The Era of American Stock Dominance Is Over | Kevin Muir

Episode Summary

Executive Summary: Kevin Muir argues 2023 should be a year of slower Fed hikes, weaker U.S. equity leadership, persistent weakness in bonds and speculative tech, and continued stress in private markets. He expects a more boring macro backdrop, with financials and industrials benefiting as higher rates and fiscal reawakening reshape asset returns.

Main Topics: Fed hiking path and recession timing (Priority: 5/5): Muir thinks the Fed’s pace matters more than the terminal rate: the era of 50/75 bp hikes is over, replaced by steady 25 bp moves unless data weaken sharply. U.S. stock outperformance is ending (Priority: 5/5): He argues the 12-year U.S. equity dominance was driven by low rates, fiscal support, and growth-stock concentration, and that the rest of the world now looks relatively cheap. Tech/growth and speculative stocks remain under pressure (Priority: 5/5): Muir expects continued leakage in high-multiple growth, ARK-style names, and other speculative assets because rates are higher and institutional ownership remains overweight. Private markets are the next stress point (Priority: 4/5): He warns that private equity, private credit, and private real estate are masking losses via stale marks and gating, and that more redemption pressure and surprises are likely. Accounting scandals and market fraud risk (Priority: 4/5): Muir expects more Enron/WorldCom-style blowups as higher funding costs expose weak business models, aggressive accounting, and possible fraud across speculative sectors. Financials and industrials as relative winners (Priority: 4/5): He is constructive on banks and industrials, especially in Europe, Japan, and the U.S., because higher rates improve net interest margins and main-street activity should benefit. Bitcoin/crypto remains bearish (Priority: 3/5): He maintains a negative view on Bitcoin, expecting the possibility of consecutive down years and noting that prior support from liquidity and speculation has faded.

Key Arguments: The Fed is likely to move slower and more predictably, with 25 bp hikes replacing the earlier shock-and-awe approach. Yield-curve inversion may no longer be the reliable recession signal people assume; it may be signaling disinflation instead. U.S. fiscal stimulus and household balance-sheet repair explain why the economy stayed stronger than expected after COVID. The stock market and the economy are not the same; equities can stagnate even if the real economy holds up. Bond portfolios lost their traditional hedge role in 2022 because stocks and bonds became positively correlated. The long secular bond bull market from 1982 to 2020 appears broken because rates moved above prior peaks. Private-market valuations are distorted by stale marks, lower transparency, and gate/redemption structures. Higher discount rates and more expensive capital should compress valuations for growth stocks, private equity, and real estate. Institutional portfolios remain structurally overweight U.S. tech after years of outperformance, so unwinding will take time. Banks and industrials should benefit from a higher-rate, more main-street-oriented macro regime. Crypto remains vulnerable because liquidity conditions and speculative appetite have deteriorated. As rates rise and capital gets pricier, accounting issues and business-model failures are more likely to surface.

Data Points: Fed funds rate: 4.5% - Current level mentioned at the start of the Fed discussion Potential Fed terminal rate in market talk: 6% - A speculative level discussed by market participants U.S. direct fiscal stimulus: Over 25% of GDP - Muir’s estimate of direct fiscal support during COVID Australia direct fiscal stimulus: 18% of GDP - Next closest country in his comparison U.S. discretionary spending decline years: 4 consecutive years - Post-GFC period under austerity/sequestration S&P 500 range in 2019: 33% - Part of Muir’s historical volatility comparison S&P 500 range in 2020: 72% - Extreme volatility year during COVID S&P 500 range in 2021: 31% - Historical volatility comparison S&P 500 range in 2022: 38% - Historical volatility comparison Typical historical S&P annual range: Less than 30% in 65% of years - Measured over roughly 70 years after WWII Typical historical S&P annual range: Less than 24% in 49% of years - Same long-run sample Illustrative S&P range if mid-point near 3,900: High ~4,370 / Low ~3,430 - Using a 24% annual range assumption Italy deficit context: 2.5% of GDP - Example of EU fiscal restraint pressure U.S. deficit context: 4.1% of GDP - Contrasted with Italy to show U.S. fiscal aggressiveness Blackstone Real Estate Investment Trust size: About $60 billion - Approximate size mentioned for the private REIT CalPERS investment into BREIT: $4 billion - Used as evidence of continued demand and implicit support Guaranteed return in BREIT/CaLPERS deal: 11.25% - Interpreted as evidence of hidden support/put-like economics Citibank price-to-book: 0.5x book - Used to argue banks are cheap Typical financial sector valuation cited for Japan: 0.4x book - To support his bullish view on Japanese financials Tech allocation at the Swiss National Bank: 29% tech - Example of persistent institutional overexposure to U.S. tech Bitcoin historical streak: Never had two down years in a row (claimed) - Basis for his bearish 2023 crypto call

Pivotal Quotes: "The Fed is going to behave a lot more like the Fed of Greenspan slash Bernanke in 2005 to 7... when they went 25 basis points each and every meeting." — Kevin Muir: Explaining why he expects a slower, more predictable hiking cycle "The bond market could be the anchor that drags your portfolio down." — Kevin Muir: Discussing why bonds may no longer provide the classic equity hedge "I think the chances of inflation being back at four, five, six, seven, ten are a lot higher than us going back to the days when we were having trouble getting it to two." — Kevin Muir: Summing up his long-term inflation and policy outlook

Implications: Investors should prepare for slower rate moves, weaker U.S. equity dominance, and a tougher environment for long-duration growth, bonds, and private assets. He favors banks and industrials, while warning that hidden leverage and stale marks could trigger more surprises.