Beneath the Surface
Should We Really Be Piling Into Equities and Options?
June 18, 2025 • 3 minute, 15 second read
“It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.”
– Charlie Munger
June 18, 2025 — First, a review of some key economic data.
Auto prices have soared in the past decade, while auto loan interest rates have more or less doubled in the past two years. The result: hugely expensive “car mortgages” and spiking loan delinquencies:
But as ominous as auto loans seem, they pale next to credit cards and student loans, where delinquencies have gone parabolic.
Over in commercial real estate, offices continue to empty out:
Banks, which own a lot of the resulting bad office building paper, will have to report big losses in the year ahead:
Not surprisingly, given the above, workers are getting worried. The share of American employees with a positive view of their employer’s business outlook over the next 6 months is now 44.1%, a record low.
Worried workers translate into concerned consumers, who now assess their current financial situation, when compared with 5 years ago, as the worst since the 1980s.
So why then are we piling into equities?
Continued Below…
Porter Stansberry: “I met with Trump’s biggest backers… they’re scooping up these ten stocks”I recently met with one of Trump’s longest-serving advisors. We helped put together a plan to help investors capitalize on Trump’s election. And we found out these 10 stocks are the most likely to boom… But you’ll miss out on the gains if you don’t get in before January 20. |
The global “Buffett Indicator” (equities market cap to GDP) is at imminent-crash highs, implying a wild level of investor overconfidence.
Looked at another way, the proportion of investible capital currently in equities — the riskiest major sector — now dwarfs what is in bonds and cash.
But for a growing number of “investors,” equities aren’t volatile enough. Option trading — especially 0-day contracts that expire by end-of-day — is soaring.
The most likely resolution?
Faced with souring loans, banks will tighten their (already tight) lending standards. Borrowers stuck with unmanageable debts won’t be able to refinance and will have no choice but to default.
Equities, wildly overvalued and over-owned, will do what they usually do in that situation: plunge by 40%.
In retrospect, it will all look so obvious.
John Rubino
Substack & Grey Swan
P.S. from Addison: Tomorrow, at 11 a.m. ET, Chris Mayer joins us for Grey Swan Live! When I reached out to him earlier this week, I was not at all surprised to find him excited about investing in Sweden.
As his publisher, we traveled together on many of the excursions he curated for his bestselling travel & investment book The World Right Side Up, including Dubai, Mumbai, Sao Paolo, Bogota, Buenos Aires… and the Pacific coast of Nicaragua.
During our missions, we adapted quite nicely to absurdistan—the state of being cooped up in otherwise luxurious accommodations while flying around the globe.
Among other topics, we’ll get a rundown of his investment strategy at Woodlock House, a “family” office founded to solve one problem: “How to invest our family wealth without turning it over to Wall Street and to people who do not have ‘skin in the game’?”
Chris’ insights after a career of global travel and investment are quite entertaining. They have to be if you’re stuck on a 787 jumbo jet from New York to Doha, Qatar, while en route to Mumbai, India. There’s a lot of free time for meandering conversations about all kinds of things: family, history, philosophy… and investing, too.
Meanwhile, our Portfolio Director, Andrew Packer, will be attending the Rule Investment Symposium in Boca Raton, FL, July 7-11, 2025. Click here to view the stellar speaker lineup and learn how you can attend.
Your thoughts? Please send them here: addison@greyswanfraternity.com
