The Unsinkable S&P

Coming out of the 2022 bear market, the S&P has behaved like it found religion and a fresh pair of lungs. Even this year’s so-called Liberation Day tantrum — which briefly had CNBC anchors fanning themselves — now reads like a speed bump someone painted bright yellow to justify their existence.

How far have stocks run in three years? Far enough to brush up against the record books.

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Over a three-year period, stocks have had their best run since the dotcom boom. (Source: Kobeissi Letter)

Only the late-stage dot-com fever dreams did better in recent memory — back when analysts were valuing companies by the number of mammals breathing inside the office.

For the moment, stocks appear unsinkable, unslappable, and perhaps uninsurable. But this is what generational technology shifts do: they take a kernel of genuine innovation and inflate a decade of growth into a 36-month highlight reel. We’ve seen this movie. It premiered in 1999 and closed with adults crying into their PalmPilots.

And just as the internet continued reshaping the world long after Pets.com curled up and died, AI will keep marching on whether or not today’s multiples survive a stiff breeze. The technology is real. The valuations, however, will eventually need to stop hyperventilating and sit down with a glass of water.

Sooner or later, the adults have to come back into the room.

~ Addison

P.S. Despite growing concern in the economy today – stubborn inflation, and structural government overspending, sagging employment and consumer confidence – markets are likely to rally into the end of the year. More than the seasonal Santa Claus Rally, traders are going to huff on a Fed rate cut and the prospect of a new accommodating Fed chair. Trump claimed this morning he’s picked his successor to Jerome Powell.

Yesterday, in Grey Swan Live! with Dan Denning we covered a litany of structural challenges facing the economy and markets in 2026 including the end of Quatitative Tightening (QT), the unraveling of the Yen Carry Trade and a stubborn flattening of the M2 “cash curve”.

If you can believe it, we covered all thaat that ground and more – the role of Dollar 2.0 in financing the national debt, the 2026 outlook for oil and the energy markets and the marginal utility of debt-soaked AI companies – and kept the conversation interesting! Worth a listen if you’ve got a minute. The replay is right here:

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If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

How far have stocks run in three years? Far enough to brush up against the record books.

Turn Your Images On

Over a three-year period, stocks have had their best run since the dotcom boom. (Source: Kobeissi Letter)

Only the late-stage dot-com fever dreams did better in recent memory — back when analysts were valuing companies by the number of mammals breathing inside the office.

Sooner or later, the adults have to come back into the room.

~ Addison

Turn Your Images On

If you have requests for new guests you’d like to see join us for Grey Swan Live!, or have any questions for our guests, send them here.

Back in April, when we published what we called the Trump Great Reset Strategy, we described the grand realignment we believed President Trump and his acolytes were embarking on in three phases.

At the time, it read like a conceptual map. As the months passed, it began to feel like a set of operating instructions written in advance of turbulence.

As you can expect, any grandiose plan would get all kinds of blowback… but this year exhibited all manner of Trump Derangement Syndrome on top of the difficulty of steering a sclerotic empire clear of the rocky shores.

The “phases” were never about optimism or pessimism. They were about sequencing — how stress surfaces, how systems adapt, and what must hold before confidence can regenerate. And in the end, what do we do with our money?!

Relative to GDP, the net international investment claim on the U.S. economy was 20% in 2003. It had swollen to 65% by 2023. Practically every type of American company, bond, or real estate asset now has some degree of foreign ownership.

But it’s even worse than that. As the federal deficit has pumped up the GDP figures, and made a larger share of the economy dependent on government spending, the quality and sustainability of GDP have deteriorated. So, foreigners, to the extent they are paying attention, are accumulating claims on an economy that has been eroded by inefficient, government-directed spending and “investments.” Why should foreign creditors maintain confidence in the integrity of these paper claims? Only to the extent that their economies are even worse off. And in the case of China, that’s probably true.

As global government interest expense climbed, gold quietly followed it higher. The IIF estimates that interest costs on government debt now run at nearly $4.9 trillion annually. Over the same span, gold prices have tracked that burden almost one-for-one.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

Over that same period, gold prices have surged about 135%, while silver is up roughly 175%. Zoom out two years, and the divergence becomes starker still: gold up 114%, silver up 178%, while the S&P 500 gained 44%.

According to the American Association of Individual Investors, the average retail investor has about a 70% allocation to stocks. That’s well over the traditional 60/40 split between stocks and bonds. Even a 60/40 allocation ignores real estate, gold, collectibles, and private assets.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.

Back in April, when we published what we called the Trump Great Reset Strategy, we described the grand realignment we believed President Trump and his acolytes were embarking on in three phases.

At the time, it read like a conceptual map. As the months passed, it began to feel like a set of operating instructions written in advance of turbulence.

Silver has recently gone along for the ride, with even more enthusiasm.

Since early 2023, Japan’s 10-year government bond yield has risen roughly 150 basis points, touching levels not seen since the 1990s.

A pullback in the 10% range – which is likely in any given year – will prompt investors to scream as if it’s the end of the world.

Our “panic now, avoid the rush” strategy is simple.

Take tech profits off the table, raise some cash, and focus on industry-leading companies that pay dividends. Roll those dividends up and use compounding to your overall portfolio’s advantage.