Last month, I discussed briefly the views of Murray Rothbard about The Difference Between the Market and the Bureaucracy. Subsequently I read an interesting essay by Rothbard entitled Why the Bureaucracy Keeps Getting Bigger, which is adapted from Bureaucracy and the Civil Service in the United States, which originally appeared on September 14, 2018 (www.mises.org/wire, February 21, 2025).I highly recommend that my readers would read this brief essay because it is instructive for present events and also rather humoristic. Read especially on page 7 of this report, Thomas H. Barber’s observations of Washington bureaucracy during World War II.
In his January 2025 observations, Howard Marks wrote that a graph, from J.P. Morgan Asset Management, had “a square for each month from 1988 through late 2014, meaning there are just short of 324 monthly observations (27 years x 12). Each square shows the forward p/e ratio on the S&P 500 at the time and the annualized return over the subsequent ten years. The graph gives rise to some important observations:
Also to consider is the following. In recent reports I made the case that the US was already in recession. The well-known Economic Barometer would seem to confirm this observation since we can see how this indicator (blue line) recently tumbled.
In my opinion, consumer confidence, which is already depressed will further decline or stay depressed for a number of reasons. It would seem to me that the asset inflation we had around the world over the last 45 years or so (since 1981/1982) boosted consumption above its long-term trend because people could sell some of their assets at inflated prices and use the proceed to purchase consumer goods (cars, homes, mobile phones, appliances, etc.), and services (notably travel expenditures).
Moreover, since the two most popular stocks among individual investors were Nvidia (NVDA) and Tesla (TSLA), as well as several other high-risk companies, individual investors must have lost some considerable amount of money since December. From the December 18, 2024 high Tesla (TSLA) tumbled to its recent low by 52% (after its most recent rebound it is still down 42% from the December high), and it would appear that only few investors would have made any money on the stock after 2021. The case of Nvidia is not that bad relatively speaking, (down 27% since January 7) but the down side risk to the stock appears to be significant.
Real estate is another asset which is likely to have a meaningful impact on consumer confidence, especially for the lower and the middle classes of society because their wealth is concentrated in their residence while the top 20% wealthiest households own over 93% of outstanding US stocks.
In the scenario of asset deflation bringing consumption down I would also expect corporate profits to decline meaningfully and reinforce the asset deflationary trend.
However, we should not be overly bearish because Liquidity is plentiful. According to Wolf Richter, “a Tsunami of cash is still washing over money market funds” (see March 14, 2025). Richter: “Money Market Funds & CDs: Americans’ $11-Trillion in Cash, Not Trash, Much of it Still Earning 4%+”
I am bringing up this “Tsunami of Cash” for a variety of reasons. Should the economy deteriorate as much as I expect, the Fed would slash interest rates. Money would then exit money market funds and flow into bonds and stocks. I, therefore, believe that bonds could rally from the current level.
Needless to say, some money would also flow into stocks, which are becoming short-term oversold, and lead to the “spring” rally that usually occurs from the end of March to the beginning of May.
Moreover, aggressive rate cuts by the Fed would likely lead to a weaker dollar and a further increase in the price of gold, silver and platinum.Investors are grossly underweight precious metals compared to financial assets and before the entire asset bubble charade comes to an end, I would expect precious metals to attract far more interest from large and small investors and for prices to meaningfully outperform equities. I would also expect mining stocks to finally outperform physical gold.
I am enclosing with this report The Bitcoin Capitalist Letter by my friend Mark E. Jeftovic (markjr@easydns.com), which is entitled Shorting the Clown World,and provides a Bitcoin Crash Course.
Finally, remember the words of Friedrich von Hayek who opined that,
“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.”
With kind regards
Yours sincerely
Marc Faber
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