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To Kill A Mockingbubble 📌
Did you know that the 2008 financial crisis, triggered by the collapse of the housing bubble in the United States, led to the most severe worldwide economic crisis since the Great Depression?
Equity Eats
March 14, 2024
To Kill A Mockingbubble 📌
Did you know that the 2008 financial crisis, triggered by the collapse of the housing bubble in the United States, led to the most severe worldwide economic crisis since the Great Depression?
With this historic event still relatively fresh in our memories, it’s safe to say that those in authority will do everything in their power not to repeat this.
In this edition of Equity Eats, we present the following:
Is It A Bubble: First, we’ll disprove the bubble theory by unpacking the S&P 500's surge, citing the current monetary policy, and pointing to valuation metrics as indicators of a stable market 🔍
Our Immigration Problem: Next, we’ll discuss immigration's necessity for economic vitality, while offering a critique against the mismatch between immigrant values and policy effectiveness 🏃
Bank Stocks Await Lower Interest Rates: Finally, we’ll focus on the banking sector's potential rally with anticipated rate cuts, despite current underperformance compared to the S&P 500 👀
Dive into these analyses for a deeper financial understanding.
Is It A Bubble? 🔍
The S&P 500 is up 40% since the October 22, 2022 low, and the surge since the end of October 2023.
The rally has led to concerns that stocks have entered bubble territory.
But this is no bubble ❌
For starters, in all other bubbles, easy monetary policy plays a central role in encouraging excessive risk taking.
Today, Fed policy is tight after engaging in one of the most aggressive interest rate hiking cycles in US history.
Typically, the equity bubble is accompanied by extreme risk taking in other areas of the economy which leads to excesses and imbalances in other areas of the economy.
There is no evidence of any imbalances of this sort 🤷🏻
Finally, while equity valuations are on the high side, they aren’t even as high as they were in July 2022, and they are not anywhere near extremes reached in the dotcom bubble of 1999-2001.
Pull backs are likely, but a market crash as a result of a bursting bubble is not in the cards ✋
Our Immigration Problem 🏃
We are a nation of immigrants, and the United States still needs immigrants.
To keep our population stable, women in the United States must have 2.1 children during their lifetimes, on average.
We are well below that threshold—the fertility rate is 1.64 children per woman.
So immigration is essential 1️⃣
However, those who come to the United States must share our values, they must want to contribute to our country, and they must embrace the American dream.
Instead, we are allowing criminals to enter our borders 😈
Our universities are filling college campuses with students who despise our values.
Our politicians could easily resolve this problem.
Creating a robust process to attract good people is not complicated.
But our politicians prefer to score political points by blaming the other side rather than rolling up their sleeves and resolving a very solvable problem 🙅🏻
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Bank Stocks Await Lower Interest Rates 👀
When will US banks join the stock market rally?
The KBE bank ETF has rallied 29% since October 27 2023, outperforming the S&P 500, which is up 25% over the same time.
But while the S&P 500 continues to set new all time highs, the KBE ETF is 25% below its all time high set on January 3, 2023 📉
Furthermore, KBW is down 4% this year while the S&P 500 is up over 6%.
Banks need the spread between the interest rate they borrow at versus the interest rate they lend at to shift in their favor, and that will only happen when the Fed begins to cut interest rates.
Once that happens, banks will begin to play catch up and enjoy a sustained rally 📣
