Wealth inequality and market reset: the divergence to watch

0:00Your portfolio is about to face the biggest economic shift in 30 years, and most investors have no idea what's coming. That's what Winston just told me. Right now, there are two critical economic indicators diverging in a way we have not seen since the 1920s. This divergence has historically preceded massive market resets that either destroy wealth or create generational opportunities.

0:25Consumer confidence in the stock market is at euphoric levels, higher than during the dotcom bubble of 2000. Yet consumer sentiment about their own economic future is at literally great financial crisis levels. And this has never happened before in modern economic history. The gap between these two measures is screaming that something is about to break.

0:48And if history repeats, we could see a violent repricing of assets similar to the 1930s crash. Your stocks, your real estate, your retirement accounts, everything could be affected. But there is also a massive opportunity if you position yourself correctly. My promise is that by the end of this video, you'll understand exactly what's driving this economic reset from this old economist here, and you'll know which assets are at risk and which could thrive. And most importantly, you learn how to protect your wealth and potentially profit from what's coming.

1:16If you're wondering where, my name is Felix P. I'm an ex-investment banker. I've seen how investment banks really work from the inside. I've seen institutional money managers do their thing and I've learned that the biggest opportunity comes when you understand what the data is really telling you. I'm also the founder of the Goat Academy with over 20,000 students learning to invest and trade more like professionals. I'm also the co-founder of Trade Vision where we analyse market data that most retail investors never see.

1:46Now on this side you can see we were being frugal by not including a picture of me. That would have apparently been too much but you get the idea. So our mission here is to make something very simple. Level the playing field between Wall Street and Main Street. The institutions already know what I'm about to show you. They position themselves right now and you deserve to have the same information they do. If you agree with that, write agree in the comments down below and I'll make more instructional videos like this.

2:18But what I'm about to share with you is not theory. It's backed by 30 years of economic data. These patterns have played out before. They're playing out again. The question isn't if this reset will happen, but when and whether you'll be ready.

2:31Let me show you something that should well at least make you sit up right in your seat and somewhat excite you. We have two critical surveys that measure consumer sentiment. The first is the consumer confidence in the stock market. It's number one. And this measures how optimistic people are feeling about stock prices. And as I'm recording this, about 50% of consumers expect stock prices to be higher over the next 12 months. That confidence is sitting at near the highest reading we've seen in 30 years, even higher than what we saw during the 2000 dotcom bubble.

3:09Now, this is where it gets important. The loons at the University of Michigan consumer sentiment index just put out that consumer sentiment, that's number two, is at 53. This is literally down 24% from a year ago. That's literally what we saw during the depths of the great financial crisis. So a lot of people feel terrible about their own economic prospects, yet they're wildly optimistic about the stock market.

3:37So for the first time in 30 years we have, and I put it in here in green, basically stock optimism. There's a stock market optimism going through the roof and then the actual economic, my economy if you wish, really really going down. Now if you think the economy is doing well you invest, but if you think it's doing poorly you'll pull back. But now we have this bizarre situation where people are betting on stocks while simultaneously feeling hopeless about their own economic future.

4:04This tells us that there is something fundamentally broken in the economic system. People are essentially saying, "I can't afford my life, but I think the stocks will keep going up, so let's leverage up." It's a symptom of a deeper problem. And the problem has roots that go back decades. Understanding these roots is key to positioning yourself for what comes next.

4:25Now, before we dive deeper in what's causing this and what it means for your money, I want to share something with you. I'm actually going to hold a live free training that shows you exactly how Wall Street finds winning stocks, how they're using the latest technology to position themselves. And it's the same methodology that investment bankers and hedge fund guys and the professional traders have been using for decades. And I'm going to teach it to you if you're going to show up. That is for free at felix.org/training this coming Tuesday evening at 9:00 p.m. Eastern time. The link is in the description down below. It's the first link there.

5:02And you will learn skills, not just an understanding of where we are in the market right now. And to me, that's what separates the winners from the spectators. If you want to be a winner, you want to take your money seriously, come and join me at felix.org/training.

5:16Now, let's get into the real cause of this economic crisis. Really, to understand what's happening, we need to look at income growth. Real income growth in the US. Real income is the amount of money you earn after inflation is nibbled away at it. From the 1960s to 2008, personal income grew about 2.8% per year. Predictable, reliable growth that allowed people to plan their financial future. If you were 25 years old in 1980, you could reasonably predict what your income would be at age 45.

5:51And then the great divergence begins because after 2008 things changed. The financial crisis meant that personal income growth is consistently falling short of that long-term trajectory. Think about someone in 1999 planning their financial future. Based on historic trends, they had certain expectations of what their income would be in say 2019. The reality, well, it wasn't as happy as they thought it would be.

6:21For over 15 years, Americans have been earning less than they expected based on the historical pattern. The personal savings rate in the US is now just 4.6%. Historically, it was 13. So Americans are saving less because they have less to save.

6:37Now, contrast that with what's happening in the stock market. Real income since 2010 has gone up 50%. The stock market's gone up 300%. And this is after inflation, by the way. I have adjusted these for inflation. Just last year, the S&P 500, so the stock market, went up about 25%. This year so far, we seem to be looking at about 17%. There might be some more gas in that tank. So we're going 3 years in a row with 20% plus returns. Not something we've seen since the late 1990s.

7:09So on one side, you have people grown used to being disappointed by their income. They're earning less than they expected. They're saving less than they should. But on the flip side, the stock market returns have blown past most people's wildest expectation.

7:23But if you're a retail investor, this critical information, well, it means that the stock market gains you've enjoyed might not be as sustainable as they appear because historically, we've never had a very long run of high returns in the market that wasn't followed by pretty disappointing returns. And to understand why stocks keep going up while everybody else struggles, we need to look at corporate profit margins.

7:48Since the 1980s, the average personal savings rate in America has been trending lower, right? Just looked at that, gone from 13% to just 4%. Miserable. But American savings, well, also declining. Corporate profit margins though, guess what? They're increasing. They're near record levels. Corporate profits, $3.2 trillion, up almost 5% year on year. This is not a coincidence, by the way. It's directly connected to why regular Americans are struggling. It's the shareholder class versus the working class.

8:24And here's how it works. Corporate profits ultimately get handed out to shareholders. It could be through dividends or it could be through higher share prices, but they basically get the money. So unlike wage earners, shareholders don't spend most of the income they receive. Instead, most of that then gets back into stocks, financial assets. That's where the money flows.

8:52Now, what kind of financial assets does it flow into? Well, we ran out of ink there on that chart, didn't we? Anyway, we'll do with the data that we've got here. But let's just run through a few things. Home prices are at record highs. 7 times the yearly income is the average house price. That used to be about 4x. So it's a massive increase. Housing has essentially become twice as unaffordable as it used to be. Gold just hit an all-time high, and I'm very smug about that because we've been investing in gold since earlier this year. Bitcoin is at $125,000. I'm less smug on that because I've got very little crypto exposure.

9:27But the S&P is also trading at a monster valuation, about 30% higher than it is on average. And all of this is fuelled by that record corporate profit monster.

9:42Now it creates a vicious circle. You have higher asset prices. What does it do? Well, it means some people have a lot more money. So what does that mean? Well, they buy, say, housing because it's also an investment. So housing prices, guess what? They go up. They become less affordable. Now, housing prices are also the largest part of the inflation measure, the US inflation measure. So what happens? Well, inflation goes up and your wage earner, well, housing is now an even bigger part of the income pie. So they actually have basically nothing left to invest.

10:20Whereas the asset owners, the wealthy, guess what? High asset prices. Remember the last thing I drew for you? Corporate profits gets paid to shareholders. They put it back into stocks. Those stocks create more what? Profits, right? So they get more money. So the level of inequality is absolutely through the roof. We're literally at 1920s levels. The top 1% now own something like 35 to 38% of all

10:49US wealth, depending on what measure you look at. They own 54% of all stocks. Crazy, eh? The bottom 50% have about 3% of all wealth. That's insane, isn't it?

11:04So, the American dream is dying, folks. I'm not saying people can't make it. People can make it, but most don't. And if you go back to 2000, about 75% of Americans said that they had a good chance of improving their standard of living. By 2010, that was 50%. Today, that number is 25%.

11:23So, people are disillusioned. Three quarters of Americans no longer believe in the economic American dream. Massive shift over the last 25 years. And it explains why consumer sentiment is so low even as the stock market soars.

11:41And in practical terms, this means many households remain stuck exactly where they are throughout their life. Their expenses rise. Their ability to build wealth through asset ownership doesn't keep pace because they haven't got enough money left over. Meanwhile, those who already own assets see their wealth compound year after year. And this gap can't continue indefinitely.

12:01History shows us that when wealth inequality reaches these extreme levels, something eventually forces a reset. And that reset is what we need to prepare for. What we're seeing today has happened before. And understanding that historical pattern is crucial to knowing what comes next. Smart people study history because it rhymes, right?

12:22The peak in wealth inequality in 1929 coincided perfectly with the top of the stock market. Back then, rising asset prices, particularly stocks and housing, contributed to extreme wealth inequality. The wealthy owned most of the assets and they kept getting wealthier. Regular Americans were priced out and it was the catalyst for change.

12:42The market crash that followed between 1929 and 1940 coincided with the beginning of a reversal in wealth inequality. But it didn't just happen on its own. There was a catalyst that was needed and that catalyst was a dramatic change in corporate tax. In the 1910s, the top corporate tax rate was zero. Policy makers then changed that to 40%. And that set off the economic reset of the 30s and 40s.

13:11Partly triggered the Great Depression. It was economically painful. But there's no sugar coating that it squeezed corporate profits dramatically. It dragged asset prices lower. It caused unemployment to rise. But it did somehow help flip the wealth inequality trend that had been climbing for decades.

13:29And what followed was the golden age. And by the way, I'm not suggesting that corporate taxes are going to go up. It looks like they're going to go down if anything. But from the 40s to the 70s, America had a thriving middle class. This was one of the most prosperous periods in US history for the average American. Wealth was more evenly distributed. The American dream was actually achievable for most people.

13:53And then in the 80s, the reversal begins. Corporate tax rates started coming down again. US corporations were under real strain. Profit margins were squeezed. The economy was struggling. High inflation, weak growth. So what happened? Policy makers cut taxes to relieve the pressure on businesses.

14:10And it worked. The economy accelerated. Between 1982 and 1999, the S&P created about 20% a year gains, a little bit like what we're seeing right now. But behind the scenes, it created wealth inequality.

14:22So today, the corporate tax rate sits at about what? 21%. Lowest level since the 30s. Wealth inequality has risen. Not a coincidence. So the pattern is clear. Lower corporate taxes have allowed profit margins to stay very healthy. The US consumer's been under a lot of pressure. Inflation eating up their wages. And it has fuelled this asset price appreciation.

14:43And I'm not complaining. I own a lot of assets. I benefit from this. But regular Americans struggle with stagnant wages and rising costs. And eventually what happens is that those guys are going to vote in somebody who's going to give them higher taxes on the wealthy and the corporations. That's typically what happens, right? People get angry. People get disenfranchised.

15:05So what does it mean for your investments? Well, based on everything we've covered, Winston and I believe a great economic reset is coming. Not if, but when. And there are essentially two ways this can happen. And understanding both scenarios, I think, is critical.

15:21And by the way, there's also a workbook that you can download, a research document you can download which walks you through all of this because I know we're covering a lot of stuff here, but my goal is to give you guys a lot of value, not to waffle at you for any particular reason.

15:34So, we have two ways that this could happen. You have the more violent approach which is a stark repricing of assets. Say stock market drops 30%, real estate drops, triggered by corporate tax hikes. Say you Americans vote in some lefty lobby and he says let's tax the rich. Well, look at New York, right? It's what's going on there. It's a popular and easy way to win elections.

15:59Because the easiest way to win an election by the way is to create an external enemy, right? So people make that Russia if you're running the country. If you're more local, you make it Washington. Or you could make it the rich or the corporations. So, it's a much easier way because people don't really like to look at the real problems. It's much easier to just point a finger. That's typically how politics works. It's a very simple structure.

16:25Now, scenario two is the quiet reset. And that's a bit more gradual. In this scenario, stocks start to stagnate. We get a couple of per cent returns in the market. Wages catch up a little bit. Maybe unions get stronger again. There's no dramatic crash, but it would take much longer. Might take a decade. So we get flat returns for a decade, which is actually pretty horrid for those of us who have a lot of assets.

16:53Why could it go that way? Because policy changed. Well, policy change tends to be quite sudden in the US, right? You have a very black and white political system. So if you give a majority to the other lot, then you might get something that looks a lot more like this outcome, right? And again, I'm not telling you about politics. I'm just saying there are two ways of doing this, right?

17:17But what the smart money sees is the writing on the wall and the exits before the policy changes happen. But for now, I am very much invested in assets and I'd suggest you think about doing that too. And I'm not giving you financial advice. I'm just giving you some frameworks, some education so you can make better decisions.

17:37Quality assets is where I want to be. I'm buying mostly quality stocks and a lot less meme techy type stuff. Large tech stocks, gold, crypto, obviously more volatile, more risky. And then we want to watch out for the warning signs. Are there policy shift signals? And that might come after midterms. That might come after this Trump presidency is over.

18:00You want to look at how breadthful, if that were a word, is the market. So, at the moment, we're seeing very few stocks driving the market higher, and that's a dangerous signal. And then also watch for valuations. If we go up another 20 or 30%, brilliant, but that might just be where things get too high.

18:23And you also want to look at the credit markets. At the moment we're seeing a lot of stress in auto loans, for example, total freaking disaster zone. No one understands it. Somebody talks about it. Reminds me a bit of 2008. And when these warning signals kick in, well, we want to move more defensive.

18:37So people often ask me, well, Felix, you got these rules. You got these 3 Wall Street rules. Do they work in bad economic times? Yes, because we can always make money out of something, right? So, say you go into a recession. I'm not saying we will, the government's spending too much money for that to happen anytime soon. But what would do well in a recession? Well, how about discount retailers? There's a number where people shop when they think the economy is bad, right? So, then we just shift our money out of tech or wherever it sits right now and we go into discount retailers, right? So there is always a sector of the market that's thriving in almost every single scenario.

19:16So what could be steps to protect your wealth right now? Again, I'm not telling you what to do. I'm just saying think about these things, make your own plan, talk to your advisers, and above all build your skills. So come and join me Tuesday at felix.org/training.

19:31A bit of a cash position can be a healthy thing. You don't want to hold cash for too long as inflation erodes it. I definitely focus on quality right now. Diversification, I think, is a good thing. I see so many portfolios and they're all quantum stocks or they're all tech or they're all AI or whatever. Guys, there are lots of industries out there that make a lot of money, right?

19:49I own Victoria's Secret stock. I own Estée Lauder stock. I own all sorts of random things that might not be that sexy. Well, Victoria's Secret stock maybe, but if you take away the grim Epstein connection. Not that there is one obviously, but some people might say there was. Saved myself there, didn't I?

20:12But yeah, there are other things. There is gold, there is real estate, there are other assets out there. And be a bit careful with the speculative stuff, the meme stocks, right? And above all, stay educated.

20:23When the market rallies like this and the market's up 17% this year, a lot of tech stocks are up 50, 100% whatever this year, the conclusion our brains jump to is genius, right? I am a genius. Whereas the reality is it's more like right place, right time and a little bit of luck. And that's good and you deserve that. But you have to appreciate that if the market was down 20% this year, it probably would look very different.

20:51April felt like when the tariffs kicked in, right? That can happen any week, any month, any day, and it's definitely going to happen again, right? We get one of these every 2 years. It's almost a guarantee. So you want to have a plan that removes your emotions, that works in all market scenarios.

21:06And if you want to get my plan, come and join me on Tuesday at felixfriends.org/training. And there is the link to that here, felixfriends.org/training. We put it down below as well. And it's completely free. I'll go on probably for about an hour or 2. We'll teach you. I'll do live Q&As, you can ask me questions.

21:23And the goal is just to level the playing field. This isn't about money. It's about what the money can do for you. It's about freedom, it's about choices. And all the wonderful things you want to do, all the wrongs you want to right in the world, well it's a lot easier to do it with more money.

21:42But you got to start with yourself. You got to look after yourself. You got to look after your family before you can do anything else. And the reason I make this video is because I think a lot of people are getting complacent. I think a lot of people are just going, "It's amazing, the market keeps going up in a straight line." And I hope it'll continue to because a lot of people will make a lot of money and you all deserve it.

21:59But at some point it always breaks. It always does. And it might not be foreseeable. It could be something like the consumer loan credit problems we're starting to see in the car sector right now. Credit card delinquencies are through the roof. There's a lot of things that are not looking particularly great.

22:17And all it takes is for one bank, one institution, one credit agency to do something a little dodgy, right? And then house of cards, right? That's what the whole thing is about. Or Nvidia comes out and the next chip breaks. That in itself would probably make the market drop 10, 20%.

22:32So you got to think this through. What happens when the sun doesn't shine? After summer comes fall, comes winter, and then there's the spring and the summer again. You got to understand those patterns and how to prepare yourself for those. And that's what we cover on Tuesday, felixfriends.org/training.

22:49If you got some value out of this, if you think there's some other people might get some value out of this, share it with them. And I wish you great success. Take care.

22:56If you're worried what your tech stocks are going to do this coming week, you found the right video for you. I'm going to walk you through Nvidia, AMD, Oracle, Google, Amazon, Tesla, Meta, Palantir, SoFi, Caterpillar.