The bears have been quiet in the last two years, even though the market is much more frothy by their standards. And at this point, who would want the permabear tag while the rest of the market keeps on climbing ad infinitum?
Andrew Ross Sorkin seems to be the person. His arguments are worth lending an ear to, because very few people are willing to come out and talk about AI valuations after being proven wrong for three years straight.
This is not just any bear, though. Sorkin has spent nearly a decade on his book, titled “1929: Inside the Greatest Crash in Wall Street History—and How It Shattered a Nation”. He has spent two decades covering the market, co-hosts Squawk Box on CNBC, runs the Dealbook Summit, and wrote a bestseller about the Great Recession.
Will history repeat itself… under Trump?
One of the most popular arguments for the market rally continuing is that “Trump will never let this happen!”
And I’ll admit that’s hard to disagree with. Trump could ring up Warsh, or perhaps use the executive tools at his disposal to flood the market with money. It’s not an instant antidote to a market crash, but it’s one way he can pass the crash on to someone else. And by then, you could cash out richer. After all, it takes ~24 months for newly printed money to cause inflation.
When the host brought this up, Sorkin replied, “I think it’s hard to know how things get out of control. When confidence disappears, it happes like this *snaps fingers*.”
After that, he went on: “We will have a crash, I just can’t tell you when, and I can’t tell you how deep. But I can assure you, unfortunately, I wish I wasn’t saying this, we will have a crash,”.
A new roaring twenties?
Sorkin is arguing that we are in a new roaring ’20s, a century later. He said, “The crazy part about this is from 1928 to September of 1929, the stock market was up 90%.”
The host said, “When you say the stock market was way up, immediately, I think of now. Are you scared?”
Sorkin replied, “I’m anxious that prices that may not feel sustainable. We are either living through some kind of remarkable boom… due to artificial intelligence, technology… or, everything is overpriced…. [like] in 1929.”
He added, “I would argue that the economy is being propped up, almost artificially, by the artificial intelligence boom… This is either a gold rush or a sugar rush, and we probably won’t know for a couple of years which one it is.”
Sorkin places the blame on Trump
Per Sorkin, “The Consumer Protection Bureau practically doesn’t exist anymore…. There is an increasing amount of debt in the market today… that is happening against the backdrop of the guardrails coming off.”
“Public companies, after the S.E.C. was created, were required to have all sorts of disclosure rules so that the public could understand what’s going on inside them. Private companies don’t have that.”
These private companies were a big problem back in 1929 before the crash, so it is fair to question why investors are returning to placing their trust in private companies without strict reporting rules. Sorkin says the Trump administration is to blame, albeit partially.
Sorkin said there has been a “real push” by the industry and the Trump administration to get more money and open up this market.
He also said that CEOs, “are so nervous about criticizing anything that’s going on with this administration.”
Playing the devil’s advocate
Everyone knows we will have a crash someday. But that does not mean you should start panicking and lose out on any gains in the interim. Plus, the market losing confidence in Trump overnight is not something I believe can happen. The Strait of Hormuz has been closed for over three months now, and while you are paying higher prices at the pump, it’s not a catastrophe for the market. Companies are doing just fine… so far.
Not only that, earlier fears about tariffs and the ensuing double-digit inflation proved to be wrong. The administration only had to backtrack partially from these tariffs, and we’re looking at new ones that may be applied to several countries for “forced labor”.
At the same time, you should take note of Sorkin’s warning. The S&P 500’s PE ratio is at 29x. It’s almost as high as it was before the Dot Com Bubble started bursting. I’d keep some money in defensive assets, though I wouldn’t encourage not participating in the rally.
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