David Stockman: Sell Your Stocks Now!
Every seven or eight years, I read something that challenges the comfort I have in how my stock portfolio is structured. And sometimes, after talking to Dominick, my broker, and some of the stock analysts I trust, I make a decision that alters to some degree the amount of money I have in stocks as compared to how much I have in other asset classes.
I’m going through that thought process now after reading essays written and published in the last several weeks by Alex Green, Bill Bonner, Porter Stansberry, and David Stockman, to name a few.
All of them have serious concerns about the growing and now-gigantic US debt, which broke through the $37 trillion barrier last month.
One of those essays – “Sell the Bonds, Sell the Stocks: Demolition Donald Can’t Save Us!” by David Stockman (published on July 3) – articulates not just the debt problem, but several other ugly facts about the US investing environment that, as a group, have left me wondering if I should make some changes.
As Stockman points out, besides the federal debt, the US economy is burdened by corporate debt and personal debt, the whole of which is more than $100 trillion.
The last time I wrote about this I said that there are only three ways an economy can respond to debt at this level: a massive depression, sustained stagflation, or a period of abnormally large growth. In either of the first two cases, the middle class effectively absorbs the debt by getting poorer. In the third case, everyone gets richer, including the government, because the larger GDP results in larger tax revenues, even if the tax rates are lower.
Trump and those on his fiscal and monetary team are hoping for the third option. They are hoping that the tax cuts the Big Beautiful Bill preserved as well as the new ones it created will stimulate significant growth in the coming several years. I’m going to hope so too. We all should.
But Stockman, and all the other guys I listen to on this subject (see above), don’t think that’s going to happen.
If they are right, Stockman’s prediction of continued stagflation is the next best outcome and the most likely one. There are ways to preserve and even grow wealth during stagflation, but the ones I like best are direct investments, not stocks.
But the stock market is overvalued. Way overvalued from my conservative investing perspective. The S&P 500 is trading now at 30 times earnings! That, in my opinion, is almost double what it should be. My approach to stocks has always been buy-and-hold. But now I’m thinking about lightening the portion of my assets that are in stocks. Or maybe even getting out of stocks entirely.
I’m going to talk to Dominick about my concerns and see what he has to say. I’m going to tell him that I’m feeling like I should be happy with the gains I’ve made with stocks since we started the Legacy Portfolio, and particularly since we brought in some of the tech businesses he liked. And I’m going to tell him that I’d be quite comfortable getting a guaranteed 5% ROI for the next several years while the market sorts itself out.
I’ll let you know what I’m going to do next week.
