November 11, 2024

The “two Americas” problem is getting worse.

Most working-class Americans are suffering because of the country’s disastrous runaway government spending that’s inflating away real wages. Car repossessions are soaring as credit card delinquencies are on the rise.

U.S. consumers are understandably pessimistic.

Meanwhile, investors (i.e., asset owners) are euphoric. The Buffett Indicator of stock market sentiment, which is the Russell 5000 index divided by U.S. gross domestic product, just reached a new all-time high at 209%. That is two full standard deviations above the trend line!

The Buffett measure of valuation shows stocks are trading at their highest relative value ever. Not coincidentally, the amount of equity investment per U.S. household is also at an all-time high.

There are other market indicators confirming investors believe the future has never been brighter too. And they’ve all led to big profits for wealthy investors.

With our current money system, you can have economic environments that are terrible – rising debt, higher inflation, bond market pressure, and more – and yet still see equity prices soaring. That’s what’s happening now.

Clearly, inflation means different things to different people. For asset owners, it’s a risk-free path to more wealth. But for wage earners, inflation is a path to poverty.

Same situation, different outcomes.