Juggling Dynamite

The S&P 500 (26% concentrated in the five most expensive tech companies) is trading at 38x smoothed 10-year earnings, just marginally below the all-time high of 43x briefly seen at the 2000 tech bubble top and much higher than the previous bubble top in 1929 (Shiller PE ratio below since 1870).
But then, most are oblivious, and those who know or should care have become convinced that the price multiple paid doesn’t matter.  If that is true, it would be a first.

Feeding on the frenzy, the financial sector has rolled out endless products of mass destruction for retail buyers.  Things like leveraged single-stock ETFs (weekly flows below since 2020) are wildly popular.  Following an epic rebound since last fall, those expecting ever higher stock prices in the next year have reached the most since the survey began in 1987 (Conference Board Survey respondents below, courtesy of Bespoke)! It is not just the retail crowd; institutional investors are all in and then some (buy-side positioning below since 2010, courtesy of Global Markets Investor).

Record leverage betting on ever-expanding prices and an endless flow of math-blind buying, what could possibly go wrong?

About that Trump trade…

The last time today’s expert was on the program back in July, she was concerned about rising unemployment. Is she still as worried about it as we prepare to enter a new year with a new Administration taking over? To find out, we have the good fortune to talk today with Dr Anna Wong, Chief U.S. Economist for Bloomberg Economics. Prior to her current role, Anna also worked at the Federal Reserve Board, the White House Council of Economics Advisers, and the U.S. Treasury. Here is a direct video link.

2024 was about election promises. 2025 will be about the math of delivering. This segment looks at tariffs, taxes and spending cuts.

With hedge fund manager Scott Bessent poised to be the next U.S. Treasury Secretary under the incoming Trump administration, ambitious plans are emerging to slash the national deficit-to-GDP ratio. But can they succeed? In this clip from The Call @ Hedgeye, Financials analyst Josh Steiner breaks down the daunting challenge of hitting a 3% deficit target. “In order to get to that 3% target, you can’t go after Social Security because of the Byrd rule,” Steiner explains. “So, you’re going to have go after Medicare and Medicaid and some of these other big pieces to, frankly, get anywhere close to numbers anywhere close to or toward 3%.” “There’s going to have to be massive spending cuts just to get anywhere close to keeping things as they already are,” Steiner continues. “We’re already at 6% deficit-to-GDP. What I’m saying is, it’s a very tall order.” Here is a direct video link.

Where to cut 2 $trillion (courtesy of ISABELNET).