received PPP subsidies even though they continued to operate without any shortfall in business, while profit margins soared. As I’ve detailed previously, much of the government support acted as a pure subsidy to corporate profits.
I’m sorry, but there’s a certain irony in the ruse of billionaires consolidating their power under the pretense of “reducing deficits” when it’s exactly the massive deficits of recent years that have boosted their income, profits, and financial market “wealth.” There’s a certain irony to see foxes with mouths full of feathers claiming that they’re defending the henhouse; minding the store while their fingers are deep in the cookie jar of government contracts and foreign quid pro quo. They’re selling a house of cards, and everybody’s merrily picking out furniture.
It adds insult to injury to propose that corporate taxes should be reduced even further, despite the fact that higher corporate profit margins in recent decades have been associated with decidedly lower net business investment as a percentage of revenues. I’ll leave it to conscience to justify it as reasonable to cut meager support for humanitarian aid, social services, medical research, students with disabilities, and other vulnerable populations in order to finance further tax reductions, disproportionately for the wealthy, when 67% of U.S. net worth is already held by the top 10% of Americans and only 2.5% is held by the bottom 50%. Meanwhile, 50% of U.S. equities are held by the top 1% of income earners, with 87% held by the top 10%. Only 1% of U.S. equities are held by the bottom 50%.
Among the pseudo-analyses making the rounds is that a report last year from the General Accounting Office “found” government fraud amounting to $233-521 billion a year. The fascinating aspect, if one actually reads the report, is that this figure isn’t actually a finding at all. It’s a model simulation, based on arbitrary assumptions that explicitly rejected informed input, statistically valid sampling, or data analytics.
That’s not to say that there isn’t fraud in government spending. Indeed, confirmed fraud, as reported by the Office of Management and Budget, amounts to several billion a year: $7.3 billion in the pandemic year of 2020, $4.5 billion in 2021, and $4.4 billion in 2022. Given federal outlays on the order of $7 trillion, much more likely goes undetected. That’s certainly a reason for careful accounting and auditing. It’s not a justification for slash-and-burn by a brigade of drunk guys from the end of the bar ranting about the guvmint. I’ll say this – if one is looking for waste in government, the place to start would be billion-dollar government contracts with corporations, not experienced, career federal workers that comprise less than 1% of the population and less than 2% of the civilian labor force – half the 1950 level and close to the smallest share in U.S. history. The point of the firing isn’t to save money, it’s to install loyalists.
This isn’t who we are
Some people prefer me to “stay in my lane,” but here’s the thing – I went into finance over 40 years ago for two reasons: to serve long-term investors, and to fund efforts to reduce the suffering of vulnerable populations, much of it toward disease eradication, disability, poverty, basic education, homelessness, hospice care, and communities uprooted by conflict. Most of what I’ve earned across decades of market cycles – becoming a leveraged bull after the 1990 plunge, anticipating the tech bubble collapse, navigating the mortgage bubble and its collapse – has gone to those efforts. We’ve been able to do less during the bubble of recent years, though we’ve adapted enough that I expect our work to thrive over the completion of this cycle. In the meantime, as long as I have a voice, I would consider silence in this moment to be a betrayal of the vulnerable communities that we call partners.
Call me naïve, but I still believe that Americans are more alike than different. I think we’re getting played, misdirected by wildly-amplified divisions that have made many of us willing to surrender rule of law, balance of power, human rights, and the defense of democratic allies, while allowing and even encouraging billionaires to enrich themselves at the expense of the vulnerable. We’re fed a constant slideshow of extremes, curated by algorithms, bots, and outrage theatre masquerading as news, that convince us that the worst extremes are representative of the other “side.” Our world is stretched, bent, and distorted by fun house mirrors, and we tell ourselves that we’re only believing our own eyes.
By now, some of us are so angry at the other “side” that we’re perfectly willing to dehumanize others if we can be sold on the idea that cruelty is justice. Retribution. Somehow our divisions have allowed us to buy into the idea that greatness means tolerating an America that abandons its allies, embraces authoritarianism, contemplates the potential benefits of ethnic cleansing and territorial expansionism, elevates parasitic extraction to a core value in foreign relations, and approaches change as a matter of torches, pitchforks, and chainsaws, wielded against the enemy du jour.
This isn’t who we are.
Last week, Theunis Bates, the Editor-in-Chief of The Week observed, “it has become apparent that America is not simply moving past the excesses of progressivism – the compulsory stating of pronouns, the hawking of anti-racism books for babies, the pretending that Emilia Perez is a good movie – but beyond the idea that it’s good to care for others at all. On social media, people have rejoiced at the slashing of U.S. food aid and medicine for people suffering genocide and famine. Musk once told his biographer how his favorite video game had taught him the ‘life lesson’ that ‘empathy is not an asset.’ We’re now seeing what happens when that mantra becomes a governing philosophy.”
This isn’t who we are.
As imperfectly as we’ve pursued our ideals, America has fundamentally stood up for the idea that we share a common humanity, that all of us are connected by common thread that asks for little but decency toward each other, and to promote the general welfare, realizing that “us” could easily have been “them” if the circumstances, wealth, race, or simple realities of our of birth had been different. The world has admired America, and we’ve had pride in ourselves, not because of race, religion, party, wealth, or even common roots, but because we stood for the idea that government by the people – not a despotic, throne-obsessed monarch – and respect for the equal rights of other human beings were self-evident. We’ve failed at that vision a thousand ways, but we’ve never abandoned it. We can’t abandon it now if we hope for America to endure as anything approaching “great.”
“Long live the King.” Sure, and I’m Batman. This isn’t who we are.
My friend Ben Hunt recently described the situation this way: “For the better part of two centuries (I put the Monroe Doctrine of 1823 as my starting point) the United States has tried – sincerely tried as a common goal and as a prominent semantic signature existing through and across political lines – to be both a Great Power and a Good Power. Trumpism is an embrace of America as a Great Power and a rejection of America as a Good Power, in all its forms, both domestic and internationally. More than that, it is an ideological embrace of America as a Great Power, that this is everything America should be, and an ideological rejection of America as a Good Power, that this is something America should never be… I absolutely think this is a tragedy, because the pursuit of great power for great power’s sake transforms every American policy, both foreign and domestic, into a protection racket of one form or another.”
This isn’t who we are.
Only by saying that, out loud, and standing up for it again and again, can we avoid becoming something else entirely.
That’s not to say that there isn’t fraud in government spending. Indeed, confirmed fraud, as reported by the Office of Management and Budget, amounts to several billion a year: $7.3 billion in the pandemic year of 2020, $4.5 billion in 2021, and $4.4 billion in 2022. Given federal outlays on the order of $7 trillion, much more likely goes undetected. That’s certainly a reason for careful accounting and auditing. It’s not a justification for slash-and-burn by a brigade of drunk guys from the end of the bar ranting about the guvmint. I’ll say this – if one is looking for waste in government, the place to start would be billion-dollar government contracts with corporations, not experienced, career federal workers that comprise less than 1% of the population and less than 2% of the civilian labor force – half the 1950 level and close to the smallest share in U.S. history. The point of the firing isn’t to save money, it’s to install loyalists.
This isn’t who we are
Some people prefer me to “stay in my lane,” but here’s the thing – I went into finance over 40 years ago for two reasons: to serve long-term investors, and to fund efforts to reduce the suffering of vulnerable populations, much of it toward disease eradication, disability, poverty, basic education, homelessness, hospice care, and communities uprooted by conflict. Most of what I’ve earned across decades of market cycles – becoming a leveraged bull after the 1990 plunge, anticipating the tech bubble collapse, navigating the mortgage bubble and its collapse – has gone to those efforts. We’ve been able to do less during the bubble of recent years, though we’ve adapted enough that I expect our work to thrive over the completion of this cycle. In the meantime, as long as I have a voice, I would consider silence in this moment to be a betrayal of the vulnerable communities that we call partners.
Call me naïve, but I still believe that Americans are more alike than different. I think we’re getting played, misdirected by wildly-amplified divisions that have made many of us willing to surrender rule of law, balance of power, human rights, and the defense of democratic allies, while allowing and even encouraging billionaires to enrich themselves at the expense of the vulnerable. We’re fed a constant slideshow of extremes, curated by algorithms, bots, and outrage theatre masquerading as news, that convince us that the worst extremes are representative of the other “side.” Our world is stretched, bent, and distorted by fun house mirrors, and we tell ourselves that we’re only believing our own eyes.
By now, some of us are so angry at the other “side” that we’re perfectly willing to dehumanize others if we can be sold on the idea that cruelty is justice. Retribution. Somehow our divisions have allowed us to buy into the idea that greatness means tolerating an America that abandons its allies, embraces authoritarianism, contemplates the potential benefits of ethnic cleansing and territorial expansionism, elevates parasitic extraction to a core value in foreign relations, and approaches change as a matter of torches, pitchforks, and chainsaws, wielded against the enemy du jour.
This isn’t who we are.
Last week, Theunis Bates, the Editor-in-Chief of The Week observed, “it has become apparent that America is not simply moving past the excesses of progressivism – the compulsory stating of pronouns, the hawking of anti-racism books for babies, the pretending that Emilia Perez is a good movie – but beyond the idea that it’s good to care for others at all. On social media, people have rejoiced at the slashing of U.S. food aid and medicine for people suffering genocide and famine. Musk once told his biographer how his favorite video game had taught him the ‘life lesson’ that ‘empathy is not an asset.’ We’re now seeing what happens when that mantra becomes a governing philosophy.”
This isn’t who we are.
As imperfectly as we’ve pursued our ideals, America has fundamentally stood up for the idea that we share a common humanity, that all of us are connected by common thread that asks for little but decency toward each other, and to promote the general welfare, realizing that “us” could easily have been “them” if the circumstances, wealth, race, or simple realities of our of birth had been different. The world has admired America, and we’ve had pride in ourselves, not because of race, religion, party, wealth, or even common roots, but because we stood for the idea that government by the people – not a despotic, throne-obsessed monarch – and respect for the equal rights of other human beings were self-evident. We’ve failed at that vision a thousand ways, but we’ve never abandoned it. We can’t abandon it now if we hope for America to endure as anything approaching “great.”
“Long live the King.” Sure, and I’m Batman. This isn’t who we are.
My friend Ben Hunt recently described the situation this way: “For the better part of two centuries (I put the Monroe Doctrine of 1823 as my starting point) the United States has tried – sincerely tried as a common goal and as a prominent semantic signature existing through and across political lines – to be both a Great Power and a Good Power. Trumpism is an embrace of America as a Great Power and a rejection of America as a Good Power, in all its forms, both domestic and internationally. More than that, it is an ideological embrace of America as a Great Power, that this is everything America should be, and an ideological rejection of America as a Good Power, that this is something America should never be… I absolutely think this is a tragedy, because the pursuit of great power for great power’s sake transforms every American policy, both foreign and domestic, into a protection racket of one form or another.”
This isn’t who we are.
Only by saying that, out loud, and standing up for it again and again, can we avoid becoming something else entirely.
by John P. Hussman Ph.D., Hussman Funds | Read more:
Image: uncredited
[ed. I'm as guilty as anyone for railing against the stupidity, avarice and profiteering we see prevalent in politics and human relations today. And while I rail against MAGA true believers, I once was as idealist and true believing as they are now, convinced everything was as binary as I imagined. Age and a careful study of history cured that mistake. But now I'm convinced this infighting is more dangerous (and distractive) than we realize. We might be sliding into authoritarianism, but if so it'll be a short-lived version of what we've historically experienced. Instead, I fear it'll be more like a blow off top for humanity. While we're fighting each other over scraps, billionaires are building bunkers and tech bros are building AI overlords. Guess who survives and rules in the end? Hint: it ain't us. See also: Democrats Must Become the Workers’ Party Again (TNR) excellent advice from former Ohio Senator Sherrod Brown (recently defeated).]
