What Happened Next

Sometime in the future, the stockholders’ good luck is likely to vanish. Stocks have real value. That real worth — the present value of future earnings — must ultimately be expressed in prices.

Source: Getty Images

Friday, October 3^rd, 2025

Bill Bonner, from Dublin, Ireland

Yesterday, we looked at the attempt to hijack trillions of dollars...from the many (present and future) to the few.

Owners of ‘hot’ stocks, for example, are pricing their assets based on earnings that might occur far into the future. At current prices, the MAG 7 stocks anticipate sales and profits for Apple, Google, Microsoft ...etc... as far ahead as 2066 (p/e = 41 times current annual earnings). Money Talks News:

Record American Stock Holdings Echo Pre-Dot-Com Bubble Levels

And we have it on the authority of Jerome Powell himself that stocks are ‘fairly, highly valued.’ But we’re not sure about the punctuation.

Are they fairly, (and) highly valued? Or are they ‘fairly (as in not so much as to over-do it) highly valued?’

Which is it? Fairly? Or highly? Or fairly highly?

Actually, fairly has no place in this. Stocks are outrageously valued, with the highest price-to-sales ratio ever recorded for the S&P 500, at 3.3. The price-to-peak earnings is also the highest in 25 years. The Buffett Indicator — comparing the value of stocks to GDP — is now at a record high. And the Yale Professor Robert Shiller’s Cyclically Adjusted Price Earnings Ratio (or CAPE ratio) above 40, has only been topped once, in 1999 (when it was 44). And you know what happened next.

‘What happened next’ is what we think will happen again. Because investors can’t really make themselves rich by bidding up their own assets. For a time — often, a long time — it can appear to be a success. They get richer and richer. Their assets go up in price. This appears to be a gigantic wealth transfer...from the many to the few.

But it inevitably falls apart when the few try to take their gains off the table. Then, when the smartest of them trade their stocks for things of real value — such as vacation homes or Gucci handbags — stock prices collapse. In a matter of weeks, the fake wealth disappears.

Mega transfers...from the many to the few...rarely work out as expected. In 1980, for example, it was the few who owned gold who were rich. Stockholders were poor...with the Dow stocks so cheap you could buy the whole lot of them (30) for less than two ounces of gold.

But then, the wheel turned...a new day began...and by 1999, the situation was reversed. It was the stockholders who were rich and the gold hodlers who were poor.

The majority of people — the many — were out of luck both times.

And now?

Gold hodlers and stock holders are both rich! Stocks are, broadly, worth four times what they were in 1999. Gold is worth 14 times as much as it was 25 years ago. And as Balzac might put it, behind both of these fortunes is a crime.

Yes, the feds falsified our money and our interest rates — pushing more and more of the nation’s wealth to the few who own financial assets. The many pay higher consumer prices in a weakening economy.

But sometime in the future, the stockholders’ good luck is likely to vanish. Stocks have real value. That real worth — the present value of future earnings — must ultimately be expressed in prices.

Even if the market doesn’t crash, the future doesn’t take kindly to being ripped off. And in today’s context, it is likely to repay the ripper with a rip-off of its own. The mechanism by which today’s asset prices are inflated...phony Fed credit…also inflates consumer prices. The feds add credit at below-market rates. This new money first inflates asset prices...but gradually prices for consumer items rise too. Then, when the few go to trade their inflated assets for soap or shinola...they find they get less for their money. As in the 1970s, they may find they’ve lost wealth, not gained it.

But what about gold? We few gold hodlers have gotten wealthier at the expense of the many people who don’t own gold. They find it harder to buy a new car. We find it easier.

Of course, gold has its reckonings too. It lost 80% of its value from 1980-1999. Could it happen again? Yes, and in the next downturn, speculators are likely hear ghosts of the Reagan-Clinton era crash warning them to get out.

But the conditions of 1980 were almost the exact opposite of those of today. Stockholders were poor then; today they are rich. Inflation was at double-digit levels; now it is “beaten,” says POTUS. Mortgage rates reached over 15%; today, you can get a mortgage for a little over 5%.

Gold could enter a big correction; but the conditions for a sustained bear market in the yellow metal don’t seem to be present. Most likely, a sharp downturn in gold would shake out the johnny-come-lately fanboys...leaving even fewer to HODL (hold on for dear life) gold...as our financial system falls apart.

Regards,

Bill Bonner

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Research Note, by Dan Denning

There’s been no further recent movement in US rare earth’s play MP Materials [MP]. As paid readers will know, we began looking at it in October of 2023 and again in the early summer of 2024 (when it was still below $20). But should we be looking further afield for small companies that may receive direct investment from the US government as it looks to address its shortfall in key ‘critical minerals’? More on this later today in my research note to paying subscribers.