Juggling Dynamite

Every cycle, a parade of fresh-faced financial analysts salespeople are commissioned to keep the gullible masses buying ‘investment’ products against all odds.

Last week, Kate Moore–who began her sell-side career with Bank of America Merrill Lynch in November 2009, before moving up the ranks at JP Morgan in 2013, and to Chief Equity ‘Strategist’ for BlackRock in 2016–explained why she thinks everyone should just stop worrying and buy equities.  As usual, the subtitle should be:  Stop worrying about your life savings damn it, we have perpetually escalating sales targets to hit here people! I have a bonus to make!

It’s worth noting that starting in 1988 as a risk management and fixed income institutional asset manager, BlackRock founders sold the company to the stock market in 1999 just as central banks began the past 17 years of pumping ‘free’ money into markets.  Good timing for them.

Today BlackRock is the largest ‘long always’ fund co in the world with $5.4 trillion in assets under management and 70 offices in 30 countries. So long as no one blinks and assets keep going up forever, all is golden.  There’s just one problem with that…

As shown in the chart above, stock valuations are now second only to the all time largest bubble–before collapse–in 2000, and worse than the peak of 1929.

And as shown below in this chart of the S&P 500 in blue, those holding stocks today have borrowed the most margin debt (in red) to buy those securities than at any time in history–far worse than the previous speculative peaks of 2000 and 2007.

As the blue line mean reverts, margin calls will demand liquidation and market gains since at least the late ’90’s are likely to be vaporized.  At that point, Kate and all the other long-always cohorts will be looking for new jobs, new careers, new callings, just as they were in the last 2 bear markets.  Those who bought the industry sales pitch will be left suffering the losses.

Danielle was the second guest with Jim Goddard on This week in Money, talking about recent developments in the world economy and markets.  You can listen to an audio clip of the segment here starting at 8:15 on the playbar. Here is a direct audio link.

This clip offers a couple of sound points when considering the purchase of a personal vehicle [and investments for that matter]–to wit:  “Don’t let a salesperson tell you what a good purchase is,” and if you can’t afford to pay off the vehicle within 3 to 4 years max, you cannot afford to buy it.  Here is a direct video link.

Most of all though, it is important to consider that individual vehicle ownership (‘IO’) is on its way out.  On demand transport as a service is expected to provide 95% of passenger miles within the next 14 years (and this assumes 20-25% of rural users may not be able to adopt by then).  See all the details in the report Rethinking Transportation 2020-2030.

This means new vehicle sales are likely to drop by 70% by 2030 and the supply of superfluous used cars will push their resale values toward zero.  Owners may have to pay to get rid of them and recycle the parts.

Today even paid-for vehicles cost their individual owners an average of $9,000 a year in owner/operator expenses (fuel, insurance, maintenance, parking, licensing and repairs) while the vehicles are used just 4% of the time (sitting idle 96%).  In most cases, this makes for a very expensive waste of precious capital and keeps us from directing cash flow to other more productive pursuits like debt-reduction and saving.

Cost-effective transport on demand is already available in most places through services like Uber and Lyft. If you have not tried it yet you should download the app to your phone and try it without delay.  Not to mention trains, buses, taxis, bicycles (!) and periodic short-term rentals where needed.  The cost savings over individual ownership are huge and much needed to help restore financial viability and efficient allocation of finite resources.

Bottom line:  before buying a vehicle today, it is more critical than ever to do some math.