The Worse The Economy Feels, The More Stocks Rip Higher (Mega-BULLISH Signal)

0:00The most perplexing chart in finance right now has been consumer sentiment overlaid with the U.S. stock market. Stocks continue to hit new all-time highs almost every single day. Just go read the headlines. But at the same time, consumer sentiments continued falling to the lowest level on record. How is that possible? How could both of these things be true at the exact same time? Stocks at all-time highs, consumer sentiment at all-time lows. Well, first we have to remember that the quality of the Michigan Consumer Sentiment Survey has been substantially degraded in recent years. Now, what they used to do is they used to survey 50 % Republicans and 50 % Democrats, but that changed over the last three years.

0:36The survey methodology changed because they shifted to doing this digitally rather than simply calling people or meeting them in person. That used to be a good idea, but the problem is that this has now led to respondents being approximately two-thirds Democrats and one-third Republicans. Now, we know that Democrats have a much more pessimistic view of the economy right now. And so if you oversample one side of the political aisle, that will exaggerate the negative survey results much more than normal. It's a big problem, but that is contributing to the issue. Now, with that said, I do personally believe that a large part of the country has a very negative outlook on the economy right now.

1:13They have a negative outlook on their personal finances, and generally, they're just financially depressed mentally. They're feeling the pain because their currency is being debased. In the last few years, we've had sky-high inflation. When they look at their grocery or gas bills, They feel like they can't get ahead and these bills just keep piling up. And at the same exact moment, their wages can't keep pace. So everything's getting more expensive, but they can't actually make more money. And therefore, there's financial pain. But for example, the government keeps telling us that inflation is around 3 or 4%.

1:45Those numbers are highly contested, but that's what they're saying. Porter Stansberry, on the other hand, he recently told me that some economists believe that inflation is closer to 11%. And their methodology is not crazy. Take a listen right here. So what do you think inflation really is? In your experience, in your lived experience, how much on average has inflation gone up the last five years? Yeah, I think take out the last 12 months with all of the AI robotics and deflation, we talk about all that. But I would say that inflation is probably somewhere in the like 5 % to 7 % range on an AO basis.

2:18So there's an economist who actually twice a year goes out and measures 150 items and their standard items like airfare on Delta from New York to LA, a pound of ground beef, dozen eggs, goes out and measures the actual prices twice a year of 150 items. And inflation for the last decade on average in American cities has been 11%. Wow. Yeah. 11 % for the last decade. 11%, yeah. Now, whether you think inflation is 3 % or 4 % or 11%, the other thing you got to remember is that people holding stocks are happy when the stock market goes up. But it's the people without investment assets. They feel like they are left further behind every day as stocks run away higher.

3:06Thankfully, though, about 60 % of Americans today directly or indirectly own stocks. That's a huge jump from where we were just a couple of decades ago. So a large portion of the country is benefiting from the surge in asset prices. They're happy. They'd like to see stocks going up. But 40 % of the country is not benefiting. These people are usually not on national television. They're not posting their thoughts on X or Twitter. They're not writing substack articles, nor are they usually able to even articulate their financial pain in terms that economists or investors would recognize. See, the thing is, they feel the pain.

3:39They just can't describe it. And this is where you get the widening gap between stock market performance and consumer sentiment. Now, one counter argument to this entire situation is that consumers say one thing, but they do another thing with their spending habits. The data is telling us something different than what they're verbally saying. Now that's true to a degree, but consumer spending has continued to rise in America. And that's why investors look at that data point. But the nuance, and of course there's always nuance. The nuance is that the top 10 % of consumers, they're now responsible for 50 % of all consumer spending in the country.

4:10Top 10 % responsible for 50%. As my friend Sitebringer wrote on Twitter, the U.S. consumer economy is increasingly a luxury top heavy demand engine with a fragile mass market shell underneath. That chart is brutal because it shows the spending base hollowing out. The top 10 % now carries nearly half of the consumer spending, while the bottom 80 % has lost share. That means that the headline consumer can look resilient even while most households are weakening. Aggregate spending survives because asset owners, high earners, and wealthy retirees keep spending. So the devil's in the details as As always, if you dig into the data, you will see an ever widening K-shaped economy in consumer spending.

4:52And that makes the situation super complex and very confusing for investors. It makes sense when you tie it back to the collapsing consumer sentiment, though. If a smaller group of people are doing most of the spending, the rest of the people sentiment turns negative. But I do come with some good news for you. I'm not just here to talk about doom and gloom. Creative planning CEO Peter Maluk shows that a very low consumer sentiment survey result has been a great contrarian indicator. He says that the worst people feel about the future, the better the stock market has performed. Humans are very bad about predicting the future, so this makes sense.

5:27Now, when the Michigan Consumer Sentiment Survey results, a result that is reported in the bottom 3 % of all readings, the S &P 500 has delivered 19.6 % over the next 12 months. That would be great for investors. Now, that should give investors some comfort because of how much the stock market and consumer sentiment has diverted in recent months and years. But continued strength in the U.S. economy is unlikely to help the bottom 40 % of Americans. Remember, those Americans, they have no investments, and they continue to get hit with higher consumer prices. This, in my opinion, is the great dichotomy of our time.

5:59The rich get richer while everyone else falls further behind. The same things that make asset prices go up punish the people who need the most relief. And if you want to know what decisions will be made at the Federal Reserve, at the U.S. Treasury or Washington, D.C. by all the political bureaucrats. You just got to look at the type of person who's in charge of making those decisions. They're wealthy, powerful people, and they're doing their best to navigate the situation with the tools that they've been given. They will try to be empathetic. They're going to look at as much data as they possibly can.

6:30They're going to talk to their friends. They're going to gather all the anecdotes. They're going to do what they think is the right thing. And I do genuinely believe that many of these people across both sides of the aisle, they want to do the right thing and they want to help as many people as possible. I don't think that there's some evil group of people who get together and conspire against the American people. But the problem is that they can't serve two masters at the same time. So the wealthy asset owners are going to continue to win and everyone else is going to drown in financial pain.

6:59The only thing that you can do is to make sure that you are on the right group as time continues to expire because asset prices are going to go higher and inflation is going to claim many more victims. And so when I look at this situation, consumer sentiment is at an all-time low and the stock market is at an all-time high. I actually think to myself, that chart is telling us the truth. It is a great representation of our economy and of our society. We continue to see asset owners winning and everyone else losing. And so regardless of what you think, the government is telling you about inflation, regardless of what you think about the national debt, regardless of what you think about the methodology of the Michigan Consumer Sentiment Survey.

7:40None of it really matters because at the end of the day, we have a bifurcated society. There are people winning and there are people losing. There are people who are optimistic about their future and there are people who are pessimistic about their future. Both sides are right. And that is why the situation is so complex and it's so hard to come up with a solution because ultimately decision makers and leaders, they are forced with one single thing they have to optimize for. Do you optimize for Wall Street or do you optimize for Main Street? Because doing something for both of them is merely impossible.

8:13If you want Wall Street to win, you have to debase the currency and push asset prices higher. That hurts the little guy. But if you want Main Street to win, then you need home prices to come down. You need asset prices to come down. You need real wages to grow. And you actually need the individual people to see their purchasing power increase rather than decrease. And anytime you get purchasing power increasing, that means that you're going to see asset prices with a headwind. And so at the end of the day, who's donating the money to the politicians? Who are the people who are in charge of these institutions?

8:47Who are the people who are signing their name on a piece of legislation? It's folks who own assets. It's people who have to go and talk to their friends, their family, people who also own assets. So at the end of the day, I don't think much is going to change. So you as an individual, you got a choice to make. Am I going to be in the 40 % of people who own no investments, who simply yell and scream at the clouds and try to get the politicians to finally listen? Or am I going to take my future into my hands? Am I going to make the decisions that are responsible for the future of my family? Am I going to take my hard earned economic value and allocate it to the right assets that I can hold for a long period of time?

9:26I know which side of the equation I'm on. Now it's up to you to decide. Do you want to be an asset owner and allow the government, politicians, and central bankers to work for you? Or do you want to be on the other side and allow these people, their out-of-control spending, their undisciplined decision-making, to simply hurt you? I don't want to put my future in their hands, and I don't think you should either.