Weekly Market Update by Retirement Lifestyle Advocates

Stocks – Very Overvalued by Nearly Any Measure

         That was the headline printed here last week.  As if on cue, stocks fell. 

         Despite the decline in stocks, they remain overvalued by nearly every measure.  If you own stocks, it may make sense to ensure you are using exit strategies to protect profits moving ahead.

         While a rally in stocks over the next week, as we approach year-end, would be typical, caution here may pay dividends, in my view.

The Mother of All Stock Market Bubbles?

         That’s the opinion of Ruchir Sharma, the Chair of Rockefeller International.

Mr. Sharma had this to say in his piece published by “Financial Times” (Source:  https://www.ft.com/content/9a0da0d6-92b4-4034-ac25-7b4abcbb0bbe):

Almost no one foresees an imminent pop. Virtually every Wall Street analyst predicts US stocks will continue outperforming the rest of the world in 2025. But all this enthusiasm only tends to confirm that the bubble is at a very advanced stage. If the consensus on “American exceptionalism” is so overwhelming, who is left to hop on the bandwagon and inflate it further?

The certainty of Wall Street has spilt over into the popular media, which often picks up on market trends only when they are well established and near an end. Hype for American superiority is now the stuff of TV, radio, podcasts, newspaper columns and magazine cover stories, which have a record of pointing the wrong way on future trends.

The bulls say America can remain dominant, owing to impressive earnings of the country’s corporations. But US earnings growth would not look so exceptional if not for the supernormal profits of its big tech firms, and massive government spending. Over time, supernormal profits get competed away. Growth and profits are also getting an artificial lift from the heaviest deficit spending ever recorded at this stage of an economic cycle, by far.

         I believe Mr. Sharma makes a salient point, as a pointed out here a couple of weeks ago, the largest money manager in the world recently stated that boom and bust cycles were now a thing of the past.

         When everyone is on the bandwagon, it’s often time to jump off.

Retailer to Close Remaining Locations

         Discount retailer Big Lots announced last week that the company will be closing its remaining 963 locations after a sale to a private equity firm reached a dead end.  (Source:  https://www.dailymail.co.uk/yourmoney/consumer/article-14211285/discount-retailer-begins-sales-prepares-close-locations.html)

         The announcement comes after the retailer closed 400 underperforming retail locations earlier this year.

Buffett the Oil Bull?

         As the market sold off this past week, billionaire investor Warren Buffett deployed some of his accumulated cash, purchasing shares in Occidental Petroleum.  (Source:  https://www.cnbc.com/2024/12/20/warren-buffetts-berkshire-hathaway-scoops-up-occidental-and-other-stocks-during-sell-off.html)

         As the stock market declined last week, Buffett bought 8.9 million shares of Occidental, bringing his holding in the company to 28%.  Occidental shares are down 24% so far this year.

The Fed Admits an Inflation Mistake

         “The Wall Street Journal” ran an editorial piece with that headline this past week.  (Source:  https://www.wsj.com/opinion/federal-reserve-fomc-interest-rate-cut-jerome-powell-markets-inflation-aa9d6987).  Here is a brief excerpt:

Well, that was ugly. We mean the big selloff in stocks and bonds Wednesday following the Federal Open Market Committee’s decision to cut its target interest rate by another 25 basis points.

Wall Street is calling this a “hawkish cut” because the Fed’s potentates rolled back their expectations about future rate cuts. But the real way to think about Wednesday’s monetary news is that the Fed now all but admits it has underestimated the staying power of inflation.     

In September, Fed Chairman Jerome Powell sounded like a man who thought he’d whipped inflation when he cut rates by 50 basis points. Long bond rates popped after that Fed meeting in a vote of skepticism. But Mr. Powell plowed ahead anyway with another 25-point cut in November.

Wednesday’s cut takes the fed funds rate down to 4.25%-4.5%, but at the same time Fed officials revealed that they think inflation isn’t falling and will rise next year by more than they anticipated.

         This is not surprising.  Two and a half years ago, here in this publication, I stated that the Fed would not get inflation under control without real positive interest rates.  In other words, interest rates higher than the REAL inflation rate.

         That has not happened, and inflation continues to build; over the past two and a half years, the Fed has been debating the rate of inflation.  Prices have not declined, and much of the economic damage done as a direct result of artificially low interest rates will not be reversed.

         The other option to arrest inflation is a balanced budget at the federal level – also not likely.  For many investors, continuing to own tangible assets in their portfolios will be a good investing decision in my view.

Another Big Retailer Declares Bankruptcy

         Party City, the party supply retailer, declared bankruptcy for the second time in four years last week and announced intentions to wind down its retail and wholesale operations.

         After a going-out-of-business sale, Party City management stated that all 700 retail locations would be closed.  Party City has been in business for forty years.  By declaring bankruptcy during the holiday shopping season, a tactic often employed by financially troubled companies, Party City hopes to take advantage of increased cash flow from holiday shopping.

         This week’s RLA radio program features an interview that I did with the founder of the Financial Survival Network, Mr. Kerry Lutz.  The radio program is posted and available now for your listening pleasure by clinking on the "Podcast" tab at the top of this page.

“Christmas is the time when kids tell Santa what they want, and adults pay for it.  Deficits are when adults tell the government what they want, and their kids pay for it.”

                                                               -Richard Lamm