The Stock Market Is Lying About The Economy | Eric Basmajian

Summary

Eric Basmajian argues that the stock market does not lead the economy at peaks, and the true leading indicators are cyclical sectors like construction and manufacturing. He sees the housing market under severe pressure with homebuilder margins compressing, which could eventually trigger layoffs and a recession. Meanwhile, a secular rise in corporate profit margins supports a long-term bullish case for stocks. The US relies heavily on foreign capital due to vanishing national savings, posing a structural vulnerability.

• Stock market tends to lag at cycle peaks; investors should track construction and manufacturing employment.
• Housing construction production has fallen sharply, but employment remains stable due to previously elevated profit margins.
• Homebuilder profit margins have fallen from 20% to 11%; if mortgage rates stay high, margins could drop to 8% forcing layoffs.
• Manufacturing is recovering modestly, aided by the AI-driven boom in computer equipment production.
• Secular rise in corporate profit margins (from 8% to 20%) underpins long-term equity outperformance.
• Net national savings have collapsed to near zero, making US investment dependent on foreign funding and creating vulnerability.
• The K-shaped economy is widening the divide between asset owners and workers, with investment shifting toward IP and away from physical structures.