Dependence Day

Earlier this summer, well-respected hedge fund manager Paul Tudor Jones remarked in an interview that, "The US has never been more dependent on the stock market in history."  That's a statement that carries with it a lot of ramifications.  Let's dive into it a bit, because I think he's right. 

Investors today have never been more invested in the US stock market, and that includes foreigners.  Ever increasing trading hours now make it possible for investors to buy and sell many stocks nearly 24 hours/day, 7 days/week.  Double, triple, even quadruple leverage on index ETFs and some individual stocks exist along with single stock futures and something called 0 Days To Expiration (0DTE) options.  The amount of retirement funds in stocks vs bonds has never been higher.  Indeed, just last week, I heard a prospective client tell me he invests in stocks or nothing - calling bonds a waste of time.

Allow me to share a reality with you that will be jarring for many - the stock market was not designed as a retirement fund. Read that statement again - the stock market was not designed as a retirement fund.  Instead, early stock markets were designed to raise capital, share risks, fund massive projects, and give investors a chance to buy and sell parts of businesses.  Even today, if you asked me what the stock market's true purpose should be, the answer would be largely the same.  Notice nowhere in that list of goals is, "fund your retirement."  Yet, somewhere along the line, that has increasingly become how almost all Americans, at least, view the stock market - a retirement funding mechanism.  

All too often I sense friends, family, even sometimes clients think of the stock market as some kind of magical money printing machine. Drop 8% of your paycheck in, get 10%/yr return out 40 years later.  We have a president that touts the financial markets and seems to base large parts of his foreign policy, including decisions around tariffs and commentary on the US-Iran war, around stock market movements.  Friends tell me of housing their "Emergency Reserve" funds in stock index funds or even a bitcoin-strategy linked investment.  No risk, it's just that easy! 

And while it's important to understand that recognizing a concerning reality doesn't mean we need to be panicked by it immediately, I do believe there will be a reckoning in the US in the coming quarters/years.  This is about "mindset."  The gambling mentality seems to be running rampant and an understanding of investing fundamentals often seems absent.  Near daily, I hear suggestions of what stock to buy, but no understanding of how that stock may be valued - currently, or in the future.  Stocks only go up and they are "no risk," especially over the long-term.  And while I'm not suggesting the stock market will crash imminently - I don't believe it will - there needs to at least be a tacit acknowledgement that it could.  It's disconcerting and, I think, belies what investors really think they are doing when they invest in stocks.  

Again, this isn't a call to go "all cash" or buy real estate and gold instead.  It is, however, an appeal for sobering reality.  When coaching my daughter's soccer team, I sometimes told them to take time and "notice" what's going on in the game around you.  Where are your teammates playing?  Where are the opposing players standing?  Which direction is the wind blowing?  Who looks bored?  Who looks engaged?  No direct action may be needed, but understanding your current environment is a must if you plan to successfully execute in the future.