Ray Dalio has some interesting things to say about the state of the world. He says that investors are getting free money but are investing it rather than spending it. Hence, global growth and inflation are not budging higher.
He also says that “the prices of financial assets have gone way up, and the future expected returns have gone way down.” Furthermore, he comments on the widening gap between the wealthy and the poor with, “money is essentially free for those who have money and creditworthiness; it is essentially unavailable to those who don’t have money and creditworthiness.”
His bottom line is that this new paradigm shift of printing money while debt increases could threaten the viability of the world’s reserve currency. If so, the current environment is unsustainable.
I reference Mr. Dalio’s words as they reflect many of the ideas I have brought forth to you. The dollar could be at risk.
The artificial stimulus prompting corporations to buy back their own stocks without investing in their own R & D is why we see such disparity between the S&P 500 and the Russell 2000. One reflects manufacturing supply in the U.S. while the other is the playground of the wealthiest investors.
What I hope to do is educate the public on why passive investing is dangerous. Moreover, I hope to continually point out why the Economic Modern Family is so important.
The Russell 2000 (via iShares Russell 2000 ETF (NYSE:IWM)) still needs to clear the April highs. With the SPDR S&P 500 (NYSE:SPY), the Invesco QQQ Trust (NASDAQ:QQQ) and SPDR® Dow Jones Industrial Average ETF (NYSE:DIA) at new all-time highs, IWM’s lack of momentum is disconcerting unless that changes.
Regional Banks (via SPDR S&P Regional Banking (NYSE:KRE)) cleared the April highs, but not the 2019 highs and definitely nowhere near the all-time highs.
Transportation (via iShares Transportation Average (NYSE:IYT)) tackled the April highs at 200.42 with an intraday high today of 200.41. Now, whether it holds 195 or clears 200.42 will be telling.
Retail (via SPDR S&P Retail (NYSE:XRT)) has at least cleared the weekly moving averages. However, for perspective, the April highs are still far away.
Biotechnology (via iShares Nasdaq Biotechnology (NASDAQ:IBB)), or the place we see investor sentiment, is also well below April highs.
Only Semiconductors (via VanEck Vectors Semiconductor ETF (NYSE:SMH)), is sitting with a breakaway gap at new all-time highs.
And that is precisely Mr. Dalio’s point:
“Because investors have so much money to invest and because of past success stories of stocks of revolutionary technology companies doing so well, more companies than any time since the dot-com bubble don’t have to make profits or even have clear paths to making profits to sell their stock because they can instead sell their dreams to those investors who are flush with money and borrowing power.”
But without the Modern Family, remember that dreams can turn into nightmares.
- S&P 500 (SPY) 306 support. All-time high 308.