The Class War

The stock market is evidence of a sick economy. (Picture from Hedgeye via Twitter.)

The fact that it’s up shouldn’t surprise anyone who has watched the Fed rain cash on the Hamptons like there’s no tomorrow.

Money with nowhere good to go will flood the richest cropland. The Cloud Czars – Apple, Microsoft, Amazon.Com, Alphabet and Facebook– didn’t need all this financial rain. Their growth rates and profit increases are good, but they don’t justify price to earnings ratios of 33, 35, 151, 30 and 32. When markets do that, it’s called a bubble. The Cloud Czars are tulips.

Meanwhile 12% of Americans are unemployed. This underestimates the pain, which is grossly uneven.

If you work with your mind, and can make a living from home, you’re doing great. Maybe you took a small pay cut, but if you’re also an investor you’re wealthier than ever. You have a home, you can go to Costco, and there’s plenty of good stuff on TV. If you get bored read a book.

If you work with your muscles, if you can’t make a living from home, you’re dying. Unemployment among less-skilled people is above 20%. Their salaries weren’t much to begin with. They can’t afford to be unemployed the way mind workers can. Meanwhile unemployment benefits are running out and the eviction moratorium is ending. At the bottom of the Great Depression, one-third of American families were in this situation. We’re now heading there at warp speed.

This is class warfare on a scale unseen since the days of Bourbon France. We’re no longer talking about the Gilded Age, or the Roaring Twenties. We’re talking about a very, very few having everything and most having nothing. We’re not even letting people eat cake.

This is creating a political tsunami that analysts still don’t recognize. It’s running ahead of the Democrats’ ability to catch up. It’s a social revolution.

It’s also deliberate. Trump has always fueled himself on hate and fear. He tried to create a race war. He has tried to create a Cold War with China. His only chance of staying in power is to become a wartime President who can overthrow the entire system.

The Class War is his last throw of the dice.

The market is saying we’ve hit an iceberg. But investors are all on the top deck swilling gin and tonics.

I’m one of the lucky ones, but I don’t deserve any credit for it. That’s because my wife is a tech worker and can make a living from home. She’s supporting me, and we’re supporting our kids. If I were alone in this life, I’d be dead or dying right now. Journalists are among the mind workers being left behind, along with artists and most musicians. STEM degrees turn out to be the only degrees worth having.

But I married well, and she puts up with me.

Meanwhile, I have moved almost all my money to tech stocks. About one-third of my assets are in cash. I have some foreign stuff, mostly Chinese. The portfolio allocation isn’t healthy, but the results speak for themselves. A retirement that looked middle class a year ago now looks gilt-edged if I get my money out before the collapse.

Meanwhile value stocks, the kind of stocks people have in broker-directed portfolios, are garbage. Kraft Heinz, Campbell Soup, and Proctor & Gamble are going nowhere. Regional banks that serve people loans like Truist, Prosperity Bancshares and Regions Financial are money dumps. Let’s not even talk about retailers, except the essential ones – Costco, Walmart, Amazon, and Dollar General.

The market is placing a bet. The bet is that you don’t care about your neighbors if you have yours, and that your neighbors can be put down with brute force. The bet is that, if there are only enough lifeboats for the Bezos’ and the Zuckerbergs’, you’ll accept everyone else drowning.

It’s a bad bet. The Battle of Portland proved it. America is fighting back. Americans are putting their lives on the line against Trump. We’re not being goaded into violence. We’re making good trouble.

There are three scenarios for this fall.

The Fed could run out of credibility, making every dollar worth less. The dollar index has already gone from 100 to 93 in three months.
The elastic could snap, the market crashing and everyone becoming poorer just as we need money most.
The scent of reform could cause a massive readjustment, money raining out of the cloud and back into the real economy.

The last is the most hopeful option. It’s not a good one for Jeff Bezos or Mark Zuckerberg, but they’re not using their hundreds of billions in new market cap anyway. It’s not a good one for my portfolio. But the alternatives are far, far worse, and chances are the other, more nightmarish scenarios will at least partly be realized.