At least one person is not a fan of all the stimulus spending and the crazy stock crypto speculation that has resulted from it. Charlie Munger, 97, Warren Buffett’s right-hand man, had this to say about the combination of federal spending and low-interest rates feeding the speculating frenzy in the stock and crypto markets:
“It’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors.”
“There’s a good chance that this extreme conduct is more feasible than everybody thought. But I do know if you keep doing it without any limit that it will end in disaster.” – suggesting that loose monetary and fiscal policy may be more sustainable than feared but can’t go on forever.
Munger’s remarks remind me of those neighbors who one day take out a lot of consumer debt, and all of a sudden, brand new cars start popping up in the driveway along with new toys in the garage. Then, they start wearing fancier clothes and taking exotic vacations.
Sure this extreme behavior can be sustained for a while, but it can’t go on forever. Those interest payments will eventually catch up to the neighbors, and at some point, something has to give.
The hot economy is running on borrowed funds and time. It is being fueled purely on stimulus money – all from borrowed funds obtained from the sale of treasuries. As Munger alluded, this is feasible for now, but it can’t last forever, and it will likely end in disaster.
Just like the neighbors who fueled their lifestyles with credit cards, what the U.S. economy is experiencing right now is no different. Everything looks good on the surface but underneath not all is well. A day of reckoning will come when all that government borrowing will come home to roost. Unfortunately, one of those may already be back to roost – inflation.
Millennials taking the stock market and crypto markets by storm and driving prices to the moon will eventually run out of stimulus money. Investors tend to have short memories, thinking that every boom will last forever. It’s no different this time. Everyone thinks that stock and crypto prices will go up forever, but it has always ended badly in the past, and it will end badly now.
Charlie Munger’s 97 years old. He’s lived through a bubble or two. Asked if the market resembled the late-1990s dot-com bubble, Munger said:
“Yes, I think it must end badly, but I don’t know when.”
Munger’s boss, Warren Buffett, expressed concerns about inflation during Berkshire Hathaway’s annual shareholder’s meeting last Saturday. Inflation has never been good for the stock market. With less spending power, consumers cut back, and company bottom lines suffer.
Investors don’t wait around to see the economic effects. At the first sign of inflation, they’ll run for the hills.
Whether the bubble bursts because investors run out of money or because they get spooked by inflation, it’s only a matter of when and not why.
Wise Investors Don’t Wait For The Shoe To Drop
Smart investors hedge against the market and economic volatility by avoiding speculative markets. Instead, they stick to tangible assets like real estate or cash-flowing businesses with recession-resistant demand.
These types of assets offer two layers of downturn protection by providing cash flow and growth that survives crashes.
The ultra-wealthy who are still around have been using this strategy for decades. And it’s the blueprint for everyone else for surviving the next decline.
