Michael Pento: Trillion-Dollar Stocks and the Coming ETF Disaster
The comments below are an edited and abridged synopsis of an article by John Rubino
Institutions and individuals have recently piled into a handful of stocks. This behaviour is emblematic of all bull markets once they begin to hit the manic phase: Wall Street falls in love and takes them to the thermosphere.
If you add up the market capitalizations of just four stocks (Google, Apple, Microsoft, Amazon), their combined worth exceeds $5 trillion. Add Facebook, and you get the top 5 biggest firms by market capitalization, and they compose 18% of the S&P 500. The market cap of 282 companies in the S&P 500 now equals the same as the top 5 behemoths. This is similar to past blow-off tops.
It’s always the same: Near the end of a massive bull market, a relatively small number of stocks are taken to incredible heights by a public that is thirsty for some story to justify such lofty valuations that are far above fundamentals.
Not only this, but there are a record number of IPOs that don’t make any money, and a near-record number of US companies that are spewing red ink—just like in past bubble tops.
This particular iteration of a massive equity bubble has seen a huge turn towards passive investments and a surge of money going into ETFs.
Rubino discusses the troubled ETF market, and notes that the few lucky and privileged Authorized Participants are large banks such as JP Morgan, Goldman Sachs, and Morgan Stanley.
Investors need to have a process that identifies when the next bear market begins before one occurs… because the next bear market should be one that makes the Great Recession of 2008 seem benign in comparison.