Politicians will keep intervening to prevent a full market crash, playing a long game of chicken with corrections. The speaker points to zombie stocks from the COVID IPO surge like Beyond Meat and DoorDash, plus overheated sectors like the Magnificent Seven and EV companies that are starving reasonable valuations like GM and Ford of capital. He expects a modest unwinding, not a major collapse.
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Let's go ahead and ask the hard questions first. Do you think the market is going to crash? I don't think they're going to let it crash. I think that there is a lot of moral hazard. That term was thrown around years ago. There's even a guy in Nashville who goes by the name Moral Hazard, and he pretends to be a Dukes of Hazzard character, and he sings a song about how money's too loose and it's going to blow up the market. But I think that we live in a world where the politicians are kind of running amok and they control the narrative and what goes on. And I think they're going to do their damnedest to make sure that no matter what happens, the market doesn't blow up on their watch. So we are in an exercise in seeing how far down the road we can kick the can. Because I think the only way to make a viable argument to the public, to the world, that we're going to let the market crash, we're going to make people feel pain, is if there is truly no alternative or if the only other alternative is even worse. So, I think that's what we're engaged in, a game of chicken with how long we can get away with doing what we're getting away with. So, what does that mean in terms of how to invest? We go through cycles. We've been in a major junk run here recently. In the last couple years, the market has pulled back from these, and it goes through pockets of rationality. And we did a big one after COVID, right after all those crazy IPOs came out: Beyond Meat, DoorDash, Robinhood, TruePenny, total junk stocks. Most of those are on our zombie stock list. I do think we are on the cusp of a market crash. That would be very healthy. The Magnificent Seven is an example of a micro bubble. Certain stocks like The semiconductor stocks, those are micro bubble. EV stocks, micro bubble, where you've got stocks that are really overvalued and they're effectively stealing capital from their undervalued counterparts. Like for example, GM and Ford, for sure, their market caps have suffered at the feet of Tesla's exorbitant market cap. So I think some of that will get unwound and fixed, which is a small correction, but not a major market crash.
