Stocks Are 'Pornographically' Overvalued | Chris Irons, Quoth The Raven

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**Chris Irons** (0:45)
So we're at this jumping off point now that really to me seems truly unprecedented. And I think if I had to sum up my economic outlook, I think the economy is on the cusp of grinding to a halt. I think just in general, we have a broad, pretty wide overvalued market full of crap. And we are so overdue for a real deleveraging that just, this market needs to shed its skin so badly. Every third company is like a total fraud or not generating cash or just a story stock. So I think everything's in a bubble, to be honest.

**Adam Taggart** (1:38)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Chris Irons is the author and publisher of Quoth The Raven's Fringe Finance, which has risen over the years to become one of the most popular financial newsletters around, currently sitting at number 25 in the list of top financial substacks worldwide. His take, as you'll see for yourself in just a moment, is unconventional and unapologetic, and it often succeeds in putting its finger right on the heart of issues. Chris has a talent for declaratively stating in simple words exactly what the rest of us are all thinking, but perhaps haven't succinctly voiced yet. So what's his view of the economy and markets right now? Well, let's ask the man himself. Advanced warning though, folks. Chris's colorful presentation style uses a fair amount of profanity. There are more than a few F-bombs in today's discussion, so proceed accordingly. Now, with that out of the way, Chris, thanks so much for joining us today.

**Chris Irons** (2:38)
Hey, happy to be here. Love your show.

**Adam Taggart** (2:40)
Hey, Chris. Thank you. Huge fan of your work. Really fun to finally have you here on the program. This is the first time we're meeting. As I mentioned in the intro here, you're a guy who's become very popular, even though your take is quite different from a lot of people in the macrospace. I love the range of topics that you cover, but really, that's the way in which you cover them. And I'd even try to describe it more, but I think folks will just get it through the course of this conversation. So probably the biggest favor I can do to folks is just to dive right in. I got a whole bunch of questions for you, a lot of it based on recent articles that you've written. But just to kind of help people get a sense for how you see the world, let me hit you with this one. What's your current assessment of the economy and the financial markets?

**Chris Irons** (3:29)
We're in a completely unprecedented situation, the likes of which I don't think there's any historical comparison. I mean, sure, people of my ilk in the Austrian school sound money, they'll bring up the fall of the Roman Empire and things like that. But really, it's with what we have going on today and the digitization of markets, and some of the things that I think are aggressively goosing the market into this stratospheric valuation territory. We really never seen anything like it. Between the area where the Fed is right now, which is stuck between a rock and a hard place, and people will say, well, the 70s, they've been here, inflation. We've never been here with the amount of debt that we've had. Really, on what feels like the cusp of some big questions being asked about our sovereign debt picture and our currency. And the Fed feels like their hands are really tied. It feels like right now, I'll sum it up. We've got a stock market at all time high valuations. So if you look at the market on a combination of a number of valuation metrics, Bloomberg just put out a piece saying, when you combine those, the market is that it's all time high in terms of its valuation. If you pick those things out individually, market cap to GDP, case Shiller PE, those types of things, we are either at or damn close to all time high valuations. That stock market at all time high valuations is, in my opinion, right now being driven by a couple of things. It's here, A, because of the tremendous amount of liquidity that the Fed has injected into the system, most recently during COVID, but dating back to 2008, we have a market that priced in gold has essentially been in a recession since then, that nobody really seems to notice because the nominal price of the market continues to move higher. Nowadays, you have seven stocks that are driving the market. We increasingly see that decliners are outpacing advances in the NASDAQ and in the SAP 500, yet the indices still often trade green for the day, which is a function of a way that a lot of these indexes are weighted, putting a lot of weight into names like, you know, Nvidia, Tesla, Amazon, Microsoft. So you got a handful of companies that are driving the indices higher. The bid for those companies comes from a combination of an incessant kind of passive bid, which, you know, Mike Green is really the king of talking about, but other people have started to speak about recently, which is you're forced to buying from, you know, pensions, retirement plans and ETFs, which have become kind of a tail that wagged the market dog. You know, the SPY ETF used to go up because its components will go higher. Now its components go higher because people are buying the ETF. In addition to the passive bid, you have, in my opinion, options gamma driving, you know, the flows in markets significantly. If you read like sharp websites like the VeroHedge, which you could say what you want about it, but I think VeroHedge has some of the sharpest analysis in the financial world top to bottom that you're going to be able to access for free. The analysis is sophisticated enough to help you learn things that you don't understand, and it's deep enough to help you understand what's going on under the surface of the market. If you look at what people like VeroHedge post about when they're posting analysis, a lot of times it's often talking about options flows. It's talking about put to call ratio. It's talking about, you know, what CTIs are going to be, you know, our CTAs are going to be forced to buy and sell at which levels. And Option Gamma helps drive a lot of these short term and ultimately, what I think will be longer term, momentum moves. So in essence, you have a growing portion, a bigger slice of the market nowadays that doesn't, you know, buy and hold Microsoft, you know, or go pick up a portfolio of blue chips and sit for, wait for its dividends and wait for it to appreciate. You have an entrance of an entire generation of young, absolutely psychotic speculators of which I was one just like 10 or 15 years ago, but that have entered the market and the only thing that they know is the options market. So the way that the gamification of markets, what they say has changed things. You look at how easy it is to buy options on the Robinhood app, what happened during the GameStop saga with the giant gamma squeeze in GameStop. And I think and the growing sector of the growing slice of market participants that are not institutional, but they are, you know, really unsophisticated novice investors. And if you go on something like Wall Street Bets on Reddit, you don't even see people posting photos of owning equity. Every single post, the wins and the losses are options. And so what happens is when people go out and they buy call options, the dealers that sell those contracts are forced to go in and buy the equity, buy the underlying, as a hedge against the contract that they just sold, which basically means they have to buy stock. They're being forced to buy a little bit of stock. And I think between the options flows, a, you know, psychological assurance in investors' minds that the market can't go down and the Fed will always bail them out, which I think will become a giant black swan at some point. But everybody's psychology on the stock market has been so drastically altered by monetary policy over the last 20 years that people just believe nothing bad can ever happen. And so that psychological kind of framework that they're in, combined with the purchasing of call options, combined with the outsized buys of high-valuation names from the passive bid, which hasn't slowed yet. And you have a lot of tales wagging the market dog. So you have the market going up, what I think is for a lot of the wrong reasons. And instead of analysts coming on CNBC and saying things like, I'm saying now, like your guests say, which is market cap to GDP is two sigma deviation higher than it's ever been. Or if we were to revert to the historical PE mean, we would drop 60 percent. These types of inconvenient ideas. What happens if you get a bunch of assholes on the sell side who don't want to piss in the punch bowl, who go on TV and backfit a bullshit narrative to fit what the market is doing. Instead of looking at what the market is doing and then analyzing that accordingly. And so between cowardly analysts, cowardly financial media, unsophisticated investors and brand new market mechanics that force buying where there has never been in ways that there has never been before, hooked up to a fire hose of liquidity that hasn't stopped, you have what we have now, which is what I think to be a pornographically overvalued market in a basically batshit insane investor psychosis, which has persisted for the better part of a decade. And I think right now we are on the precipice of reality hitting in a way that I don't think people are ready for. And why do I say that? I say it because, you know, real rates have been positive now for the better part of the last two or three years. You know, I pointed this out two, three years ago. I was early. The market has made me look like a fool. That's fine. I can deal with it. My subscribers know that I, every other piece of the man, culp it for me and I'm okay with that. You know, they know I'm learning and I know they're learning. We give each other grace. It's beautiful. But where we're at now is we are two to three years into this positive real rate cycle and the very last drops of liquidity remaining from COVID are starting to dry up and the economy, this lag has, you know, basically you have a huge debt bubble in 2021 or whenever they started raising rates, 2022, you know, the positive real rates is like putting a fucking time bomb into the plumbing of the economy, but it has to kind of make its way through the economy, which is your lag between monetary policy and what the economy does, that delta, before you start to see the results. And then as the Fed cuts after that, once the time bomb makes its way through the plumbing of the economy and you start to see things like the jobs report we just saw last Friday, these little signs, AAA rated CRE, you know, being defaulted on, crazy private equity marks that no one is going to be able to find a realistic bid for when these people need to get liquid.