via Marc Faber:
Investor’s Business Daily recently reported that just four investors made $491 Billion On ‘Magnificent 7’ Stocks This Year. Referring to the Magnificent 7, Matt Kranz at Investor’s Business Daily (IBD), notes that, “the top owners of these seven winning stocks, including Mark Zuckerberg at Meta Platforms, Jeff Bezos at Amazon.com, Elon Musk at Tesla and Vanguard at the rest, hauled in nearly half a trillion dollars on them just this year. Such wealth generation shows just how top-heavy the S&P 500 has become. The mind-boggling gains for a handful of investors just this year are larger than 489 S&P 500 companies are individually worth. Participation was limited as the Magnificent Seven drove market returns and a measure of equal-weighted S&P 500 stocks struggled to keep up with the cap-weighted Index.”
The Wall Street Journal just carried a story under the title: Beware the Most Crowded Trade on Wall Street: Next Year’s Soft Landing. [The under title read: Each of the past three years had a similarly strong consensus that proved entirely wrong.] According to James Mackintosh at the WSJ,“The consensus that next year the Federal Reserve will be able to slash rates without facing recession was strong even before the central bank put out a dovish forecast on Wednesday [December 13]. It got even stronger as a result of the Fed’s new ‘dot plot’ of forecasts, with futures traders putting a 16% probability on a rate cut as soon as next month and an 82% chance of a cut by March” [2024].
Noteworthy is also Mackintosh’s observation that, “the market gains to be had from betting on something happening that pretty much everyone agrees will happen aren’t likely to be large.” I fully agree. The point I want to make about buying widely popular assets such as properties, stocks, bonds, etc., is that if we look at the performance of the most sought-after assets at a given time, the subsequent performance is usually disappointing. [As an aside, the stock which US analysts expect to perform best in 2024 is Nvidia, which I would avoid, however.]
On another note, in a recent WSJ article entitled Bidenomics Is Working for the Middle Class,Miss Yellen said among others: “Historically, it’s rare to bring down inflation while maintaining a healthy labor market, but that’s what’s happened in the past year. The unemployment rate is near historic lows – at less than 4% for 22 months, the longest stretch in more than 50 years.Real wages have risen from their pre-pandemic levels – especially quickly for middle-income households. The typical middle-class American household has higher earnings, more wealth and more purchasing power than before the pandemic. Because wages have risen more than prices since 2019, a worker earning the median wage can today buy the same basket of goods and services as in 2019, with nearly $1000 left over to save or spend”(emphasis added in each instance). [Conveniently, Miss Yellen does not discuss the US government debt, which under Mr. Biden had risen by $4.8 trillion by July 2023 (in just two and a half years).
Michael Snyder, the author of several books including Chaos and of the blog The Economic Collapse (michaeltsnyder@substack.com), recently quotedTikTok user “Freddie Smith, a realtor based in Orlando, who posted a video in September claiming that the U.S. economy is in what he calls a ‘Silent Depression.’ In the video, which has amassed nearly 800,000 likes, Smith compares the average 2023 salary and basic costs to those of the Great Depression to highlight the growing cost-of-living crisis in the country.
‘If you look back to the Great Depression, the house was only three times the average salary. Now, it is eight times the average salary,’ Smith said. ‘The car was 46% of the salary, the car today is 85% of the salary. And here’s the craziest part, the rent was 16% of the average salary, it is now 42% of the average salary.’ Of course, he is right on target. There is a reason why 62 percent of the country is currently living paycheck to paycheck (up from 58% in March). The cost of living has become incredibly oppressive for most Americans, and nobody can deny that reality.”
I should add that according to the Census Bureau, Median US Household Income has Declined by more than $2,000 during the Biden Administration (see last month’s report under Bidenomics Isn’t Working).
Further items recently caught my attention. Bloomberg reported that two major office building were sold at a huge discount to prices paid a few years ago. First, Bloomberg reported that Los Angeles’ Third-Tallest Office Tower sold for 45% below the 2014 price. According to Bloomberg, “It was the latest sale of an LA office building in a market that’s been pressured by the rise of remote work and financing challenges brought about by soaring interest rates. Recently, the Aon Center in downtown LA sold for $147.8 million, about 45% less than its previous purchase price in 2014.” Bloomberg followed up with an article that read, “LA Office Building Sells at 52% Less Than 2018 Price. The article noted that, “The new normal for Commercial Real Estate (CRE): Properties are selling for less than half of what they were worth just 5 years ago. A downtown Los Angeles office building (near Century City and Beverly Hills)that sold for $92.5 million in 2018 just sold for $44.7 million.
I am discussing the ongoing distress in the US commercial real estate market (CRE) for several reasons: First it is a reminder that even in an inflationary environment some assets can drop in price precipitously.
Also, I wanted to comment about US commercial properties once again (I did so in the December report) because whereas there is little mainstream media coverage in the US, Western journalists are now all experts about slumping property prices in China and in Hong Kong. A well-known journalist recently published two ultra-negative articles about Hong Kong properties, which in my opinion represent a life-time buying opportunity for Hong Kong real estate stocks. One article centered around Hysan Development (14 HK), whose majority shareholders I have known for the last 50 years and who are extremely honest and conservative. From its all-time high in 2018, Hysan is down by 66%, sells at a price-to-book of 0.23, and pays an annual dividend of more than 6%.
I need to add that on December 28, we had for the first time in recent months sharp prices increases in Hong Kong property stocks accompanied by heavy volume. Now, I am well-aware that Hong Kong property prices might continue to decline, but I am also cognizant that the stock market is a discounting mechanism, and that, therefore, property stocks will move up long before the property market bottoms out.
Lastly, during a monetary inflation, cryptocurrencies are likely to benefit. As explained before, I hold physical gold. However, I also understand some of the advantages of owning cryptocurrencies. My friend, Nick Giambruno (nick322@protonmail.com) sent me a report about The Top 10 Bitcoin Misconceptions Debunked, which I am enclosing. [financialunderground.com/author/nick-giambruno/]
I wish my readers a fulfilling Year 2024 and I want to thank you for your continuous support.
Concerning central banks, keep in mind Milton Friedman’s words:
“No major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public reputation.”
With kind regards
Yours sincerely
Marc Faber