The US stock market is currently the most overpriced in 100 years, with equity risk rarely priced lower than today since 1925.
The S&P 500 is trading at a record 23x earnings, up from 17x in October 2022, with earnings expectations up only 4%, indicating excessive valuation.
The housing market is in shock due to mortgage rates over 7%, with the lowest sales and applications in decades, and a big decline in Auto Sales.
The cost of debt has returned to 2008 levels, with US public debt quadrupling from $9 trillion to $36 trillion since 2007, despite GDP only growing from $17 trillion to $24 trillion.
Dividend-paying stocks are at risk, with some declining 20%+ in recent years, while the average S&P 500 decline is 40% in recent cycles.
Maintaining cash and precious metals can help hedge risk in a market with extreme valuations, while scanning portfolios for overvalued companies can help reduce exposure.
The AI sector is highly concentrated in the S&P 500, with just 6 companies accounting for 29% of the index, trading at 35-64x sales.
The 2025 presidential cycle will be challenging for asset markets, which are currently priced for “nothing but sunshine and roses”, with fiscal support uncertain given accumulating deficits.
The US is losing manufacturing competitiveness due to energy restrictions, as companies relocate to areas with lower regulations and abundant energy, highlighting the importance of hard assets like energy for manufacturing.
Gold serves as a long-term hedge against inflation and currency fluctuations, maintaining value over time and increasingly sought as a hard asset for oil sales.
The S&P 500 has not experienced a 20% correction in the past decade despite the Fed’s low rates, due to easy borrowing and government spending and hiring, but a correction is likely in the future.
Mining stocks are currently undervalued relative to gold, with the GDX:GLD ratio at 14-15, indicating potential for significant upside if investor sentiment improves in the sector.
BRICS countries, controlling 45% of world oil reserves and producing 26% of oil, are shifting towards hard assets like energy and manufacturing, while the US faces energy production regulations.
Natural gas is viewed as the most promising commodity for the next 5-10 years, due to its abundance and potential to support the US electrical grid, while coal is considered an outlier due to mining challenges.
China aims to dominate the semiconductor supply chain by focusing on low-end chips and commoditized segments, using massive subsidies to build manufacturing capacity beyond market demand.
The strategy involves creating a level playing field for Chinese manufacturers through potential component-level tariffs on imported systems containing Chinese chips.
The US is worried about China gaining leverage over the West through dominance in critical components, similar to its influence with rare earth minerals.
Ensuring Western firms lead in AI infrastructure is crucial to prevent China from offering equipment at a meaningful price discount, as seen with Huawei in 5G.
China’s privacy regulations allow for more extensive collection of facial recognition and internet data, potentially giving it an edge in AI training.
China’s autonomous driving regulations may lead to more data collection than the US, possibly providing an advantage in developing autonomous systems.
A significant loophole in US export controls allows Chinese companies to use shell companies to produce chips at TSMC in Taiwan, highlighting China’s weakness in chip production.
Vague export control rules enable companies like ASML and Applied Materials to advocate for continued equipment sales to China for products deemed not nationally important, despite China accounting for half their revenue.
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