The Big Boomer - An Equity Vortex Primed To Implode

I am not sure who it was, but I think it was Mike Green that said buying stocks is like buying "quality junk", stocks have been on a major bull run in what seems like forever and everyone and their grandma is getting in on the action. When I get stock tips from uber drivers and people I play soccer with, who have NO business being in the stock market, I start to worry.

They are "making money" in nominal terms but for how long and at what cost. In bull runs EVERYONE is a genius, I know this first hand from being in the thick of the last crypto bull run. However, when its a bear run and their blood in the streets, its a totally different story and you need to be brave as well as doing quality research.

Not all fire-sale prices are a good deal, and you need to review fundamentals before deploying capital. In a bull run, you can buy just about anything because there are a gang of greater fools ready to take it off you at a higher price.

Stocks are backed by debt not productivity

I was listening to a conversation between Grant Willams and Egon Von Greyerz recently, and they're not saying anything we don't know. Still, he articulated in a way I really found interesting.

In the conversion, he said that on an annualised basis the US's debt has increased by 9% YOY and the same goes for the stock market, so we can make a case for a high correlation that the stock market is propped up by debt.

Yet no one cares, all they care about is number go up, and percentage points moves. These numbers without context tend to sucker in those unsophisticated investors and markets tend to take off and become grossly overvalued.

Now we're seeing more people pile into the stock market through trading apps, with the help of stimulus cheques or being at home looking to earn and income and as long as there are all these net buyers its happy times.

Buying high and selling now

The fact is the majority of people like to buy things when they are expensive and sell them when they are cheap, if this weren't the case, there wouldn't be a few massive winners in the stock market and so many quite losers.

The retail investor loves to reinforce old narratives, and they tend to swing trends either to the upside or the downside. As soon as any asset class hits mainstream news, it's pretty much too late to invest, yet retail tends to pile in during these times.

Boomers will become net sellers

Boomers are the largest holders of equities and got in while it was cheap, and as they begin to retire, they will need to sell it. They would have to sell it into a market of millennials getting into the workforce. Millennials with massive debts and flat wages and won't be able to pay the prices boomers want, we cannot afford it.

Flooding the market with that much equities and boomers turning into net sellers, with so few buyers, the price of equities can only go one way. This would destroy peoples net worth and pension funds.

As soon as boomers become net sellers that selling pressure is going to start pushing plenty of weak hands and speculators out of the market and who knows where the floor will be sold it allowed to correct naturally.

Big daddy government to the rescue

I am sure governments will come in to try and backstop and be the buyer of last resort at the sake of the death of the currency. If they don't equities will viciously correct to the downside with all the suppressed volatility that has been padded by money printing, and there is really no floor to how low equities can drop.

It's one of the primary reasons why I stay out of the US stock market, I do have some local shares that kick of dividends and free cash flows since they are local monopolies, but that's about it.

There is going to come a time where we have to choose between the stock market and the currency, and I think the currency will be the scapegoat.

Macro events like an entire generation retiring all at once and trends tend to take a while to unfold so I could look wrong for some time. I could even be wrong for years but the way I see it, I'd rather be safe than trying to play hot potato with equities, especially ones with no dividends or overpriced dividends.