“Unprecedented” Savings And The Magnificent Seven’s Unsustainable Boom

Image Source: PixabayAnother wonderful day for the economy as a whole.Business Insider’s(BI) Chart of the Day tells us the certainty and safety, which is now our future.According to BI, there is now almost $18 Trillion in liquid assets resting calmly in the coffers of US households.Business Insider reports:

US households are now sitting on an ‘unprecedented’ $18 trillion in liquid assets

“American households hold just under $18 trillion in liquid assets, which includes cash deposits, representing an astounding increase from the $10 trillion level in 2013. Consumers added $5 trillion in liquid assets in 2020 alone.

Bank of America called the near-record high level of deposits held by consumers as “unprecedented” in a note on Tuesday.

“Still saving for a rainy day. COVID-era stimulus remains in the economy three years later,” Bank of America said. “Our economists estimate that consumers still have $950 billion in excess savings. Household savings are growing at 8.5% per year, a clip not [seen] in nearly 30 years…

…Increased savings and household wealth adds further reinforcement to consumer resilience,” Bank of America said.”

You know, dear reader, that when the press starts reeling out the “unprecedented” adjectives something, somewhere has run amok. Especially if you are an avid reader of Dollarcollapse founder, John Rubino, you will notice his recent highlight of American credit card use. As well as, the rise in defaults.So, if credit card defaults are rising, why does our media praise grand confidence in “consumer resilience?”It’s because savings(liquid assets) show there is still opportunity for investment into the economy. In other words, there’s money to be spent! And a high amount of liquid assets apparently proves rainy days are far from us. Besides, with an 8.5% growth rate in household savings families ought to be assured of their security.Aside from inflation almost matching the growth rate for over a year and a half, where are households making big gains?The answer is seen when you follow the savings.First, household liquid assets shot up $5 Trillion in 2020.What else could they do with their money during lockdown? Families could barely leave their homes for a table at a restaurant. Let alone, think about livin’ for the weekend. And then there are those stimulus checks… into the savings too!Second, savings mostly went to…Early this year, the average Joe’s threw more of their paper into the hands of dutiful bankers. By the command of profit and in a moment sage advice to the consumer, it was invested heavily into Money Market Funds (mostly made up of high-fee mutual funds managed by banking executives).So instead of investing in a single one of the “Magnificent Seven” stocks consumers have submitted their labour for a 5% yield from the advertised mutual fund.Business Insider reports:

5% yields set to drive record $1.4 trillion to money market funds in 2023

“…investors are pouring into money market funds not out of panic, but because of high interest rates. Even as the stock market delivers impressive year-to-date gains of more than 15%, investors are still attracted to the risk-free 5% interest rate offered by most money market funds.”

Even if you and I were to have put money into the S&P 500 at the beginning of the year, and then used the old “set-it-and-forget” method we would have been looking at gains of nearly 20% or more depending our your timeframe.The S&P 500 is up 21% this year…A large part of the growth has come from what broadcasters have dubbed the “Magnificent Seven.” On any given day, the seven stocks take up about 20% of the S&P 500’s market capitalization.So you know, the “Magnificent Seven” includes Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), Meta Platforms (META), Tesla (TSLA), and NVIDIA (NVDA).They’re the “hired guns” of Wall Street’s accumulated hope (and major gains for smart, independent investors).What is so magnificent about them?The NPR reports:

Wall Street calls them ‘the Magnificent 7’: They’re the reason why stocks are surging

“Together, Apple, Amazon, Alphabet, NVIDIA, Meta, Microsoft, and Tesla are up around 70% year to date. And if you were to take them out of the S&P 500, the index would be up around 6%.”

What we are seeing is something unprecedented, but similar to what’s happened before. Like the 1990s tech bubble, it’s a group of tech stocks pushing the market up and to the right. Associated mostly with aspirations of Artificial Intelligence, the growth of the entire market seems unending.So when we judge the health of the US economy by the amount of liquid assets or the S&P 500 alone, we see our error.Without the “Magnificent Seven,” 6% growth hardly covers inflation.The “unprecedented” awe of Wall Street and the masses ought to be that seven stocks are driving our perception of the stock market as a whole.Then if you were to reconsider the growth of Money Market Funds and the supposed free cash locked into a 3-5 year fund, it is reasonable to ask where the money managers are getting their growth from.After all, if they are investing in any of the Magnificent Seven, they are making as much money for the banks or more, than they are the 5% for the consumer.So you can be sure that this boom, like every other boom in history, will have its bust. The amount of inflow into these stocks, even into the S&P 500 is enough to offset the valuation that every bubble requires.And when you include the craze for profits from banks, retailers, and capital money managers. It is enough to create malinvestment in the US economy as a whole.Seven stocks cannot fool an entire economy, and their grandeur can only last as long as the noonday sun in a spaghetti western.For those that are willing to make their money selling too early. The “Magnificent Seven” does offer something, but not everything.Once those mutual funds mature, you can bet consumers, many of whom have been dipping into their savings(and credit cards) will start asking for their returns and more.Many more will even be surprised at the bursting of the “Magnificent Seven” bubble…We are about to see where this feat of unprecedented consumer resilience will take us.For those of us interested in protecting and growing our wealth, it would be best to chart our path.One which pays attention to the unprecedented, the beaten path of the masses, and a willingness to make less now to hold on to more in the future.More By This Author:A Glimpse Of The Future For Gold/Silver MinersRecession Watch: Forget About That Soft LandingYour Next Gold Opportunity In Three Charts


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