Preparing for the deflation of the new dot-com stock market bubble
This page is a warning to retail "investors" and 401K lemmings, which serve as a feed fro Wall Street sharks. We do not know when
the next financial crash will happen and what level the market will reach, but it is clear that risk now is disproportionally high in
comparison the potential reward
While this page can be classified as "doom and gloom porn" and pain one-sided picture it is designed this way. The main idea is
to serve as a warning to retail "investors" (actually petty speculators :-) and 401K lemmings that the risk might now outweigh
the rewards. Often practiced by 401K lemming overweighting ( in comparison with 100-age formula) amount of stock funds
in their portfolio carries outsize risks -- especially for those who are close to retirement. Now bonds slide considerable as
inflation picks up and the whole idea of holding bonds is open to review. But only up to the crash.
That sad truth is the ordinary "investor" usually gains very little from holding stocks. Petty speculators often lose
money, not gain anything. The main losses happens during the panic after the crashes, which became periodic ( 1986, 2000, 2008,
2010 flash crash, 2017 (S&P500 dropped 20%), 2020 (S&P500 dropped 34%), and the next ). Many people sell at this
point, losing all or most of previous gains. People who are overleveraged
often lose all their savings. This is less true for "buy and hold" investors, but in general it is true.
The S&P 500 is now 75% higher than its low point last March. At the end of April, the S&P 500 SPX, 0.21% traded at a
cyclically adjusted price-earnings ratio of 37, a level not seen since the dot-com bubble of 1998. Monetary policy over the previous
two decades has lifted investors’ risk appetite to extremes, powering the run-up in equities
The Nasdaq has more than doubled since its pandemic low. Tesla shares
are up a staggering 900% over that span. There is persistent noise in MSM that the valuations are justified by low bond yields. In
reality low or negative real bond yields have historically typically associated with rather low multiples, since they point to a
stagnation -- a low-growth environment with a high risk of recession
Another sign of bubbles is that they tend to occur alongside the perception of a new era, which clearly is the case now with
artificial intelligence. Ultra-easy monetary policy, the advent of new financial instruments like special-purpose acquisition
companies and cryptocurrency, as well as so called “overtrading” — exponential price movements and signs of above-average risk
taking — also are typical for bubbles.
Irrational beliefs became norm: for example that "OK this is a bubble, but bubbles only burst once central banks start to hike
rates or take other steps to rein in their ‘easy money’ policies." Citigroup CEO Chuck Prince told the Financial Times in July 2007
about his bank role in providing loans for leveraged buyout : “When the music stops, in terms of liquidity, things will be
complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.” Prince didn’t “dance” for
much longer—in November 2007 he retired. George Soros told the makers of the documentary film Inside Job (2010): “Chuck Prince
famously said we have to dance until the music stops. Actually the music had stopped already when he said that.”
The Big Apple- “We have to
dance until the music stops”
And an army of traders on Reddit were able to send GameStop to the moon, at least for a few
days. Strange companies with no product or "me too" products stage IPO with multi billion valuations. This strongly echoes
dot-com bubble environment before the crash of 2000. Leverage is high and there is undeniable rise in serious fraud and the
boom in "innovative" financial instruments (two categories that significantly overlap ;-).
20 years since previous crash typically are enough to forget the lessons, so crashes tend to repeat. Of course, there are multiple warning but who is
listening to them when the epidemic of irrational exuberance hits? (
3 Ways I'm Preparing
for the Stock Market Bubble to Burst - Nasdaq)
The stock market has experienced a record-shattering run over the past year. The S&P 500 is up nearly 70% since
the market crashed in mid-March 2020, and it's been a wild ride for investors.
However, there's a chance the stock market is
headed toward another correction. Some investors worry that this upward trend can't continue much longer, and the stock market bubble
will burst soon. When that happens, stock prices could plummet, and we may experience a full-fledged market crash.
It's safe to say that the market will experience a downturn eventually -- after all, stock prices can't continue climbing forever.
When, exactly, that will happen is anyone's guess, but it's a good idea to be ready no matter what happens. Here's how I'm preparing
my finances for the inevitable downturn.
Image source: Getty Images.
1. I'm keeping my emergency fund strong
Having a well-stocked emergency fund is always a good idea, but it's especially important during periods of stock market volatility.
If you face an unexpected expense and you don't have an emergency fund, you may have no other option than to sell your investments to
cover the cost.
However, when the market experiences a downturn, stock prices fall. If you sell your investments when prices are lower, you could
end up losing money.
I generally aim to keep at least six months' worth of savings set aside in my emergency fund. This way, no matter what the market
does, I don't have to tap my investments to cover any unplanned costs.
2. I'm continuing to invest consistently
It can be tempting to press pause on investing when the stock market is rocky. However, investing during market downturns can actually
be a cost-effective move.
Because stock prices are lower during market downturns, it can be a good opportunity to buy good stocks at bargain prices. Even if
you're investing in
mutual funds or
ETFs rather than individual stocks, you can still get more for your money during market downturns.
Instead of waiting until the market recovers to continue buying equities, it's a good idea to keep investing like usual, regardless
of what the market does. If the stock market bubble does burst and stock prices take a nosedive, use it as an opportunity to load up
on quality stocks without breaking the bank.
3. I'm maintaining a long-term outlook
Stock market crashes can be intimidating, but they're no cause for panic. Historically, the market has always recovered from every
one of its downturns -- and it's extremely likely it will bounce back again if another crash is on the horizon.
If you maintain a long-term outlook, it's easier to avoid panic-selling when stock prices begin to drop. Remind yourself that the
market will recover eventually, and you'll be able to ride out the storm.
The key to investing for the long term is to ensure you're investing in quality stocks or funds. Healthy companies with strong business
fundamentals will be able to survive a market downturn, so their stock prices should bounce back. As long as you're putting your money
behind strong investments, you should be able to get through even the worst market crashes.
As daunting as they may be, stock market downturns are quite normal. While nobody knows exactly what the future holds for the market,
it's safe to assume that stock prices will fall sooner or later. By preparing for it now, you'll be ready for anything.
... ... ...
There are several interesting interview that expose the current bubble, but that does not mean that it can't be inflated further
and last another several years.
Market will definitely collapse sooner or later. But nobody knows when. Especially taking into account FED Plunge protection team activities. If is stupid and irresponsible to talk about June crash...
20210424 : Why Grantham Says the Next Crash Will Rival 1929, 2000 by further inflating money not by deflating it. So people who warn regular fold about risks are rare and they harm their own business, if they have any. Profit of doom and gloom are not popular and it is precarious occupation
He suggest that SPACs,Tesla, and bitcoin can serve are canary in the mine as for timing of bubble deflation.
This video is over two months old of course and the the market has continued to set new records. Ray Daleo also issued a warning as did Harry Dent. And market still is going up.
Because of the corona epidemic, investments in real production have dried up and the money has instead flooded the stockmarkets. I guess that if the crisis continues the stockmarket bubble can be kept inflated because the money has nowhere else to go!
electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. ( Jan 22, 2021 , www.youtube.com )
Sometimes it is prudent to stop investing for a while.. And what the author calls savers and investors should properly be called speculators. Petty speculators that serve as the feed for Wall Street sharks.
20210408 : Financial crises get triggered about every 10 years -- Archegos might be right on time by Paul Brandus Paul Brandus Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Long-Term Capital Management (LTCM). Its reach and operating practices were such that Federal Reserve Chairman Alan Greenspan said that when LTCM failed, "he had never seen anything in his lifetime that compared to the terror" he felt. LTCM was deemed "too big to fail," and he engineered a bailout by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. ( www.advisorperspectives.com )
20210405 : Financial crises get triggered about every 10 years -- Archegos might be right on time by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. ( www.wsj.com )
NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate
bidding wars, studying the history of financial markets might seem a little dry and
old-fashioned.
Except to Jeremy Grantham.
The chairman of the board of famed asset managers GMO is a certified bubble-ologist,
fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in
his eighties - he has also lived through (and called) numerous modern booms and busts,
including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in
2009.
In case you did not know where this is headed: He says we are in a bubble right now.
In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an
inflating bubble that "could well be the most important event of your investing lives."
Six months later, the stock market is starting to show some cracks. Grantham spoke with
Reuters about this moment of market history.
Q: When your letter of warning came out, what was the response like?
A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They
said my ears were too big, and that I needed to be locked up in an old-folks home.
Q: So if we were already in a bubble then, where do things stand right now?
A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is
trickier. You see it when the markets are on the front pages instead of the financial
pages, when the news is full of stories of people getting cheated, when new coins are being
created every month. The scale of these things is so much bigger than in 1929 or in 2000.
Q: What is your take on equity valuations now?
A: Looking at most measures, the market is more expensive than in 2000, which was more
expensive than anything that preceded it.
My favorite metric is price-to-sales: What you find is that even the cheapest parts of the
market are way more expensive than in 2000.
Q: What might bring an end to this bubble?
A: Markets peak when you are as happy as you can get, and a near-perfect economy is
extrapolated into the indefinite future. But around the corner are lurking serious issues like
interest rates, inflation, labor and commodity prices. All of those are beginning to look less
optimistic than they did just a week or two ago.
Q: How long until a bust?
A: A bust might take a few more months, and, in fact, I hope it does, because it will give
us the opportunity to warn more people. The probabilities are that this will go into the fall:
The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a
few months longer than I would have initially guessed.
What pricks the bubble could be a virus problem, it could be an inflation problem, or it
could be the most important category of all, which is everything else that is unexpected. One
of 20 different things that you haven't even thought of will come out of the woodwork, and you
had no idea it was even there.
Q: What might a bust look like?
A: There will be an enormous negative wealth effect, broader than it has ever been, compared
to any other previous bubble breaking. It's the first time we have bubbled in so many different
areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all
a positive wealth effect, and on the way down it will retract, painfully.
Q: Are there any asset classes which are relatively attractive?
A: You could always own cash, or you could do what the institutions do, which is buy heavily
into the asset classes that are least bad. The least overpriced are value stocks and emerging
markets. Those are the two arbitrages. With value and emerging, you should make some positive
return over the next 10 years.
Q: It is difficult to be bearish right now?
A: Not for me, because I don't have career risk anymore. But every big company has lots of
risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they
can, and make money on the downside.
But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on
your face.
NEW YORK (Reuters) - In this manic era of meme stocks, cryptocurrencies and real-estate
bidding wars, studying the history of financial markets might seem a little dry and
old-fashioned.
Except to Jeremy Grantham.
The chairman of the board of famed asset managers GMO is a certified bubble-ologist,
fascinated by how and why bubbles emerge. Grantham studies classic ones like 1929, but - now in
his eighties - he has also lived through (and called) numerous modern booms and busts,
including the dot-com wreckage in 2000, the bull market peak in 2008 and the bear market low in
2009.
In case you did not know where this is headed: He says we are in a bubble right now.
In January Grantham wrote an investor letter, "Waiting For the Last Dance," about an
inflating bubble that "could well be the most important event of your investing lives."
Six months later, the stock market is starting to show some cracks. Grantham spoke with
Reuters about this moment of market history.
Q: When your letter of warning came out, what was the response like?
A: I got a lot of pushback. Waves of Bitcoin freaks attacked me in every way possible. They
said my ears were too big, and that I needed to be locked up in an old-folks home.
Q: So if we were already in a bubble then, where do things stand right now?
A: Bubbles are unbelievably easy to see; it's knowing when the bust will come that is
trickier. You see it when the markets are on the front pages instead of the financial
pages, when the news is full of stories of people getting cheated, when new coins are being
created every month. The scale of these things is so much bigger than in 1929 or in 2000.
Q: What is your take on equity valuations now?
A: Looking at most measures, the market is more expensive than in 2000, which was more
expensive than anything that preceded it.
My favorite metric is price-to-sales: What you find is that even the cheapest parts of the
market are way more expensive than in 2000.
Q: What might bring an end to this bubble?
A: Markets peak when you are as happy as you can get, and a near-perfect economy is
extrapolated into the indefinite future. But around the corner are lurking serious issues like
interest rates, inflation, labor and commodity prices. All of those are beginning to look less
optimistic than they did just a week or two ago.
Q: How long until a bust?
A: A bust might take a few more months, and, in fact, I hope it does, because it will give
us the opportunity to warn more people. The probabilities are that this will go into the fall:
The stimulus, the economic recovery, and vaccinations have all allowed this thing to go on a
few months longer than I would have initially guessed.
What pricks the bubble could be a virus problem, it could be an inflation problem, or it
could be the most important category of all, which is everything else that is unexpected. One
of 20 different things that you haven't even thought of will come out of the woodwork, and you
had no idea it was even there.
Q: What might a bust look like?
A: There will be an enormous negative wealth effect, broader than it has ever been, compared
to any other previous bubble breaking. It's the first time we have bubbled in so many different
areas "" interest rates, stocks, housing, non-energy commodities. On the way up, it gave us all
a positive wealth effect, and on the way down it will retract, painfully.
Q: Are there any asset classes which are relatively attractive?
A: You could always own cash, or you could do what the institutions do, which is buy heavily
into the asset classes that are least bad. The least overpriced are value stocks and emerging
markets. Those are the two arbitrages. With value and emerging, you should make some positive
return over the next 10 years.
Q: It is difficult to be bearish right now?
A: Not for me, because I don't have career risk anymore. But every big company has lots of
risk: They facilitate a bubble until it bursts, and then they change their tune as fast as they
can, and make money on the downside.
But this bubble is the real thing, and everyone can see it. It's as obvious as the nose on
your face.
"... Here are the other ominous signs of froth in the IPO market. ..."
"... Tech leads the way: It dominates the IPO market again, just as in 1999. ..."
"... Frothy first-day gains: The average first-day pop for IPOs in the second quarter was 42% ..."
"... Historically high valuations ..."
"... Retail investors in the mix ..."
"... "I think it says more about general liquidity than it does about where the stock market is going next," says Kevin Landis of the Firsthand Technology Opportunities TEFQX, -3.24% , referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff," he says. ..."
"... "Things are going up simply because of liquidity, which means eventually there will be a top," says Landis. "But not necessarily an impending top right around the corner." Landis is worth listening to because his fund outperforms his technology category by 9.6 percentage points annualized over the five years, according to Morningstar. ..."
"... Market calls are always a matter of what intelligence spies call "the mosaic." Each bit of information is a piece of an overall mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many. ..."
A frothy market for initial public offerings suggests stocks are overvalued
Oatly, which produces oat milk products, went public in May. (Photo Illustration by Scott Olson/Getty Images)
I hear more money managers say it's starting to feel like 1999" the bubble year followed by an epic market crash.
They may be on to something.
The initial public offering (IPO) market now shows the froth that foreshadows big stock market corrections.
Consider these troubling signals from the IPO market.
1. Ominous volume:
Second-quarter IPO proceeds were the biggest since" get this" the fourth quarter of 1999. The huge
tech selloff that scarred a generation of investors started in March 2000 and then spread to the entire market.
Some details: A total of 115 IPOs raised $40.7 billion in the second quarter. That follows a busy first quarter when 100 IPOs
raised $39.1 billion. Both quarters saw the largest amount of capital raised since the fourth quarter of 1999, when IPOs raised
$46.5 billion. These numbers come from the IPO experts at Renaissance Capital, which manages the IPO exchange traded fund, Renaissance
IPO ETF
IPO,
-3.43%
.
Of course, adjusted for inflation, the 2021 numbers shrink relative to the fourth quarter of 1999. But this doesn't get us off
the hook. The 2021 IPO figures, above, exclude the $12.2 billion and $87 billion raised by special purpose acquisition companies
(SPACs) in the second and first quarters.
This spike in IPO volume is troubling for a simple reason. Investment bankers and companies know the most opportune time to sell
stock is around market highs. They bring companies public at their convenience, not ours. This tells us they may be selling a
top now.
Here are the other ominous signs of froth in the IPO market.
2.
Tech leads the way:
It dominates the IPO market again, just as in 1999.
The tech sector raised the majority
of second-quarter proceeds and posted its busiest quarter in at least two decades with 42 IPOs, says Renaissance Capital. This
included the quarter's largest IPO, DiDi Global
DIDI,
+1.61%
,
the Chinese ride-hailing app. The large U.S.-based tech names were Applovin
APP,
-5.54%
in app software, the robotics company UiPath
PATH,
-3.68%
,
and the payments platform Marqeta
MQ,
-4.93%
.
3. We can expect more of the same:
A robust IPO pipeline sets the stage for a booming third quarter, says Renaissance
Capital. The IPO pipeline has over a hundred companies. Tech dominates.
4.
Frothy first-day gains:
The average first-day pop for IPOs in the second quarter was 42%
. That's well above
the range of 31%-37% for the prior four quarters.
5.
Historically high valuations
:
Typically, tech companies have come public with enterprise-value-(EV)-to-sales
ratios of around 10. Now many are coming public with EV/sales ratios in the 20-30 range or more, points out Avery Spears, an IPO
analyst at Renaissance Capital. For example, the cybersecurity company SentinelOne
S,
-6.14%
came public with an EV/sales ratio of 81, says Spears.
6.
Retail investors in the mix
:
They're big participants in IPO trading" often driving IPOs up by crazy amounts
in first-day trading. "In the second quarter there were a lot of small deals with low floats and absolutely insane trading, popping
well over 100% and in one case over 1,000%," says Spears. Pop Culture Group
CPOP,
-12.38%
rose over 400% on its first day of trading, and E-Home Household Service
EJH,
-3.67%
advanced 1,100%. "This demonstrates presence of retail investors in the market," she says. Both
names have since fallen.
Keep in mind that the 2000 selloff was not the only one foreshadowed by IPO froth. The selloffs during mid-2015 to early 2016
and the second half 2018 were both preceded by high-water marks for IPO deal volume.
IPO-froth pushback
"It's different this time" are maybe the most dangerous words in investing. But market experts say several factors suggest the
robust IPO market isn't such a negative signal.
First, decent quality companies are coming public. "Because companies stay private longer, you are seeing far more mature companies
coming public," says Todd Skacan, equity capital markets manager at T. Rowe Price. These aren't like the speculative Internet
companies of 1999. "It would be more of a signal of froth if more borderline companies were coming public like in the fourth quarter
of 1999," he says.
We saw some of this with the SPACs, says Skacan, but the SPAC craze has cooled off. Second-quarter SPAC issuance fell 79% compared
to the first quarter, muted by "investor fatigue and regulatory scrutiny," says a Renaissance Capital report on the IPO market.
In the second quarter, 63 SPACs raised $12.2 billion, compared to the 298 SPACs that raised $87 billion in the first quarter.
Next, the type of company coming public might also calm fears. Alongside all the tech names, there are many industrial and consumer-facing
companies" not the kinds of businesses that indicate froth. The latter category includes public national brands like Mister Car
Wash
MCW,
-1.82%
and Krispy Kreme
DNUT,
-2.16%
,
and the high-growth oat milk brand Oatly
OTLY,
-2.79%
.
Third, IPOs are only floating 10%-15% of their overall value, and many post-IPO valuations are not that much higher than valuations
implied by pre-IPO capital raises. That's different, compared to 1999. "It is not like they are selling a high number of shares
at inflated prices," says Skacan. This makes sense, because companies that are more mature when they do an IPO don't need as much
money.
Liquidity flood
"I think it says more about general liquidity than it does about where the stock market is going next," says Kevin Landis
of the Firsthand Technology Opportunities
TEFQX,
-3.24%
,
referring to the IPO frenzy. "There is so much money sloshing around. The capital markets look like the rich guy from out of town
who just got off the cruise ship, and we are all coming out of the woodwork to sell him stuff," he says.
"Things are going up simply because of liquidity, which means eventually there will be a top," says Landis. "But not necessarily
an impending top right around the corner." Landis is worth listening to because his fund outperforms his technology category by
9.6 percentage points annualized over the five years, according to Morningstar.
The bottom line
Market calls are always a matter of what intelligence spies call "the mosaic." Each bit of information is a piece of an overall
mosaic. While the IPO market froth is disturbing, you should consider this cautionary signal as just one among many.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned APP. Brush has suggested APP in his stock
newsletter,
Brush Up on Stocks
. Follow him on Twitter @mbrushstocks,
"... For now, loose monetary and fiscal policies will continue to fuel asset and credit bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in today's high price-to-earnings ratios SPX , low equity risk premiums, inflated housing and tech assets COMP , and the irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto sector BTCUSD, , high-yield corporate debt , collateralized loan obligations, private equity, meme stocks AMC, and runaway retail day trading. ..."
"... But meanwhile, the same loose policies that are feeding asset bubbles will continue to drive consumer price inflation, creating the conditions for stagflation whenever the next negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic aging in advanced and emerging economies; immigration restrictions in advanced economies; the reshoring of manufacturing to high-cost regions; or the balkanization of global supply chains. ..."
"... More broadly, the Sino-American decoupling threatens to fragment the global economy at a time when climate change and the COVID-19 pandemic are pushing national governments toward deeper self-reliance. ..."
"... Making matters worse, central banks have effectively lost their independence, because they have been given little choice but to monetize massive fiscal deficits to forestall a debt crisis. With both public and private debts having soared, they are in a debt trap. Central banks will be damned if they do and damned if they don't, and many governments will be semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop of sovereigns and banks in the eurozone after the global financial crisis will be repeated world-wide ..."
"... When former Fed Chair Paul Volcker hiked rates to tackle inflation in 1980-82, the result was a severe double-dip recession in the United States and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost three times higher than in the early 1970s, any anti-inflationary policy would lead to a depression, rather than a severe recession. The question is not if but when. ..."
Roubini warns: After 'the Minsky Moment' crashes overheated speculative markets, 'the
Volcker Moment' will will arrive to crash the debt-burdened global economy
( Project Syndicate ) -- In
April, I
warned that today's extremely loose monetary and fiscal policies, when combined with a
number of negative supply shocks, could result in 1970s-style stagflation (high inflation
alongside a recession). In fact, the risk today is even bigger than it was then.
After all, debt ratios in advanced economies and most emerging markets were much lower in
the 1970s, which is why stagflation has not been associated with debt crises historically. If
anything, unexpected inflation in the 1970s wiped out the real value of nominal debts at fixed
rates, thus reducing many advanced economies' public-debt burdens.
The warning signs are already apparent in today's high price-to-earnings ratios, low
equity risk premiums, inflated housing and tech assets, and the irrational exuberance
surrounding special purpose acquisition companies (SPACs), the crypto sector, high-yield
corporate debt, collateralized loan obligations, private equity, meme stocks, and runaway
retail day trading.
Conversely, during the 2007-08 financial crisis, high debt ratios (private and public)
caused a severe debt crisis -- as housing bubbles burst -- but the ensuing recession led to low
inflation, if not outright deflation. Owing to the credit crunch, there was a macro shock to
aggregate demand, whereas the risks today are on the supply side.
Worst of both
worlds
We are thus left with the worst of both the stagflationary 1970s and the 2007-10 period.
Debt ratios are much higher than in the 1970s, and a mix of loose economic policies and
negative supply shocks threatens to fuel inflation rather than deflation, setting the stage for
the mother of stagflationary debt crises over the next few years.
For now, loose monetary and fiscal policies will continue to fuel asset and credit
bubbles, propelling a slow-motion train wreck. The warning signs are already apparent in
today's high price-to-earnings ratios SPX , low equity risk
premiums, inflated housing and tech assets COMP , and the
irrational exuberance surrounding special purpose acquisition companies (SPACs), the crypto
sector BTCUSD, ,
high-yield corporate debt , collateralized loan obligations, private equity, meme stocks
AMC, and runaway
retail day trading.
But meanwhile, the same loose policies that are feeding asset bubbles will continue to
drive consumer price inflation, creating the conditions for stagflation whenever the next
negative supply shocks arrive. Such shocks could follow from renewed protectionism; demographic
aging in advanced and emerging economies; immigration restrictions in advanced economies; the
reshoring of manufacturing to high-cost regions; or the balkanization of global supply
chains.
Recipe for macroeconomic disruption
More broadly, the Sino-American decoupling threatens to fragment the global economy at a
time when climate change and the COVID-19 pandemic are pushing national governments toward
deeper self-reliance. Add to this the impact on production of increasingly frequent
cyberattacks on critical infrastructure and the social and political backlash against
inequality, and the recipe for macroeconomic disruption is complete.
Making matters worse, central banks have effectively lost their independence, because
they have been given little choice but to monetize massive fiscal deficits to forestall a debt
crisis. With both public and private debts having soared, they are in a debt trap. Central
banks will be damned if they do and damned if they don't, and many governments will be
semi-insolvent and thus unable to bail out banks, corporations, and households. The doom loop
of sovereigns and banks in the eurozone after the global financial crisis will be repeated
world-wide
As inflation rises over the next few years, central banks will face a dilemma. If they start
phasing out unconventional policies and raising policy rates to fight inflation, they will risk
triggering a massive debt crisis and severe recession; but if they maintain a loose monetary
policy, they will risk double-digit inflation -- and deep stagflation when the next negative
supply shocks emerge.
But even in the second scenario, policy makers would not be able to prevent a debt crisis.
While nominal government fixed-rate debt in advanced economies can be partly wiped out by
unexpected inflation (as happened in the 1970s), emerging-market debts denominated in foreign
currency would not be. Many of these governments would need to default and restructure their
debts.
At the same time, private debts in advanced economies would become unsustainable (as they
did after the global financial crisis), and their spreads relative to safer government bonds
would spike, triggering a chain reaction of defaults. Highly leveraged corporations and their
reckless shadow-bank creditors would be the first to fall, soon followed by indebted households
and the banks that financed them.
The Volcker Moment
To be sure, real long-term borrowing costs may initially fall if inflation rises
unexpectedly and central banks are still behind the curve. But, over time, these costs will be
pushed up by three factors. First, higher public and private debts will widen sovereign and
private interest-rate spreads. Second, rising inflation and deepening uncertainty will drive up
inflation risk premiums. And, third, a rising misery index -- the sum of the inflation and
unemployment rate -- eventually will demand a "Volcker Moment."
When former Fed Chair Paul Volcker hiked rates to
tackle inflation in 1980-82, the result was a severe double-dip recession in the United States
and a debt crisis and lost decade for Latin America. But now that global debt ratios are almost
three times higher than in the early 1970s, any anti-inflationary policy would lead to a
depression, rather than a severe recession. The question is not if but when.
Under these conditions, central banks will be damned if they do and damned if they don't,
and many governments will be semi-insolvent and thus unable to bail out banks, corporations,
and households. The doom loop of sovereigns and banks in the eurozone after the global
financial crisis will be repeated world-wide, sucking in households, corporations, and shadow
banks as well.
As matters stand, this slow-motion train wreck looks unavoidable. The Fed's recent pivot
from an ultra-dovish to a mostly dovish stance changes nothing. The Fed has been in a debt trap
at least since December 2018, when a stock- and credit-market crash forced it to reverse its
policy tightening a full year before COVID-19 struck. With inflation rising and stagflationary
shocks looming, it is now even more ensnared.
So, too, are the European Central Bank, the Bank of Japan, and the Bank of England. The
stagflation of the 1970s will soon meet the debt crises of the post-2008 period. The question
is not if but when.
Nouriel Roubini is CEO of Roubini Macro Associates and chief economist at Atlas Capital
Team.
"... This is not the first time Summers has predicted that the firehose of fiscal and monetary stimulus will unleash soaring inflation. While career economists at the White House and Fed - who have peasants doing their purchases for them - urge Americans to ignore the current hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus alongside the reopening of the economy would spark considerable price pressures. ..."
"... Asked how financial markets may behave in the rest of 2021, Summers said "there will probably be more turbulence" as traders react to faster inflation by pushing up bond yields. "We've got a lot of processing ahead of us in markets," he said. ..."
It may not be quite hyperinflation - loosely defined as pricing rising at a double-digit
clip or higher - but if former Treasury Secretary and erstwhile democrat Larry Summers is
right, it will be halfway there in about six months.
One day after Bank of America warned that the coming "hyperinflation" will last at least 2
and as much as 4 years - whether or not one defines that as transitory depends on whether one
has a Federal Reserve charge card to fund all purchases in the next 4 years - Larry Summers,
who is this close from being excommunicated from the Democrat party, predicted inflation will
be running "pretty close" to 5% at the end of this year and that bond yields will rise as a
result over the rest of 2021.
Considering that consumer prices already jumped 5% in May from the previous year, his
forecast is not much of a shock.
Speaking on Bloomberg TV, Summers said that "my guess is that at the end of the year
inflation will, for this year, come out pretty close to 5%," adding that "it would surprise me
if we had 5% inflation with no effect on inflation expectations." If he is right, the recent
reversal in one-year inflation expectations which dipped from 4.6% to 4.2% according to the
latest UMich consumer sentiment survey, is about to surge to new secular highs.
This is not the first time Summers has predicted that the firehose of fiscal and monetary
stimulus will unleash soaring inflation. While career economists at the White House and Fed -
who have peasants doing their purchases for them - urge Americans to ignore the current
hyperinflation episode, saying that the recent inflation surge will soon pass, Summers has been
unique among his fellow Democrats in predicting that massive monetary and fiscal stimulus
alongside the reopening of the economy would spark considerable price pressures.
Asked how financial markets may behave in the rest of 2021, Summers said "there will
probably be more turbulence" as traders react to faster inflation by pushing up bond yields.
"We've got a lot of processing ahead of us in markets," he said.
Ironically, Summers - who now teaches at Harvard University whose president he was not too
long ago when he hung out with his buddy Jeffrey Epstein...
Plus Size Model 5 hours ago (Edited)
Exactly!! Not only that, it's not just the FED that is contributing to inflation. We can
also blame the SEC and the DOJ. I've never seen a Zero Hedge article blaming stock price
appreciation or buybacks for causing inflation or increasing the money supply. The DOJ
never enforces antitrust laws. The FBI never investigates money laundering from overseas
that creates artificial real estate appreciation that inflates the money supply when people
take out HELOC. There are other oversight bodies that, in a sane world, would not allow
foreign investment in real estate. Bitcoin and others are a new tool that is being used to
manipulate the money supply. It's comical how coins always go down when the little guys are
holding the bag and go up when Coinbase executives want to cash out.
Another thing, this artificial chip shortage, punitive tariffs, and new tax laws are
also adding to price increases.
Totally_Disillusioned 1 hour ago
Speculative investments have NEVER been included in the forumulation of CPI that
determines inflation rate.
Revolution_starts_now 6 hours ago
Larry Summers is a tool.
gregga777 5 hours ago (Edited) remove link
Banksters in 2010's: We've got to revise how we calculate inflation again to conceal it
from the Rubes.
Banksters in 2020: Ho Lee Fuk! Gun the QE engine! Pedal to the metal! Monetize all of
the Federal government's debt! Keep those stonks zooming upwards!
Banksters in 2021: Ho Lee Fuk! The Rubes have caught onto our game! Gun the QE engine!
Keep that pedal to the metal! Maybe the Rubes won't notice housing prices going up 20% per
year?
Summer 2021: Ho Lee Fuk! They are noticing Inflation! We'd better revise how we
calculate inflation again to conceal it from the Rubes.
When and how another housing bubble will burst? This is the question.
The author forget that the current movement out of the cities into the suburb can lead to the
collapse of prices in overpriced areas of big cities like NYC. Also the retain space collapse is
evident even to untrained observers. So people moving out of big cities like NYC and cities
devastated by riots need to sell their current condos and apartments. To whom?
There are
many reports of homebuyers getting into bidding wars and many cities where home prices have
appreciated
by well more than 10% over the past year. This naturally leads to a concern about market
volatility: Must what goes up come down ? Are we
repeating the excesses of the early 2000s, when housing prices surged before the market
crashed?
Some analysts
argue that this time, it's even less likely that prices will fall. Inventories
of new homes for sale are very low, and lending standards are much tighter than in 2005. This
is true. In fact, the ground is even firmer than it seems.
New home inventories were very high before the Great Recession. Today, they are closer to
the level that has been common for decades. The portion of inventory built and ready for move-in is
especially low because of supply chain interruptions combined with a sudden boost of demand
during the coronavirus pandemic. We shouldn't worry much about a crash when buyers are eagerly
snapping up the available homes.
... ... ...
At the June 2006 Federal
Reserve meeting, Ben Bernanke said, "It is a good thing that housing is cooling. If we could
wave a magic wand and reinstate 2005, we wouldn't want to do that." It's notable that Jerome
Powell, who today holds Bernanke's former position as Fed chair, isn't openly pining for a
"cooler" housing market.
There is a common belief that before the Great Recession, homebuyers were taken in by the
myth that home prices never go down, and they became complacent. Those buyers turned out to
be wrong. Yet, even when a concerted effort to kill housing markets succeeded, we had to beat
them into submission for three full years before prices relented. Home prices can go down, but
we have to work very hard, together, for a long time, to make them fall.
If you are a buyer in a hot market where home prices are 30% higher than they were a year
ago, you're getting a 30% worse deal than you could have had back then. Nothing can be done
about that. That said, the main things to be concerned with are the factors federal
policymakers are in control of. There is little reason to expect housing demand to collapse. If
it does, it will require communal intention""federal monetary and credit policies meant to
create or accept a sharp drop in demand. And even if federal officials intend for housing
construction to collapse, history suggests that a market contraction would push new sales
down deeply for an extended period of time before prices relent.
Guest commentaries like this one are written by authors outside the Barron's and
MarketWatch newsroom. They reflect the perspective and opinions of the authors. Submit
commentary proposals and other feedback to [email protected] .
Kevin
Erdmannis a visiting research fellow with the Mercatus Center at George Mason
University and author of Shut Out: How A Housing Shortage Caused the Great Recession and
Crippled Our Economy.
Meme-based investing 'is a totally nihilistic parody of actual investing,' says Jeremy Grantham, who called 3 stock-market
bubbles
Last Updated: June 24, 2021 at 7:18 p.m. ET
First
Published: June 24, 2021 at 3:16 p.m. ET
By
Mark DeCambre
18
'This is it guys, the biggest U.S. fantasy trip of all time,' says Grantham
Jeremy Grantham, founder of GMO, speaks in 2012 in Oxford, England
GETTY
IMAGES
"'Meme' investing -- the idea that something is worth investing in, or rather gambling on, simply because it is funny --
has become commonplace. It's a totally nihilistic parody of actual investing. This is it guys, the biggest U.S. fantasy
trip of all time."
That's Jeremy Grantham, co-founder and chief investment strategist at Boston-based money manager Grantham, Mayo, Van Otterloo
& Co., in a recent interview with
Bloomberg
News
, lamenting the state of an investment world that has prominently featured the emergence of meme-linked trading in
stocks like GameStop Corp.
GME,
-1.32%
,
AMC
Entertainment Holdings
AMC,
-4.66%
and
BlackBerry Ltd.
BB,
-4.42%
,
among
others.
Grantham noted that the meme cryptocurrency dogecoin
DOGEUSD,
-1.74%
is
"worth billions in the market and not even pretending to be [a] serious [investment]."
"Dogecoin was created as a joke to make fun of cryptocurrencies being worthless, and, not only has it taken off, but it's
such a success that second-level joke cryptocurrencies making fun of dogecoin have gone to multibillion-dollar valuations,"
he said.
Indeed, AMC Entertainment is up over 2,500% in 2021 thus far; GameStop has gained over 1,000% in the year to date; dogecoin
is up by about 5,000%, despite a precipitous drop; and BlackBerry shares are up over 90% so far this year.
By comparison, traditional assets have seen more mundane returns. The Dow Jones Industrial Average
DJIA,
+0.69%
is
up a more than respectable 12% so far in 2021, while the S&P 500
SPX,
+0.33%
has
returned over 13% in the year to date and the Nasdaq Composite
COMP,
-0.06%
has
made a powerful comeback in June to achieve a gain of nearly 12% in the first six months of the year.
Grantham views the social-media-driven meme-stock moves as concerning and indicative of bubbles percolating in financial
markets that will ultimately need to be contended with.
Grantham is worth paying attention to due to his prescient calls over the years. He said that stocks were overvalued in
2000 and again in 2007, anticipating subsequent market downturns,
the
Wall Street Journal reports
. Grantham also signaled that elements of the financial market had become unmoored from
reality leading up to the 2008–09 financial crisis.
However, his bearishness thus far hasn't helped his core investment strategies, amid a relentless run-up in stocks, be they
traditional or meme. The Nasdaq Composite has already put in back-to-back record closes this week and was aiming for a 17th
record finish on Thursday, while the S&P 500 index was eyeing a record of its own.
(cointelegraph.com)
45BeauHD on Monday June 21,
2021 @05:20PM from the not-dog-friendly dept. The president of the Federal Reserve Bank of
Minneapolis, Neel Kashkari, took a jab at Dogecoin (DOGE) last week by referring
to the memecoin as a Ponzi scheme , upping his rhetoric against cryptocurrencies.
Cointelegraph reports: Kashkari's comments were in response to a LinkedIn poll by Paul
Grewal, the chief legal officer and corporate secretary of Coinbase, who
asked his connections about the proper way to pronounce "Doge." "The right pronunciation is
pon-zi," Kashkari quipped.
This isn't the first time Kashkari has taken aim at cryptocurrencies. In February 2020,
he said digital assets like Bitcoin (BTC) lack the basic tenants of a stable currency and
praised the Securities and Exchange Commission for "cracking down" on initial coin offerings.
Kashkari is not a member of this year's Federal Open Market Committee, the group responsible
for setting United States monetary policy. The Minneapolis branch of the Fed will serve as an
alternate FOMC member in 2022 before rotating back onto the committee as a voting member in
2023.
While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members
of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind the
11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7% and
7.4% for the year.
... ... ...
For much of 2020, a badly constricted economy pushed investors toward stocks -- like the
FAANG names -- whose businesses were less affected and whose future growth became even more
alluring with the drop in interest rates. The Russell 1000 Growth Index advanced 37% for the
year, while the Russell 1000 Value Index eked out a 0.1% gain -- the largest annual performance
gap between the two style benchmarks in FactSet data going back to 1979.
Big tech stocks were among the leaders of that rally. Apple shares climbed 81% in 2020 --
last August becoming the first U.S. public company to
surpass $2 trillion in market value -- while Amazon rose 76% and Netflix gained 67%.
Facebook added 33% for the year, and Alphabet 31%.
These companies are too big and too powerful. I hope for anti-trust legislation that cuts
them down to size. The tech oligarchs have too much influence on what Americans think and do.
They are a direct threat to our democracy. I hope more Americans will decide to support
smaller companies (especially local stores), putting conviction ahead of convenience.
J Pate
Google and Amazon has no near peer competitors. Netflix and Apple do. My family got rid of
Netflix last year and now have Hulu. There is a ton of free steaming sites also. We never
missed Netflix.
Jay Urbain
"While Alphabet Class A and Facebook shares are up 37% and 21%, respectively, other members
of the group have weighed on the market. Amazon shares are up 7.1% in 2021, lagging behind
the 11% rise in the benchmark S&P 500. Apple and Netflix have fared even worse, down 1.7%
and 7.4% for the year."
Time to take another look at AMZN and AAPL.
Jon Tannen
Gasp! So after breathtaking rises for Apple and Netflix stocks, they're merely flat these
days? Not up 30% this month? Uh-oh! Sound the alarms! Someone please tell the writer that
stocks are not a straight diagonal to the sky. [She's actually wrong about Apple's valuation
being down this year, according to WSJ's very charts! The price is 130 now vs. 129 on Jan 4.
But hey, she's obliged to come up with an article this week.]
This all reminds me of analyst Dan Niles coming on CNBC for years and proclaiming he's
shorting Apple. Every few months: "I'm shorting Apple." "I'm shorting Apple." Again and again
and again. The guy must be broke. [Of course, no one calls him out about it.]
Marshall Dillon
Amazon? Not for me. I have switched most of my online buying to Walmart and local stores.
Amazon needs to get out of politics and stop suppressing free speech, much like the WSJ
moderators.
SACHIN SHARMA
This entire article is misleading. Choosing 2020 as a base year to compare this group of
stocks leaves out the important context of what happened the prior ten years, when FB and
GOOGL underperformed vs APPL, NFLX, AMZN. A mean reversion within this group because money
managers need to justify their existence could be the simple explanation. Also, how much of
the Russel growth fund performance came from AMC and GME, those bell weather companies?
"... As bubbles peak, they combine objective signs of excess" prices rising much faster than earnings can justify" with subjective signs of mania, such as frenzied trading and borrowing. ..."
"... My research on the 10 biggest bubbles of the past century, from the US stock market in 1929 to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the peak, with much of the gain packed into the climactic last months. That finding is closely in line with bubble studies from academics at Harvard and others. ..."
"... By those standards, there are at least five current bubblets. They include the cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous brands; and special purpose acquisition companies (Spacs) , which allow investors a new way to buy into private firms before they go public. ..."
"... The historical bubbles in my study did suffer midcourse setbacks on the way up, but typically those corrections were around 25 per cent and never more than 35 per cent. Beyond that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a one-way downhill path. ..."
"... It is important to remember that a bubble is often a good idea gone too far. In the early 2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies with business plans barely worth the napkins they were written on. Later, researchers found that, compared with other bubbles, those in the tech sector produce many start-ups that fail but also help launch major innovations. For every few dozen dotcom flame-outs, there was a giant survivor such as Google or Amazon that would go on to make the economy more productive. ..."
As bubbles peak,
they combine objective signs of excess" prices rising much faster than earnings can justify"
with subjective signs of mania, such as frenzied trading and borrowing.
To some the entire US
stock market looks bubbly given its dizzying run-up, but earnings growth has also been
extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the
market from green tech to cryptocurrency show tell-tale bubble signs.
My research on the 10 biggest bubbles of the past century, from the US stock market in 1929
to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the
peak, with much of the gain packed into the climactic last months. That finding is closely in
line with bubble studies from academics at Harvard and others.
By those standards, there are at least five current bubblets. They include the
cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the
biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic
stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous
brands; and special purpose acquisition
companies (Spacs) , which allow investors a new way to buy into private firms before they
go public.
Each of these bubblets is captured in an index that rose in the last year by around 100 per
cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies
rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as
they so often do, in response to increases in long-term interest rates. What's next?
The historical bubbles in my study did suffer midcourse setbacks on the way up, but
typically those corrections were around 25 per cent and never more than 35 per cent. Beyond
that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a
one-way downhill path.
For the median case, the bottom was found 70 per cent below the peak, and came just over two
years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble
candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per
cent (in the case of ethereum). In other words, they are not likely to resume inflating any
time soon, and they are still far from the typical bottom.
There is one new factor that could upset this historical pattern. Despite the rise in
long-term interest rates, there is plenty of liquidity sloshing around the markets, with
central banks committed to easy money as never before. The risks though are skewed to the
downside.
It is important to remember that a bubble is often a good idea gone too far. In the early
2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies
with business plans barely worth the napkins they were written on. Later, researchers found
that, compared with other bubbles, those in the tech sector produce many start-ups that fail
but also help launch major innovations. For every few dozen dotcom flame-outs, there was a
giant survivor such as Google or Amazon that would go on to make the economy more
productive.
"Over the past five years, the S&P 500 stock index has more than doubled. For the past
10 years, it has nearly quadrupled," says Orman. "If you have left your portfolios on
autopilot, that could likely mean that you now own more stock than you intend to, or
should."
Left to their own devices, your increasingly valuable stocks may have started to account for
an even larger portion of your account
... ... ...
Orman cites a recent analysis from Fidelity Investments on the retirement plans the company
handles. Fidelity estimates about 20% of savers own more stock than they'd recommend for
someone of their age.
...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of
previous capital-gains tax hikes. While there is only a modest impact on the stock market as a
whole, momentum stocks usually get socked before they are levied, they found. That makes
sense""investors logically are more motivated to sell the stocks where they would save the most
by avoiding higher capital-gains taxes.
The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of
their equity assets, the Goldman analysts found. According to the
Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion
of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time
would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found
that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)
As bubbles peak,
they combine objective signs of excess" prices rising much faster than earnings can justify"
with subjective signs of mania, such as frenzied trading and borrowing. To some the entire US
stock market looks bubbly given its dizzying run-up, but earnings growth has also been
extraordinarily strong through the pandemic. Beneath the surface, however, sectors of the
market from green tech to cryptocurrency show tell-tale bubble signs.
My research on the 10 biggest bubbles of the past century, from the US stock market in 1929
to Chinese shares in 2015, shows that prices typically rise 100 per cent in the year before the
peak, with much of the gain packed into the climactic last months. That finding is closely in
line with bubble studies from academics at Harvard and others.
By those standards, there are at least five current bubblets. They include the
cryptocurrency market for bitcoin and ethereum; clean energy stocks, including some of the
biggest names in electric vehicles; small cap stocks, including many of the hottest pandemic
stories; a basket of tech stocks that lack earnings, which is also chock-a-block with famous
brands; and special purpose acquisition
companies (Spacs) , which allow investors a new way to buy into private firms before they
go public.
Each of these bubblets is captured in an index that rose in the last year by around 100 per
cent, often much more, to a peak value between $500bn and $2.5tn. Day traders and other newbies
rushed in, a common symptom of late stage market manias. Now these bubbles are faltering, as
they so often do, in response to increases in long-term interest rates. What's next?
The historical bubbles in my study did suffer midcourse setbacks on the way up, but
typically those corrections were around 25 per cent and never more than 35 per cent. Beyond
that point" a 35 per cent drop" the bubbles in my sample became monophasic, or stuck on a
one-way downhill path.
For the median case, the bottom was found 70 per cent below the peak, and came just over two
years after the peak. Except for the index of small-cap pandemic stocks, the other four bubble
candidates have all experienced drops of at least 35 per cent, but also of no more than 50 per
cent (in the case of ethereum). In other words, they are not likely to resume inflating any
time soon, and they are still far from the typical bottom.
There is one new factor that could upset this historical pattern. Despite the rise in
long-term interest rates, there is plenty of liquidity sloshing around the markets, with
central banks committed to easy money as never before. The risks though are skewed to the
downside.
It is important to remember that a bubble is often a good idea gone too far. In the early
2000s, the conventional wisdom was that the dotcom bubble had fuelled mainly junk companies
with business plans barely worth the napkins they were written on. Later, researchers found
that, compared with other bubbles, those in the tech sector produce many start-ups that fail
but also help launch major innovations. For every few dozen dotcom flame-outs, there was a
giant survivor such as Google or Amazon that would go on to make the economy more
productive.
...Analysts at Goldman Sachs""in October""ran the numbers on the stock market impact of
previous capital-gains tax hikes. While there is only a modest impact on the stock market as a
whole, momentum stocks usually get socked before they are levied, they found. That makes
sense""investors logically are more motivated to sell the stocks where they would save the most
by avoiding higher capital-gains taxes.
The last time capital-gains taxes were hiked, in 2013, the wealthiest households sold 1% of
their equity assets, the Goldman analysts found. According to the
Federal Reserve's distributional financial account data , the top 1% held $17.79 trillion
of equities and mutual funds in the fourth quarter of 2020""so a 1% selling of stocks this time
would be $178 billion. (The most recent Internal Revenue Service breakdown, from 2018, found
that millionaires accounted for just over 500,000 filers or about 0.4% of the total.)
This quick jumping onto and off of the bullish and bearish bandwagons has become the new
normal, as you can see from the table below.
... ... ...
As I argued three weeks ago, this sentiment pattern suggests that the market may remain
in a fairly narrow range for the next several months. The contrarian bet is that the market
will finally break out of that trading range whenever the market timers stubbornly hold onto
their sentiment beliefs in the face of the market moving in the opposite direction. That is, be
on the lookout for when the market timers remain bullish in the face of declines, or bearish in
the wake of rallies. That will indicate that a bigger decline or rally is in store.
In the meantime, the market timers' behavior suggests both market rallies and declines
will be subdued. That's good news to the extent you were worried that a major new bear market
is about to begin, but bad news if you were hoping for a more sustained rally.
... ... ...
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks
investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] .Continue
Reading
For the past several months, Morgan Stanley's fundamental analysts have been turning
increasingly bearish on stocks, with the pessimistic sentiment plateauing
earlier this week when chief equity strategist Michael Wilson said that there is far too
much optimism in the market, and that while earnings are slowly rising, forward PE multiples
are far too high and are set to slide, with "the de-rating about 75% to go or an approximate
15% decline in P/Es from here." As a result, in Wilson's view - which is rapidly emerging as
the most bearish on Wall Street - " earnings revisions will not be able to offset that
de-rating, leaving the overall market vulnerable to a 10-15 % correction over the next 6
months."
It now appears that Morgan Stanley's fundamental bearishness has spilled over into the
bank's technical analyst team and as the bank's chief Euro equity Strategist Matthew Garman
writes, for only the fifth time in over 30 years, each of Morgan Stanley's five market timing
indicators are giving a sell signal at the same time.
Not only that, but the bank's Combined Market Timing Indicator - which has been in sell
territory since March - just hit a new all time high of 1.19, surpassing the previous record
high seen in June-2007, right around the time of the first great quant crash and before the
market collapsed.
According to Garman, the only time equities have risen after a "Full House" Sell Signal was
in Feb 17, shortly after the Shanghai Accord kicked in to prevent a global recession. The other
previous occasions where there was a "Full House" Sell Signal were Mar-90, May-92, Jun-07.
According to MS, "in the 6M post the initial Full House Sell Signal, MSCI Europe has fallen on
average 6% ."
So with every in house risk indicator screaming sell, does that mean that Morgan Stanley
will have the balls to tell its clients to sell? Why of course not, because in this market
where stuff like the AMC, GameStop and Bed Bath squeezes force analysts to admit they no longer
have any idea what's going on...
... Morgan Stanley is keeping the hope and assuming that the current period will be similar
to 2017 - the only other time when a massive sell signal did not result in a market plunge.
Back in 2017, we remained constructive despite the signal given i) strong EPS growth, ii)
an early cycle environment, iii) EU inflows, iv) low sentiment and v) a rise in M&A.
Sentiment metrics may look more elevated than in 2017, but many of those factors remain in
place today. While we see a trickier risk-reward for equities globally, we maintain our view
that there is a compelling case for Europe to outperform global peers.
Yet even Morgan Stanley is forced to admit that while Defensives may just scrape by after a
record sell signal, cyclicals are about to be hammered. The next chart shows the relative
performance of Cyclicals versus Defensives after a Full House Sell Signal on. As MS notes,
"perhaps unsurprisingly, given the poor performance at the market level, Cyclicals have
struggled. In the 6M post the four initial Full House Sell Signals, Cyclicals have
underperformed Defensives on average 12%, and this drops to -15% looking at any day
when the MTIs have all said sell at the same time."
This was true even in 2017 when equity markets rose: "we previously cited similarities with
the 2017 Full House Sell Signal as reasons to not get overly cautious on equity markets in
aggregate at this moment in time. After the February-2017 Full House Sell Signal, MSCI Europe
continued to rise pretty consistently through the rest of the year. However, despite strong
performance from the market in aggregate, the performance of Cyclicals versus Defensives was
much poorer. Between February and June 2017 Cyclicals underperformed Defensives by 6%."
It's not just the bank's sell signal that is prompting concerns about the future returns of
cyclicals: Borrowing a page from our own warnings (see "
China's Credit Impulse Just Turned Negative, Unleashing Global Deflationary Shockwave "),
Morgan Stanley looks at "a number of China data points which are giving warning signs" first
and foremost the collapse in China's credit impulse, to wit:
While credit tightening has been front-loaded in 1H21, as outlined here, our economists
remain constructive on China's growth recovery. Having said that, a number of Chinese data
points do suggest the Cyclical bounce looks overextended. China's credit impulse has just
turned negative, and historically this has provided a lead indicator for the year-on-year
performance of European Cyclicals (Exhibit 5). Similarly, the relative performance of Cyclicals
versus Defensives has closely tracked moves in Chinese 10Y bond yields, which are now at their
lowest levels since September 2020, standing in sharp contrast to the performance of
Cyclicals.
Putting it all together, readers have to ask themselves if what is coming will be an analog
of the one and only episode on history when the market did not plunge after all Morgan Stanley
market timing indicators hit a sell (and were at an all time high), or will this case be
similar to Mar-90, May-92, Jun-07 when the outcome was anything but a happy ending.
the OMB expects slower growth in the long run. It projects gross domestic product growth
running slightly over 2% on average annually between fiscal 2022 and 2031, while the
nonpartisan Congressional Budget Office pegs growth at less than 2% on average over the same
window. Either growth rate is anemic, making more "broadly shared prosperity" unlikely as
well.
...
It may be that raising federal spending turns out to be a winning formula for Democrats in
2022. Then again, it may not. Especially since Mr. Biden would hike taxes high enough to eat up
more GDP than in any 10-year period in American history, according
to the American Action Forum's Gordon Gray. The spending binge would also increase the nation's
public debt to 117% of GDP""greater than the previous record GDP percentage that Washington
clocked in the year after World War II.
Recent polling suggests the Democrats' approach may not help them in the midterms.
... Democrats may be counting on Republicans to emphasize "culture war" issues rather than
deliver a focused, principled attack on the president's orgy of spending and tax increases.
This isn't to suggest issues like defunding the police, critical race theory and border
security are unimportant. But in 2022, as in most years, the economy will likely be the real
congressional battleground. The sooner Republicans recognize that, the better.
Mr. Rove helped organize the political-action committee American Crossroads and is author of
"The Triumph of William McKinley" (Simon & Schuster, 2015).
I don't believe policies matter any more. In 2020, democrats secured a permanent upper hand
for themselves which is mail-in ballots.
Kenneth Johnson
WSJ headline---"Yes, It's Still The Economy, Stew ped"
If....by the summer of 2022....inflation is 4%+....we're in a recession....and
unemployment is 6%+....the Democrats will lose the midterms....I hope.
If none of those things is true....they may 'dodge a bullet'.
Any other opinions?
Ron Hoelscher
They have lost the culture war and do not seem to realize it.
As far as spending, when an economy evolves to have very few people controlling the 90% of
the economy then the governing party must resort to handouts to the 90% to stay in power.
I think the Romans called it "bread and circuses." Trump was the circus, now people want
some bread.
Ovi, refer Iranian oilfields . I have always said that Iran is producing and selling all the
oil it wants to sell or can sell . The regime has outlived 10 US administrations and 6 US
presidents inspite of sanctions . They are having to sell at a discount but at the end of the
day the oil flows . Just some road bumps and a zig zag route . I doubt they have a lot of spare
capacity .If and when the sanctions are lifted all what is " unofficial " will become "
official " . As to OPEC or OPEC+ that they are close to capacity viewpoint is more prevailing
by the day .
Current around of stimulus has run it's coarse. I look for jobs numbers and inflation
numbers to soften over next few months. Which means more QE and lower interest rates for
longer. Higher stock prices.
But for the real economy. We pulled 5 years worth of GDP forward. Unless governments are
prepared to spend even more on a monthly and yearly basis going forward than they did since
March 2020 until now. And put more money into the hands of average people. We roll over first
then fall off a cliff economically. Private banks just aren't going to create the money via
loan creation in volume needed to offset or match what the government has done over past year.
So without further massive stimulus we get massive credit contraction.
With the debt burden not just public debt but private debt hanging over the economy we
likely never return to pre-pandemic levels of Global GDP
Price action for oil is still bullish but that can change in a hurry when jobs and inflation
data turn soft. HOLE IN HEAD IGNORED
05/31/2021 at 2:00 pm
HHH, " With the debt burden not just public debt but private debt hanging over the economy
we likely never return to pre-pandemic levels of Global GDP " . Been parroting this from a long
time but few want to admit that
the BAU is over . Life is(was) a party and all parties must end .
LONDON (Reuters) - Cryptocurrencies such as bitcoin are a "farce" and a symptom of bubbles forming in financial markets, Amundi
chief investment officer Pascal Blanque said on Thursday.
Bitcoin, trading at around $39,364, fell 35% last month after China doubled down on efforts to prevent speculative and financial
risks by cracking down on mining and trading of the largest cryptocurrency.
Speaking at a news conference, Blanque described the crypto currency as a "farce," adding that it was a symptom of the bubbles
forming in markets.
Scorpion 16 April, 2021 I am not surprised either that ARK bought COIN. She is a gambler not an
investor. Most of her investment is in overvalued, overhyped stocks they can't just keep going
up.
Lou 18 May, 2021 Until recently she was loaded up with Tesla - as much as 10% of the ARKK
portfolio - which accounted for a good part of its stellar performance (note that she had TSLA
in some of the other ARK funds. Not sure any of these other choices are going to give her ETFs
the ride TSLA gave them. Reply 2 Rene 7 May, 2021 Any one that invest in Bitcoin ,dogecoin,
Coin etc, must have his brain fall of pot or must have so much money like the Tesla Ceo, that
they can gamble for ever in a Casino, with that kind of money, i too will invest in Tin air,
and artificial money because Y cannot invest money sufficient to go broke in 10 life times.
that is very easy I don't need to expect any return in my investment.
Theo the Cat 19 May, 2021 I would never buy ARKK's stocks, but I am definitely watching and
eating popcorn. Alex 27 April, 2021 ARK is losing steam. People start to realize ARK can't
survive in a bear market
Theo the Cat 19 April, 2021 Ark is gonna turn into Titanic.
Rock 25 May, 2021 no one cares what ARK invests in... unless you want to lose money Reply 2
Cybercraig 25 April, 2021 I may end up selling ARK.G for a loss to balance next year's taxes.
Yech! Reply 5 4 Mighty Lion 19 May, 2021 Why is the reporting about ARK so sexist? Every single
article I've ever seen starts "Cathie Wood's ARK ETFs ... (such and such) ..." If it was
managed by a man, they would just say "ARK ETFs ... (etc). Reply 2 FlorinS 4 hours ago How can
we trust Cathie Wood ? Only few days ago she predicted that Bitcoin may reach $500,000.
Shares of Flywire, a company that helps organizations accept foreign-currency payments,
debuted on the Nasdaq on Wednesday at $34 apiece, up from their $24 IPO price. They rose about
4% on their first day of trading, giving the Boston-based fintech a roughly $3.5 billion
valuation by day's end. As a private company, Flywire was last valued at $1 billion after a
round of funding in early 2020, according to a PitchBook estimate.
Founded in 2009 under the name peerTransfer by Spanish serial entrepreneur Iker Marcaide,
Flywire originally aimed to make it easier for international students to pay U.S. tuition
without incurring foreign currency fees that could range from 3% to 5%. Flywire has since
expanded its services, enabling some 2,250 clients including universities, hospitals, travel
providers and businesses to accept payments in more than 130 currencies. It acquired Palo Alto
healthcare payments startup Simplee in February 2020. Despite the turmoil of last year, Flywire
processed $7.5 billion in payment volume and signed up 400 new customers while retaining 97% of
existing customers.
The "Everything Bubble" has jumped from hyperbole to literal truth in just a couple of
years, as more and more assets enter "crazy expensive/extremely reckless" territory. The latest
addition to the list is collateralized loan obligations (CLOs), which are created when a bank
lends money to a less-than-creditworthy company and then bundles that loan with a bunch of
similar loans into bonds for sale to yield-starved pension funds and bond funds.
There's a legitimate place in the market for this kind of security, as long as everyone
understands the risks. But in financial bubbles, banks' insatiable hunger for fees combines
with bond buyers' desperate need for income to cloud everyone's judgment. Lending standards
slip, bond quality declines, credit rating agencies look the other way to keep the deals
flowing, and buyers keep buying because they have no choice.
Record year
So far this year, issuance of new CLOs is on pace to easily exceed 2018's record.
Part of this surge is, like so much else, catch-up from last year's nationwide lockdown. But
most is just your typical out-of-control financing fueled by way too much new currency being
dumped into the banking system.
So how can bonds made up of below-investment-grade paper be investment grade? Through the
magic of securitization. As the Wall
Street Journal recently quoted CitiGroup:
Because CLOs' loan holdings are diversified, the bonds can achieve higher credit ratings
than the underlying loans, making them popular among institutions restricted to
investment-grade debt, such as banks and insurers.
Meanwhile, the combination of a recovering economy and lots of lenders willing to finance
pretty much anything is improving the prospects of financially challenged companies. Fewer of
them are defaulting, which increases the confidence of the people buying CLO bonds. Moody's
Investors Service now expects the trailing 12-month default rate on CLOs to fall to 3.9% by the
year-end, from 7.5% in March. And a growing number of firms are now being reviewed by rating
agencies to have their CLOs upgraded.
Meanwhile, spreads relative to risk-free paper are shrinking:
Sounds promising, right? And, alas, also familiar. Here's how CDOs, the previous bubble's
version of CLOs, worked just before the bottom fell out in 2008:
https://www.youtube.com/embed/3hG4X5iTK8M
Perpetual motion machine
Once they really get going, asset-backed securities like CDOs and CLOs take on a kind of
perpetual-motion-machine vibe in which easy money begets even easier money. To the extremely
credulous, such a system looks capable of spinning right along forever. Unfortunately, this
perception tends to become widespread just as some crucial cog in the machine is about to
break.
Which cog will it be? Candidates abound. Interest rates might rise, stocks might tank, the
government might realize its policies are stoking instability and try to "taper." Some crazy
geopolitical thing might happen (DO NOT look closely at Palestine, Ukraine, or Taiwan). It
doesn't matter which breaks first, as long as one eventually does.
Then the perpetual motion machine shifts into reverse, with rising defaults causing lower
CLO bond ratings causing mass sales by panicked institutions. And so on, until whoever had the
guts to short this market cashes out with epic gains. 11,429 31 NEVER
Detective Miller 2 hours ago
When there's nothing left there's always war.
Misesmissesme 2 hours ago
The institutions buying these instruments have no risk. They know they'll be bailed out
because they're too big to fail. Risk is all on the little guy who'll have to pay for the
bailouts.
NotApplicable PREMIUM 36 minutes ago
Powell and his magic checkbook.
Justus D. Barnes 2 hours ago (Edited)
Which war? Biblical or one of the escalating hot spots?
What if the Fed fought inflation my lowering the cost of electricity? Instead of
subsidies just increase the supply? They are printing billions why not see to it that we
double our energy production with nuclear power plants? If the cost of electricity was
halved that would instantly boost everyone's disposable income while making our
manufacturing more competitive.
Angelo Misterioso 56 minutes ago remove link
This is about the 5's derivation of this concept - going all the way back through, CDO
Squared, CRE CDO's, CDO's and CBO's before that... the hi grade CDO's were 200 to 1
levered...
just pure greed by the street and the regulators were the C students in math
class...
radical-extremist 1 hour ago
When homeowners in Stockton California began to discover the magical mystery of
Adjustable Rate Mortgages and couldn't afford to pay another $600 a month for their "dream
home" - the bottom began to fall out.
When unprofitable ghost companies, of which there are thousands, start defaulting on
their cheap loans - that's the sign. Which companies, where? No one's sure.
el_buffer 2 hours ago
I need to get my money out of this country before they rape me for yet another friggin
bailout.
Tanner798 1 hour ago
Keep in mind: most of the leveraged loans these CLOs are made up of are all floating
rate. If the Fed increases interest rates to combat inflation, the companies borrowing from
leveraged loans will no longer be able to afford their interest payments. The only reason
why the default rate is so low is due to the originators rolling these companies into
larger leveraged loans so they don't default. Rating agencies look the other way and
deteriorate the covanents to allow this to happen.
Ajax_USB_Port_Repair_Service_ 1 hour ago
Which state pension funds fare buying CLO's? My guess is the blue states.
Interesting Times In The UK 52 minutes ago
The Big Short is an excellent film, just as pertinent today ... as it was 13 years
ago.
Can't wait to watch the sequel ..
Portal 2 hours ago
Rampant speculation always precedes a collapse.
ThanksIwillHaveAnother 41 minutes ago (Edited)
I love how Wall Street constantly invents new words. In this case these are Junk
Bonds.
CLOs have become a $760 billion market, accounting for 70% of new leveraged loan purchases
last year, according to Citi.
... Just six nonfinancial, junk-rated companies defaulted during the first quarter of this
year, according to Moody's Investors Service -- the lowest level since 2018. The ratings agency
expects the trailing 12-month default rate to fall to 3.9% by the end of December, from 7.5% in
March.
... The combination has analysts and investors expecting a banner year for CLO issuance.
Bank of America
projects sales to total around $360 billion this year, including refinancings, while Citibank
expects around $290 billion. Both figures would surpass 2018's all-time high.
... Critics say CLOs allow companies to borrow more than they can support, exposing
investors to losses in a downturn. A wave of leveraged loan downgrades
hit CLO managers last year , causing some portfolios to surpass limits on low-rated
holdings or breach collateral tests.
... Some CLO tranches haven't traded consistently, wrote KKR analysts in a recent note, a
sign that there could be some fragility lurking underneath the market's surface.
"Despite the high volume of activity, we do not believe that liquidity across the [CLO]
market has been uniform and as robust as it may seem," they wrote.
Archegos' prime brokers initially attempted to try and avoid a market panic by coordinating
their sales of the massive blocks of shares their had accumulated on behalf of Archegos via a
complicated series of swap arrangements. But when Goldman Sachs and Morgan Stanley broke ranks
and opted to be the first out the door, Credit Suisse, which had the biggest exposure to
Archegos, was ultimately left with more than half of the $10 billion+ in losses that banks were
stuck with (while Hwang reportedly lost his entire 11-figure fortune).
Right now, it's not exactly clear what laws prosecutors suspect Archegos and the prime
brokers of breaking.
While authorities haven't accused Archegos or its banks of breaking any laws in their
dealings, the episode has drawn public criticism from regulators, as well as some inquiries
behind the scenes from watchdogs around the world. The implosion shows Wall Street has grown
too complacent about potential threats building up in the economy, Michael Hsu, the new
acting chief of the Office of the Comptroller of the Currency, said last week.
But the DoJ isn't the only agency poking around: Investigations are ongoing across the
globe.
The Securities and Exchange Commission launched a preliminary investigation into Hwang in
March, a person familiar with the matter said at the time. The agency has since explored how
to increase transparency for the types of derivative bets that sank the firm.
And in the U.K., the Prudential Regulation Authority has been asking firms including
Credit Suisse, Nomura and UBS Group AG to hand over information related to their lending to
Archegos, people familiar with the matter have said.
While investigators will undoubtedly focus on what happened, some believe that the real
concerns lie in current vulnerabilities in the world of equity finance. The team at Risky
Finance recently calculated that some $3 trillion in hidden Archegos-style exposure is out
there in the market, just waiting to explode if stocks sell off.
...
It should serve as a warning. 14 years ago, obscure corners of banking businesses became
hotbeds of regulatory arbitrage, speculation and leverage. The contagion of US subprime brought
the financial system to its knees. Now, after years of low or negative interest rates, equity
finance may have become a similar hotbed.
(Bloomberg) -- Senator Elizabeth Warren ripped the Federal Reserve for its oversight of
Credit Suisse Group AG in the run-up to Archegos Capital Management's implosion, arguing the
regulator badly blundered when it freed the bank from heightened monitoring.
Warren pointed out at a Tuesday Senate hearing that the Fed knew Credit Suisse had problems
estimating its potential trading losses because the agency had flagged the Swiss bank over that
issue in its 2019 stress tests. She questioned why Credit Suisse, under the watch of Fed Vice
Chairman for Supervision Randal Quarles, was among foreign banks released last year from
oversight by the Large Institution Supervision Coordinating Committee, which keeps tabs on
lenders that pose the greatest risk to the U.S. financial system.
"So you now agree that you made the wrong decision to weaken supervision?" the Massachusetts
Democrat asked Quarles, who was testifying before the Senate Banking Committee.
"We did not weaken supervision," he responded, saying the shrinking U.S. footprint of Credit
Suisse and other foreign banks prompted the Fed's decision. Quarles further argued that the
billions of dollars in losses that Credit Suisse suffered in relation to Archegos -- trader
Bill Hwang's family office -- weren't a result of faulty Fed oversight.
"The losses you are referring to didn't occur in the United States," he said.
Warren scoffed at the idea that missteps involving overseas lenders don't lead to U.S.
consequences. She reminded Quarles his term as vice chairman ends in five months, and said,
"our financial system will be safer when you are gone."
May beyes, but may there is will the Last Hurrah move up...
Even if the S&P 500 stays flat for the rest of 2021, this year would mark its third
consecutive year of double-digit gains. The index has only one such three-year period since
the dot-com bubble burst in 2000.
This week, LPL Research analyst Jeff Buchbinder said investors should expect stock market
gains to
slow significantly in the second half of 2021 as inflationary pressures and rising interest
rates weigh on investor sentiment.
"... In April, it exploded to a new WTF high of $847 billion, up by $188 billion in six months, having ascended to the zoo-has-gone-nuts level: ..."
"... Leverage creates buying pressure and drives up prices. As prices rise, the collateral can be leveraged up further, and leverage builds with rising asset prices. And then when prices decline, the leveraged bets are sold to pay down the debt, and the selling triggers more price declines, and forced selling sets in. This is when Archegos blew up. ..."
"... It's ironic that the Fed, out of the other side of its mouth, is warning about the results of its policies, including the ballooning leverage that isn't known until it blows up. ..."
"... Greed, I think. For instance, the uber rich have lots of influence over the frothing finance media. The media pumps up a stock and the wealthy play around that pumping, shorting or selling or what have you. Talking heads sell BS to suckers. ..."
"... Capital begets capital and the cycle continues. ..."
"... Who wins? Not you. Who loses? Not them. Motivation behind letting this happen? Byproduct of averting complete collapse. ..."
"... I started looking at market capitalization data yesterday after reading Wolf's post. The Finra data is easy, just have to find a free source for historical market cap. Intuitively, a level use of margin would cause the dollar value to rise with the dollar value of the market, but if margin grows faster it could be a warning. Unless I'm misreading this chart, it suggests they're tracking. ..."
"... Exactly. Adjusted for market cap its not quite as scary although cos market cap is ebbing a little now maybe it would look like its starting to get concerning. ..."
"... Yes. What is different this time is that it is tracking it with no delay since the March 2020 FED hail marys thrown to prevent Mr Market's melt down. He hasen't sobered up since. When the hangover starts, it's going to be a doozy. ..."
"... The leverage is trying to reconcile the big gap between the 10 year paying sub 1.75% and the actuarial expectation of 6-7% annual returns of pretty much any big player out there insurance companies, pension funds etc. ..."
"... All the regulators need to do is to explicitly state stock exposure via derivatives must be included in regulatory reporting requirements/foreign ownership limits. ..."
"... Come on sheeple: you can't willfully inflate share prices WITHOUT willfully inflating sales and earnings to match! ..."
"... we most assuredly had inflation and crap earnings. ..."
Yves here. We haven't been too concerned about stock market frothiness because overvalued
stock markets, in and of themselves, don't do tons of damage when they fizzle"¦except
when the purchases have been fueled by borrowing. That's the key difference between the 1929
crash and the dot-bomb era.
While we are not up to Roaring Twenties style leverage on leverage (trust me, it was
widespread), the borrowing is getting into nervous-making territory. The chart below, from
Advisor Perspectives, is through April and
compares margin debt levels to the S&P 500 (not a perfect comparison, but a consistent
proxy over time). The relationship isn't quite as whacked as Wolf's post suggests, but the
recent trajectory is worrisome. It has a blowoff look about it.
Stock market margin debt jumped by another $25 billion in April, to a historic high of $847
billion, according to FINRA data. It has exploded by $188 billion in six months, and by 61%
year-over-year, and by 55% from February 2020:
Excess leverage is the precise and predictable result of the policies the Fed is promoting
out of one side of its mouth with its interest rate repression and asset purchases.
Out of the other side of its mouth, the Fed "" via its blissfully ignored Financial
Stability Report "" is warning about leverage, stock market leverage, and particularly the
vast and unknown parts of leverage among hedge funds and insurance companies.
It named names: The family office Archegos, a private hedge fund that has to disclose very
little, and that then blew up because none of the brokers providing it with leverage knew about
the other brokers also providing leverage, and no one knew how much total leverage the outfit
had. The amount of leverage didn't come out until it blew up.
And this form of hidden leverage is not included in the known stock market margin debt
reported monthly by FINRA, based on reports by its member brokerage firms.
This known stock market leverage is an indicator of the trend in leverage, the tip of the
iceberg. History shows that a big surge in margin balances preceded and perhaps was a
precondition for the biggest stock market declines.
In April, it exploded to a new WTF high of $847 billion, up by $188 billion in six
months, having ascended to the zoo-has-gone-nuts level:
In this type of chart that covers two decades during which the purchasing power of the
dollar has dropped, long-term increases in absolute dollar amounts are not the focal point; but
the steep increases in margin debt before the selloffs are.
Leverage creates buying pressure and drives up prices. As prices rise, the collateral
can be leveraged up further, and leverage builds with rising asset prices. And then when prices
decline, the leveraged bets are sold to pay down the debt, and the selling triggers more price
declines, and forced selling sets in. This is when Archegos blew up.
And so the Fed says in its Financial Stability Report that "measures of hedge fund leverage
are somewhat above their historical averages, but the data available may not capture important
risks from hedge funds or other leveraged funds." And it recounts the Archegos fiasco, in terms
of how this hidden leverage works:
"In a separate episode in late March, a few banks took large losses when a highly
leveraged family office, Archegos Capital Management, was unable to meet margin calls related
to total return swap agreements and other positions financed by prime brokers. Price declines
in the concentrated stock positions held by Archegos triggered the margin calls, prompting
sales of the stock positions, which led to further declines in the prices of affected stocks
and, ultimately, substantial losses for some banks."
"The episode highlights the potential for material distress at NBFIs [Nonbank Financial
Institutions such as hedge funds] to affect the broader financial system," the Fed's report
said.
It's ironic that the Fed, out of the other side of its mouth, is warning about the
results of its policies, including the ballooning leverage that isn't known until it blows
up.
Ha, and then says the Fed, still speaking out of the other side of its mouth, if that risk
appetite declines "from elevated levels," and outfits want to get out from this leverage, or
are forced to get out from under this leverage, "a broad range of asset prices could be
vulnerable to large and sudden declines, which can lead to broader stress to the financial
system."
I really am puzzled at this point. Who wins, who loses, what is the motivation behind
letting this happen again and again? Is there an "economy" that the Fed administers that
protects and enables this activity?
Greed, I think. For instance, the uber rich have lots of influence over the frothing
finance media. The media pumps up a stock and the wealthy play around that pumping, shorting
or selling or what have you. Talking heads sell BS to suckers.
That's all true. I don't see how the banks (dark pools), hedge funds and the Fed fit into
a legitimate scenario though if leveraging just escalates each time. If all this continuation
is dependent on how the Fed reacts? Is the Fed the only thing that stands between the bad
actors crapping out or "The House" fronting them more chips?
Pretty much my interpretation yeah! The Fed is just a college of banks, they are just
there to have a structured, bureaucratic method for providing more liquidity when there's a
liquidity crisis. All that stuff about full employment is bull.
They were built to prevent the smoke filled meetings that JP Morgan and his buddies held
during the 1907 crash, where they put a gun to Teddy Roosevelt's head and told him to approve
mergers or else.
But in reality, the Fed is just a more structured smoke filled room. It's still a group of
elites getting together to make decisions on liquidity. Their job is also to smooth out the
frequent crashes of the 19th century, but honestly, since I turned working age, it's been one
crash after another, so clearly they are failing.
Jerome Powell is an extremely wealthy investment banker with a net worth (via internet
search) of between 20 and 55 million dollars. Whose side do you think he is on?
BA from Princeton and Law degree from Georgetown. That is why people try so hard to get
their kids into the Ivy League. Schumer"¦"¦Harvard 1970 I think. On and on. It
is a special club and you are not in it which george carlin pointed out.
Jonathan Levy in his new book "Ages of American Capitalism" maintains that what you are
talking about is what he call the The Great Repetition.
He characterizes the Fed as an administrative agency outside democratic control, by design
and that it is now the most powerful economic policy making institution in the country. He
believes that we are now trapped in a recurring economic pattern dependent upon converting
leveraged asset price inflation into fresh incomes built out of the credit cycle.
Liquidity is now a product of state power lodged inside the U.S. central bank. However
this repetitive stabilizer may have now become a great destabilizer, in the sense of creating
an ever accelerating economic inequality through its policies of offering never-ending
liquidity for speculative assets.
"Who wins?" Well, most of these arch-egos playing the financial game ALWAYS believe it
will be them. Whether by some cunning short-play or leveraged long-play. In the end, the
losers are EVERYONE because of the disruption in the economic system. But if you live close
to the bone with little financial cushion, then the blade will feel the sharpest.
Who wins? Not you. Who loses? Not them. Motivation behind letting this happen?
Byproduct of averting complete collapse.
21T of QE BEFORE the covid helicopters were released.
FED has been in self preservation mode since 2008. FED = Financial System = Economy. It's all
the same thing. Don't mistake it for the term you look up in the dictionary.
I started looking at market capitalization data yesterday after reading Wolf's post.
The Finra data is easy, just have to find a free source for historical market cap.
Intuitively, a level use of margin would cause the dollar value to rise with the dollar value
of the market, but if margin grows faster it could be a warning. Unless I'm misreading this
chart, it suggests they're tracking.
Exactly. Adjusted for market cap its not quite as scary although cos market cap is
ebbing a little now maybe it would look like its starting to get concerning.
> Unless I'm misreading this chart, it suggests they're tracking.
Yes. What is different this time is that it is tracking it with no delay since the
March 2020 FED hail marys thrown to prevent Mr Market's melt down. He hasen't sobered up
since. When the hangover starts, it's going to be a doozy.
Also, note how in previous eras margin debt grew at a rate faster than the price Mr Market
was selling for, at least some of the time.
When I heard about it, I didn't think Archegos was some kind outlier that had discovered
something no one else had thought of. It wasn't an outlier at all"¦it was a clue.
It does look like a blow off top. doesn't it?
And the Real estate Market sure looks like it's at a top.
I see one heck of a lot of leverage and lots of fraud in all of the markets ( Paper gold is
reliable that way) and quite a few threads unraveliing, Greensill and Archegos among
them.
There's nothing rational about these markets, it's straight up fear and greed and the suckers
are ripe for the plucking.
I will stick by my call of June for the top, with the numbers starting to show up in
July.
"The markets can stay irrational longer than [most of us] can stay solvent"
The leverage is trying to reconcile the big gap between the 10 year paying sub 1.75%
and the actuarial expectation of 6-7% annual returns of pretty much any big player out there
insurance companies, pension funds etc.
Between the dollar depreciating and the interest rates repression by the Fed, there isn't
much left. Except real estate but that carries its own "" very substantial- risks.
As my specialization was investment compliance at one of the larger fund shops (Blackrock
level), swaps and CFD exposure is reflected at its mark-to-market exposure in a NAV and can
be effectively considered as off-balance sheet exposure. The fund accounting treatment
between leverage via derivatives vs loans also lends itself to masking derivatives' leverage
issues.
In Europe, regulators require semi-annual risk reporting categorizing derivative notional
values but the Archegos issue also involves exchange/country-level aspects.
For instance, legal teams would go through each country's rules and regulations to see
whether there was a case to be made that derivatives exposures did not need to be included
such that capacity limits can be worked around. All the regulators need to do is to
explicitly state stock exposure via derivatives must be included in regulatory reporting
requirements/foreign ownership limits.
You're forgetting the flip side: You use "funny QE Money" to boost share prices is
necessarily correlated with using "funny QE Money" to prop up sales, gross margins, and
ebitda, and "¦.earnings!
Who is auditing all the leaders of the S&P 500 with foreign operations? WHo will
monitor if loans are taken, say overseas, and disguised as "sales", or "ebitda" flowing
eventually to earnings?
Come on sheeple: you can't willfully inflate share prices WITHOUT willfully inflating
sales and earnings to match!
We're living through forced price inflation. But yet, total revenues are UP? NO make
sense! But some co's are reporting "foreign sales" hugely up that nicely coincide with the
shortages and price jack-ups domestically!
No, not correct at all. First, you are confusing QE, which is an asset swap, with net
spending. So this is what Lambert would call a category error. Second, we most assuredly
had inflation and crap earnings. Go look at the 1970s stagflation. Corporate profits
were lousy (and not even clear if they meant what they appeared to mean due to the lack of
good inflation accounting) and stock prices were in the toilet.
First, you are confusing QE, which is an asset swap, with net spending. Yves
What about the profit (or less loss) the asset "swap" may make for the asset seller?
Granted a rich asset owner has less propensity to spend but cash for trash enables them to
buy other assets like apartments and houses to grind the poor for rents.
Anyway, fiat creation for other than the general welfare is gross violation of equal
protection under the law. Not to mention there are ethical means to increase liquidity such
as equal fiat distributions to citizens.
Stage one -- The markets are rising. Look at all that wealth we are
creating.
Stage two -- It's a bubble. That wealth is going to disappear.
Stage three -- Oh cor blimey! I remember now, this is what happened last time
At the end of the 1920s, the US was a ponzi scheme of inflated asset prices. The use of
neoclassical economics, and the belief in free markets, made them think that inflated asset
prices represented real wealth.
1929 -- Wakey, wakey time. The use of neoclassical economics, and the belief in free
markets, made them think that inflated asset prices represented real wealth, but it
didn't.
It didn't then, and it doesn't now.
How can one ignore all the noise in the media to focus on the crux of the situation,
implications, and the future outcomes?
One can only understand the impact of events better and envision the future by exploring
plausible scenarios and identifying signals which over time will enable one to size up the
probabilities of outcomes.
INTERNATIONAL -- MONETARY IMPERIALISM
Geopolitical relationships are frosty & flammable. All the narratives can be summed up
into a few SCENARIOS:
DECOUPLING. Two spheres of influence & supply chains. China & Russia led and
the Five Eyes led. Germany/EU?
WAR. The dollar empire launching a war against China &/or Russia. Iran?
The probabilities of these scenarios will be defined by the following SIGNALS:
NS2. Is Nord Stream 2 completed by September? If yes, a major geopolitical
victory for Russia. If the U$A can thwart this project then it still has the power and will
to shape Europe. If, on the other hand, Germany & Russia resists U$A's pressure and
complete the pipeline to operate, that would be an act of defiance unprecedented in postwar
history. This is the biggest clash between Russia and the United States since the end of
World War II. Let's see if European countries are less subservient to Washington.
De-DOLLARIZATION. China, Russia and other nations moving away from the US$ and trading
in their respective national currencies.
SANCTIONS. More sanctions from the dollar empire against China, Russia, Iran,
Germany... Counter sanctions, retaliations... impact on the global economy...
Any new scenarios & signals? What probabilities would one assign to various scenarios?
What will be the construct of scenarios and signals at the national level?
The Dollar Empire likes to initiate a conflict during Olympics when they are held in its
adversaries:
"... With its narrow focus on inflation expectations, the Fed seems to be fighting the last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean trade-offs aren't coming or that they no longer exist. ..."
"... The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of putting the brakes on a booming economy in 2022. ..."
Clinging to an emergency policy after the emergency has passed, Chairman Powell courts
asset bubbles.
...With its narrow focus on inflation expectations, the Fed seems to be fighting the
last battle. Just because the Fed hasn't faced big trade-offs in recent decades doesn't mean
trade-offs aren't coming or that they no longer exist.
Chairman Jerome Powell needs to recognize the likelihood of future political pressures on
the Fed and stop enabling fiscal and market excesses.
The long-term risks from asset bubbles and fiscal dominance dwarf the short-term risk of
putting the brakes on a booming economy in 2022.
Mr. Broda is a partner at Duquesne Family Office LLC, where Mr. Druckenmiller is
chairman and CEO.
Stefan Hofrichter, head of global economics and strategy at German fund management giant Allianz Global Investors, put
together a 10-point checklist for bubbles that he says was inspired by Charles Kindleberger, the author of the 1978 classic,
"Manias, Panics, and Crashes." In the table below, you can see what that list is, as well as the color-coded rating he
assigned to them.
At the end of April, the S&P 500
SPX,
0.20%
traded
at a cyclically adjusted price-earnings ratio of 37, a level not seen since the dot-com bubble of 1998, and the Nasdaq
Composite
COMP,
0.59%
was
at an even more-staggering 55. (European, Japanese and Asian equities, by contrast, are trading at or below their long-term
valuation multiples.) And he doesn't agree that the valuations are justified by low bond yields. "Low real yields have
historically typically implied rather low multiples, since low yields point to a slow-growth environment and a higher risk
of recession," says Hofrichter. "Monetary policy over the decades has lifted investors' risk appetite to extremes, powering
the run-up in equities," he says.
Also on the bubble list is that multiple asset classes are overvalued, noting that the term premium for longer-dated
sovereign bonds remains around 100 basis points below the long-term average. Another sign of bubbles is that they tend to
occur alongside the perception of a new era, which clearly is the case now with artificial intelligence. Ultra-easy
monetary policy, the advent of new financial instruments like special-purpose acquisition companies and cryptocurrencies,
and what he calls "overtrading" -- exponential price movements and signs of above-average risk taking -- also are
illustrative of bubbles.
So with all these bubble signs, isn't it a time to sell? "History has shown that bubbles only burst once central banks
start to hike rates or take other steps to rein in their 'easy money' policies." Until the Fed starts tapering its bond
purchases, "we think there is a reasonable chance that U.S. equities will continue bubbling up further. As a result, we
stay nervously 'risk on' for now, gravitating towards risk assets. And we have a bias for value stocks, which are trading
at a multidecade discount to growth stocks," he says.
Tim Duy, chief U.S. economist at SGH Macro Advisors, analyzed the wave of comments from Federal Reserve officials,
including Vice Chair Richard Clarida. "Notice how slowly the Fed is moving in the tapering direction, mixing in talking
about tapering with policy still being in a good place and not seeing substantial progress 'just yet.' This is by design.
It's enough that if you are watching for it and you know what to look for, you see the subtle shift but not enough to be
any kind of game-changer," he said. Duy expects the formal pivot toward tapering to be announced at the Jackson Hole, Wyo.
conference in August, with the actual reductions starting in the first quarter of 2022, or possibly the final quarter of
2021.
Fed Vice Chair for Supervision Randal Quarles has two speeches, the first on insurance regulation and the second on the
economic outlook.
The chief executives of Wall Street banks -- including Bank of America
BAC,
0.37%
,
Goldman
Sachs
GS,
1.01%
and
JPMorgan Chase
JPM,
0.35%
--
will testify in front of the Senate Banking Committee on the topic of oversight.
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Amazon
AMZN,
0.48%
struck
a deal to buy studio MGM for $8.45 billion, with Amazon saying the purchase rationale was the "treasure trove of IP in the
deep catalog that we plan to reimagine."
Dick's Sporting Goods
DKS,
14.98%
jumped
8% after hiking its earnings outlook. Zscaler
ZS,
12.18%
rose
11%, after the cybersecurity company's quarterly results and higher full-year outlook breezed past Wall Street
expectations. Retailer Nordstrom
JWN,
-5.54%
fell
5%, after reporting a wider loss than forecast.
After the close, graphics chip maker Nvidia
NVDA,
0.24%
,
database
software maker Snowflake
SNOW,
2.21%
and
identity management company Okta
OKTA,
1.07%
release
their latest numbers.
Need to Know starts early and is updated until the opening bell, but
sign
up here
to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.
Federal Reserve officials seem to be having some success in calming investor fears over inflation --- a chart from
Deutsche Bank illustrates why that was a tall task.
More On MarketWatch
Steven Goldstein is based in London and responsible for MarketWatch's coverage of financial markets in Europe, with a
particular focus on global macro and commodities. Previously, he was Washington bureau chief, directing MarketWatch's
economic, political and regulatory coverage. Follow Steve on Twitter: @MKTWgoldstein.
'Everybody wants to have asset prices forever going up and the cost of financing to be next to nothing,' Kerry Killinger says.
Like many other banks, Washington Mutual rode the wave of low-interest rates to grow its mortgage business during the housing boom
of the early 2000s. During Kerry Killinger's time as CEO, WaMu grew to have more than $300 billion in assets.
But when the subprime bubble burst, the bank's fortunes quickly turned. In September 2008, at the height of the financial crisis,
Killinger was forced out by the company's board, and ultimately the bank was seized by federal regulators. It still stands as the
largest bank failure in U.S. history.
In their new book, "Nothing Is Too Big to Fail: How the Last Financial Crisis Informs Today," Kerry Killinger and his wife Linda,
who previously served as the vice chair of the Federal Home Loan Bank of Des Moines, explore WaMu's failure, the government's
response to the last crisis and where there is growing risk in today's econom
...
In
the book, the Killingers raise concerns about asset bubbles they believe are forming in a wide range of asset classes, including
stocks, art and luxury items -- and housing. MarketWatch spoke with Kerry and Linda Killinger about the book, the Federal Reserve and
how to avoid another global financial crisis like the 2008 meltdown.
...
Linda Killinger:
I wanted to write a book about this because it was such an unusual, crazy experience. Back in the '80s I
was a partner in an international accounting firm, and the regulators would call me in to do plans for banks that were failing in
that time. I noticed that the regulators would do everything they could to help a bank get liquidity, or to help save a bank that
had not been consumed in crime or problems. But in this crisis of 2008, it just seemed like nobody wanted to help community banks.
In fact, they just did the opposite. They really went after them. I thought it was important to write about the difference and how
important it is to help community banks in a crisis like this.
Kerry Killinger:
My focus was more on public policy -- about being sure we learned all the lessons we possibly can. I've
become very concerned that some of the policies currently being adopted by the Federal Reserve and the regulators in government may
be leading us to a new financial crisis.
'Some of the policies currently being adopted by the Federal Reserve and the regulators in government may be leading us to a
new financial crisis.'
-- Kerry Killinger
MW
: In your book, you explain that you see another bubble forming in residential real-estate -- just one of the many asset
bubbles you warn about. What do you believe caused the last housing bubble that led to the Great Recession and how does it compare
to what's going on now?
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Kerry Killinger:
We've lived through a lot of housing cycles in our careers, and including the big bubble that that was
created in the early 2000s. The housing bubble was primarily caused in the early 2000s by the Fed keeping the fed funds rate below
the rate of inflation for several years. They did that in 2000 through 2003, and that lowered mortgage payments so low and led to
housing prices increasing because housing affordability was good with very low mortgage payments. That caused housing prices to rise
much more quickly than the rate of inflation.
From 2000 to 2006 nationally housing prices rose about 83%. Over that same period, the rate of inflation was up about 20%. So a huge
increase faster than the rate of inflation, and over the long run, housing prices ought to rise at about the rate of inflation,
which was about 2% a year or so. Clearly it was a speculative period where prices were rising too quickly, and speculators and
investors increasingly jumped on board.
To help fuel it, underwriting standards were reduced by Fannie and Freddie, the FHA, VA, Wall Street, bank portfolio lenders, and
all that. Then on top of that we had this growth of subprime lending. Keeping rates so low for so long was the most important
driving force in my opinion.
[Today] the similarities are that the Fed has pursued this policy of ultra-low interest rates with the fed funds rates.
Increasingly, the Fed is keeping mortgage rates at an artificially low level for 30-year fixed rates by purchasing assets in their
own portfolio, including mortgage-backed securities and an increasing array of guarantees that the Fed has done as part of its
policies to fight an economic downturn.
Those actions have led to what I'm calling ultra-low mortgage payments, and that naturally led to a surge in housing prices. Since
2015 housing prices nationally were up about 36% -- more than three times the rate of inflation over that period.
Another similarity is we're seeing speculators and investors jumping in. This go-around it's large entities wanting to buy tracts of
homes to use as rental housing. So the non-owner-occupied part of the market, which is the investor side, has gone up from 31.9% to
34.4% in the past year. We're getting a repeat of speculation coming in at this stage with investors coming in in a major way.
Now, subprime lending is not the same factor it was the last go-around fortunately, but we do know that there's an increasing amount
of subprime lending going on by the FHA, VA and some of the government enterprises. On the good news side, I think underwriting
standards have remained better, much better, than they were in the last go-around. But my caution is underwriting standards are all
based on housing prices that are, I believe, inflated because of these ultra-low-interest mortgage rates.
MW:
You wrote about how, in your view, the Fed's response last time around exacerbated the financial crisis. And just now,
you spoke about how the Fed is contributing to the rise in home prices. So what role do you think the Fed should play in addressing
the bubble that you argue is forming now?
Kerry Killinger:
This go around I think the Fed has learned that it needs to provide plenty of liquidity to keep from
having a crisis. My concern is I think the Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset
guarantees, asset purchases and flooding the system with liquidity for a long period of time. And those policies are very
appropriate for helping get an economy out of a recession in order to get things stabilized, but their use over extended periods of
time always leads to an escalation in inflation and the creation of asset bubbles.
'The Fed has gotten hooked on these expansive policies of ultra-low interest rates, asset guarantees, asset purchases and
flooding the system with liquidity for a long period of time.'
-- Kerry Killinger
They are caught in a conundrum now. The policies that were appropriate to help get us beyond COVID-19 -- the longer they keep using
those same policies, I think they just keep inflating these bubbles. And it will be very difficult to manage them down in an orderly
manner. All assets go through these kinds of ups and downs -- the key is how do we manage them in a way that doesn't cause immediate
implosion, like they did in 2008? The longer they allow these bubbles to keep growing, the bigger challenge they're going to have
at some point in the future.
MW:
You're both strong proponents of community banks and have argued that they should play an important role in the
mortgage industry. But following the Great Recession, many banks have reduced or eliminated their mortgage businesses, citing the
steep cost of regulation, and non-bank mortgage companies have risen up to fill that void. Should the federal government make it
easier for community banks to lend mortgages, and how should it go about doing so?
Linda Killinger:
Well, it depends. I think, if it looks like a bank, it smells like a bank and does mortgages like a bank,
it should be regulated like a bank. Unless there's some incredible service that they provide that banks don't provide -- otherwise,
they're doing the same thing as community banks but they're not being regulated.
The problem with that is things are going pretty well right now because they're selling mostly to Fannie and Freddie. Fannie and
Freddie's guidelines are pretty good right now, but at any point in time [non-banks] could couple up with unregulated hedge funds or
other entities from Wall Street and start securitizing loans themselves, lowering standards and trying to attract more people.
Especially if the Congress and the new president want to have more affordable housing, it depends on what they do when they want to
push for more. There needs to be more affordable housing, but it shouldn't be handled in the way that it was last time. Last time
they had Fannie Mae in the 90s saying well 33% of your loan should be [low- and middle-income (LMI)] loans, and by 2008 it was 60%
should be LMI. So there's a tremendous pressure on Fannie and Freddie from Congress and the other regulators to really crank out
more LMI lending. We really have to be careful about how we do that in the future. Community banks should be involved because they
know how to do it right.
MW:
When the COVID-19 pandemic began, federal lawmakers and regulators were quick to roll out forbearance options to
homeowners who suddenly lost income as a result of the economic shock. A year later, many homeowners are still not making their
monthly mortgage payments and are in forbearance. With the foreclosure moratorium still in place, homeowners aren't yet at risk of
losing their homes, but that possibility lingers. What should we be doing right now to stave off another foreclosure crisis?
Linda Killinger:
During the crisis in 2007, when it started to collapse, Kerry put together a $3 billion fund [at WaMu] to
help subprime borrowers stay in their homes. He lowered the payments, and he lowered the amount that was owed, so it was manageable
and they could stay in their home. I think that's a responsibility of banks to do that. It's going to be hard when the forbearance
goes away -- unless banks and organizations are willing to really write down the principal or lower the payments just to help people
a little bit more.
Kerry Killinger:
Over the long run you are far better off to do everything you can to keep somebody in a home, if they can
possibly afford it. And the last route you want to have to go through is foreclosure, because the costs are painful for everybody
involved. We always used to try to do anything possible to keep people into the homes as long as we possibly can, and I think that
is a very positive thing what the government and everyone did when COVID hit. Some of those solutions are very appropriate for the
short term when you've got a crisis going on, but I think over time they need to be brought back to a more normal environment in
which you will always have a small percentage of homes that will have to go through foreclosure. They were just the wrong home for
the wrong people at the wrong time.
People don't even think about that anymore, but home prices will fall again in some markets for some reason. Given the rapid
escalation we have seen in the last five years, especially in the last 12 months, these are unsustainable price increases that will
be subject to some kind of correction when interest rates start to return to more normal levels. Probably one of the more
controversial things I'll say here is if you assume that we're going to have about a 2% inflation rate and a GDP growing over the
long term at about 2% to 2.5%, then mortgage interest rates on 30-year fixed-rate mortgages should be more in the 4.5% to 5% range.
MW:
Do you think consumers are willing to stomach mortgage rates at that level, after so many years in which mortgage rates
have remained so low?
Kerry Killinger:
Look, all of us want to have the good times roll. Everybody wants to have asset prices forever going up
and the cost of financing to be next to nothing. That's something that a lot of people wish for. We're just putting the warnings out
that seldom do things go up forever. Right now you have borrowing costs substantially below the rate of inflation and way below
historic norms, and that's unlikely to last forever.
I don't know if it's a matter of whether the consumers like it or not, but equilibrium would be closer to 4.5% to 5% on long-term
mortgages. I just put out there that if that happens, for whatever reason, the affordability of housing will become much more
stressed and mortgage payments will grow. That will have a tendency to put downward pressure on home prices. I don't think we're
likely to repeat the problems that hit in 2008 because I think the Fed is smart enough now not to pull liquidity to a point that
causes a downward spiral. But you could certainly see a period over several years of some downward pressure on prices as
affordability becomes more difficult because of rising monthly mortgage payments.
'Right now you have borrowing costs substantially below the rate of inflation and way below historic norms, and that's
unlikely to last forever.'
-- Kerry Killinger
MW:
What else about the market and the economy right now is a source of concern to you?
Kerry Killinger:
I do think that the economy is both stabilized and now back into a strong growth mode, and I think we're
going to see very strong economic activity for the balance of this year and into next year. Inflation is picking up and will be
higher than what many think at this point. Businesses are telling me that they are having more price increases today than they have
had in the last decade. So I think the concern about inflation is real.
And these growing asset bubbles just continue to escalate to the point to where the assets are selling well above reasonable
estimates of intrinsic value. That always presents a certain amount of risk. And finally, we're seeing more and more speculative
products and speculators in the market -- not necessarily just in housing.
Look at certain parts of the stock market
DJIA,
-0.36%
SPX,
-0.40%
.
Look
at bitcoin
BTCUSD,
-4.31%
.
Look
at SPACs. Look at NFTs. I can just go through a litany of assets that have risen in price very, very dramatically. Whenever you have
a combination of rapidly rising price and increasing speculative activity, you have to raise the red flags. Are bubbles being
created here?
Linda Killinger:
Yes, and are pension plans buying some of those bubble products?
Kerry Killinger:
A fair bit of that build-up of buyers for those single-family homes are pension plans doing it directly to
have that asset category. Because with the Fed keeping interest rates artificially low, they can't afford to put into riskless
assets like Treasury securities. They have to keep searching out yields. One of them is increasingly into residential real estate.
Investors Double Down on Stocks, Pushing Margin Debt to Record : Chasing bigger gains, some
have exposed themselves to potentially devastating losses through riskier plays, such as
concentrated positions
and trading options.
Once upon a time last year, there was the EV startup hype-boom that found its way to the
SPAC hype-boom, and the two combined and generated miraculously swift and spectacular results;
and their collapse has been equally swift and spectacular.
And they're joined by the IPO hype-boom stocks, including the spectacularly hyped highflyers
that got shot down, such as Zoom (-49% from peak), Coinbase (-29%), or Airbnb (-35%), and
they're in turn joined by the ARK Innovation ETF (-34%). This whole thing has come unglued.
The EV SPAC boom-and-bust is reflected in the WOLF STREET EV SPAC Index, which has collapsed
by 57% since its peak on February 17. The index tracks seven EV-related companies that have
gone public via a merger with a SPAC: Nikola, QuantumScape (batteries for EVs), Canoo,
Lordstown Motors, Romeo Power (batteries for EVs), XL Fleet (EV drive systems for fleets), and
Lucid Motors. Since February 17, these seven stocks combined have shed $35 billion in value,
which they should have never had in the first place. Easy come, easy go, except when it's your
money (data via YCharts ):
...Ms. Wood's "disruptive innovation" jargon may be somewhat novel. What her investors are
experiencing isn't. Fund managers like Gerald Tsai in the 1960s who rode Polaroid and Xerox to
stardom or various dot-com visionaries in the late 1990s wound up doing poorly for clients who
discovered them after they became hotshots. The culprit is unrealistic expectations and
reversion to the mean for the bubbly sectors that got them there. Analyst Meb Faber points out
that not one of the five Morningstar "fund managers of the decade" through 2010 even managed to
beat the market in the next 10 years. The best of the bunch, Bruce Berkowitz's Fairholme Fund,
became the worst.
"If everyone sees it, is it still a bubble?" That was a great question I got over the
weekend. As a "contrarian" investor, it is usually when "everyone" is talking about an event;
it doesn't happen.
"To appreciate how widespread current concern about a bubble is, consider the accompanying
chart of data from Google Trends. It plots the relative frequency of Google searches based on
the term 'stock market bubble.' Notice that this frequency has recently jumped to a
far-higher level than at any other point over the last five years."
What Is A Bubble?
"My confidence is rising quite rapidly that this is, in fact, becoming the fourth 'real
McCoy' bubble of my investment career. The great bubbles can go on a long time and inflict a
lot of pain, but at least I think we know now that we're in one." – Jeremy Grantham
What is the definition of a bubble? According to Investopedia:
"A bubble is a market cycle that is characterized by the rapid escalation of market value,
particularly in the price of assets. Typically, what creates a bubble is a surge in asset
prices driven by exuberant market behavior. During a bubble, assets typically trade at a
price that greatly exceeds the asset's intrinsic value. Rather, the price does not align with
the fundamentals of the asset. "
This definition is suitable for our discussion; there are three components of a "bubble."
The first two,
price and valuation, are readily dismissed during the inflation phase. Jeremy Grantham once
produced the following chart of 40-years of price bubbles in the markets. During the inflation
phase, each was readily dismissed under the guise "this time is different."
We are interested in the "third" component of "bubbles," which is investor
psychology.
"It's the swings of psychology that get people into the biggest trouble. Especially since
investors' emotions invariably swing in the wrong direction at the wrong time. When things
are going well people become greedy and enthusiastic. When times are troubled, people become
fearful and reticent. That's just the wrong thing to do. It's important to control fear and
greed."
Currently, it's difficult for investors to become any more enthusiastic about market
returns. ( The RIAPro Fear/Greed Index
compiles measures of equity allocation and market sentiment. The index level is not a component
of the measure that runs from 0 to 100. The current reading is 99.9, which is a historical
record.)
Such is an interesting juxtaposition. On the one hand, there is a rising recognition of a
"bubble," but investors are unwilling to reduce "equity risk" for "fear of missing out or
F.O.M.O." Such was a point noted explicitly by Mark:
"Rather than responding by taking some chips off the table, however, many began freely
admitting a bubble formed. They no longer tried to justify higher prices on fundamentals.
Rather, they justified it instead in terms of the market's momentum. Prices should keep going
up as FOMO seduces more investors to jump on the bandwagon."
I know. The discussion of "valuations" is an old-fashioned idea relegated to investors of an
older era. Such was evident in the pushback on Charlie Munger's comments about Bitcoin
recently:
" While Munger has never been a bitcoin advocate, his dislike crystalized into something
close to hatred. Looking back over the past 52 weeks, the reason for Munger's anger becomes
apparent with Berkshire rising only 50.5% against bitcoin's more than 500% gain." –
Coindesk
In 1999, when Buffett spoke out against "Dot.com" stocks, he got dismissed with a similar
ire of "investing with Warren Buffett is like driving 'Dad's old Pontiac.'"
Today, young investors are not interested in the "pearls of wisdom" from experienced
investors. Today, they are "out of touch," with the market's "new reality."
"The big benefit of TikTok is it allows users to dole out and obtain information in short,
easily digestible video bites, also called TikToks. And that can make unfamiliar, complex
topics, such as personal finance and investing, more palatable to a younger audience.
That advice runs the gamut, from general information about home buying or retirement
savings to specific stock picks and investment ideas. Rob Shields, a 22-year-old, self-taught
options trader who has more than 163,000 followers on TikTok, posts TikToks under the
username stock_genius on topics such as popular stocks to watch, how to find good stocks, and
basic trading strategies." – WSJ:
Of course, the problem with information doled out by 22-year olds is they were 10-year olds
during the last "bear market." Given the lack of experience of investing during such a market,
as opposed to Warren Buffett who has survived several, is the eventual destruction of
capital.
Plenty Of Analogies
"There is no shortage of current analogies, of course. Take Dogecoin, created as a joke
with no fundamental value. As a
recent Wall Street Journal article outlined , the Dogecoin 'serves no purpose and, unlike
Bitcoin, faces no limit on the number of coins that exist.'
Yet investors flock to it, for no other apparent reason than its sharp rise. Billy Markus,
the co-creator of dogecoin, said to the Wall Street Journal, 'This is absurd. I haven't seen
anything like it. It's one of those things that once it starts going up, it might keep going
up.'" – Mark Hulbert
That exuberance shows up with professionals as well. As of the end of April, the National
Association Of Investment Managers asset allocation was 103%.
As Dana Lyons noted previously:
" Regardless of the investment acumen of any group (we think it is very high among NAAIM
members), once the collective investment opinion or posture becomes too one-sided, it can be
an indication that some market action may be necessary to correct such consensus. "
Give Me More
Of course, margin debt, which is the epitome of " speculative appetite," soared in recent
months.
As stated, "bubbles are about psychology," which the annual rate of change of leverage
shows.
Another form of leverage that doesn't show up in margin debt is ETF's structured to multiply
market returns. These funds have seen record inflows in recent months.
With margin debt reaching levels not seen since the peak of the last cyclical bull market
cycle, it should raise some concerns about sustainability. It is NOT the level of leverage that
is the problem as leverage increases buying power as markets are rising. The unwinding of this
leverage is critically dangerous in the market as the acceleration of "margin calls" leads to a
vicious downward spiral.
Importantly, this chart does not mean that a massive market correction is imminent. I t does
suggest that leverage, and speculative risk-taking, are likely much further advanced than
currently recognized.
Pushing Extremes
Prices are ultimately affected by physics. Moving averages, trend lines, etc., all exert a
gravitational pull on prices in both the short and long term. Like a rubber band, when prices
get stretched too far in one direction, they have always eventually "reverted to the mean" in
the most brutal of manners.
The chart below shows the long-term chart of the S&P 500 broken down by several
measures: 2 and 3-standard deviations, valuations, relative strength, and deviations from the
3-year moving average. It is worth noting that both standard deviations and distance from the
3-year moving average are at a record.
During the last 120-years, overvaluation and extreme deviations NEVER got resolved by
markets going sideways.
The only missing ingredient for such a correction currently is simply a catalyst to put
"fear" into an overly complacent marketplace. Anything from economic disruption, a
credit-related crisis, or an unexpected exogenous shock could start the "panic for the
exits."
Conclusion
There is more than adequate evidence a "bubble" exists in markets once again. However, as
Mark noted in his commentary:
'I have no idea whether the stock market is actually forming a bubble that's about to
break. But I do know that many bulls are fooling themselves when they think a bubble can't
happen when there is such widespread concern. In fact, one of the distinguishing
characteristics of a bubble is just that."
However, he concludes with the most important statement:
"It's important for all of us to be aware of this bubble psychology, but especially if
you're a retiree or a near-retiree. That's because, in that case, your investment horizon is
far shorter than for those who are younger. Therefore, you are less able to recover from the
deflation of a market bubble."
Read that statement again.
Millennials are quick to dismiss the "Boomers" in the financial markets today for "not
getting it."
No, we get it. We have just been around long enough to know how these things eventually
end.
"... "It's just unbelievable that central banks are actively encouraging this." ..."
"... Good point. Many times we look at charts and say WTF but once you normalize to inflation, maybe this is not as bad as originally it appeared ..."
"... reminds me of an abusive husband telling his beaten wife, "See what you made me do!" ..."
"... Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about every 20 years now at nominal 3.5% ..."
"... That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. Still, I dread the coming US debt collapse discussed in this website, which I would term a debt explosion as all of the bubbles start to pop and so many debtors and former creditors (like lessors, banks, etc.) become publicly known to be legally insolvent. ..."
"... I have invested carefully but we will all lose much or most of our savings. ..."
"... It is very irritating to think of the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring to its ultra-rich owners for decades. They will probably even avoid most taxation again. ..."
Exactly. It is way more scary than even Wolf's charts suggest because there are so many
layers of leverage stacked on top of each other.
People taking out margin debt on stock portfolios that they bought by re-mortgaging their
bubbled houses to buy stocks with record corporate debt, collaterised (if at all) with bubble
assets, at record valuations driven itself by leverage etc etc
It's just unbelievable that central banks are actively encouraging this.
The amount of margin debt is not a WTF amount if you use the prices-double each 11 year
rule of thumb.
This 11 year period is strikingly accurate if you take the price of the New York Times
since 1900 (I have a booklet with frontpages of each year and discovered this when looking at
the selling prices). Having said that, the current 800B is the same as the previous inflation corrected peaks
of 2009 and around 1999.
So yes, Wolf is 100% correct with the prediction on what is coming. It is just not a WTF
amount but a history-repeats-itself moment
"normalize to inflationary, maybe not as bad as originally it appeared"
I know what you mean, but then the (major) problem is that the inflation itself shouldn't be viewed as "normal". Kinda reminds me of a gvt program defending doubled budget over 8 yrs because of
"inflation" when in point of fact it is likely that G printing/policy has *created* the
inflation in the first place (to help fund the program now pointing at inflation).
Also, reminds me of an abusive husband telling his beaten wife, "See what you made me
do!"
Hussman says the right way to do that is to look at margin debt to GDP ration, which is a record. GDP is doubling rate is about
every 20 years now at nominal 3.5%
That description applies to most Wall Streeters and banksters, whose titanic egos are
amazing given the fact that most are parasites that contribute less than a woodlouse to
society. Still, I dread the coming US debt collapse discussed in this website, which I would
term a debt explosion as all of the bubbles start to pop and so many debtors and former
creditors (like lessors, banks, etc.) become publicly known to be legally insolvent.
It is unfortunate that it may happen at the worst possible time, when we face an adversary
worse and more powerful than the Soviet Union or Nazi Germany ever was. I have invested
carefully but we will all lose much or most of our savings.
It is very irritating to think of
the trillions that the banksters' deceptively named, "Federal" Reserve has been transferring
to its ultra-rich owners for decades. They will probably even avoid most taxation again.
I do not like to even think how many Americans will wind up. Remember the saying "There
but for the grace of god, go I." Many of us will be saying that a lot in the coming years if
we are very fortunate.
"... the popping of the US's bubbles and then the debt-fueled collapse is probably being delayed temporarily by the fear of a certain threat. ..."
"... The loss of the US dollar's reserve status may thus be delayed by the reliability of our current leaders. The smarter, justifiably terrified, wealthy, foreign investors can keep us afloat given the growing nature of the threat, so the hyperinflation and financial collapse that our Wall Streeters and the deceptively named "Federal" Reserve have caused may be kept in abeyance. ..."
Amen. It is hilarious and I will not elaborate and inadvertently help opponents, but the popping of the US's bubbles and
then the debt-fueled collapse is probably being delayed temporarily by the fear of a certain threat. That threat has its
own problems, which prevent its taking strong action against our financial markets.
The loss of the US dollar's reserve status may thus be delayed by the reliability of our current leaders. The smarter,
justifiably terrified, wealthy, foreign investors can keep us afloat given the growing nature of the threat, so the hyperinflation
and financial collapse that our Wall Streeters and the deceptively named "Federal" Reserve have caused may be kept in abeyance.
It is like a video from Africa that I saw in which the attack by one predator is inadvertently foiled by the attack of another
predator on a helpless prey. Sadly, we are the prey. :-)
"... Margin debt saw an annual surge of 49% in February, which was the fastest jump since 2007. Prior to 2007, the fastest jump in margin debt was in 1999. Both instances were just prior to an epic melt-down in the stock market, amid the Great Financial Crisis of 2008 and the dot-com bubble unwind in 2000. ..."
A record surge in margin debt is raising eyebrows as the stock market continues to surge to
new all-time-highs.
Investors borrowed $814 billion against their investment portfolios at the end of February,
according to data
from FINRA cited in a report in the
Wall Street Journal on Thursday. That's a record high reading for margin debt, well above
January's record of $799 billion.
It's common for margin debt to rise and fall with the stock market, as increased portfolio
values afford investors more leverage to take on from their brokers. But the record rise in
margin debt is also one of the fastest on record.
Margin debt saw an annual surge of 49% in February, which was the fastest jump since 2007.
Prior to 2007, the fastest jump in margin debt was in 1999. Both instances were just prior to
an epic melt-down in the stock market, amid the Great Financial Crisis of 2008 and the dot-com
bubble unwind in 2000.
Leverage is a double-edged sword for investors, as many take on the debt to buy more stocks.
That is a winning strategy in a bull market, but a market correction can spell doom for
investors who have too much leverage and need to sell equities or deposit more cash to meet
margin calls, which can further exacerbate a downturn in stocks.
SUBSCRIBER 3 hours ago Some of this, especially the cryptocurrency talk, reminds me of the
1990s: We don't have profits, probably never will, but we have clicks. And that's what matters.
Like thumb_up 3 Reply reply Share link Report
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D
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't have
profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't have
profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We don't
have profits, probably never will, but we have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of the 1990s: We
don't have profits, probably never will, but we have clicks. And that's what
matters.
Some of this, especially the cryptocurrency talk, reminds me of the
1990s: We don't have profits, probably never will, but we have clicks.
And that's what matters.
Some of this, especially the cryptocurrency talk, reminds me of
the 1990s: We don't have profits, probably never will, but we
have clicks. And that's what matters.
Some of this, especially the cryptocurrency talk,
reminds me of the 1990s: We don't have profits,
probably never will, but we have clicks. And that's
what matters.
Some of this, especially the
cryptocurrency talk, reminds me of
the 1990s: We don't have profits,
probably never will, but we have
clicks. And that's what matters.
Some of this,
especially the
cryptocurrency talk,
reminds me of the
1990s: We don't have
profits, probably
never will, but we
have clicks. And
that's what matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
Some
of
this,
especially
the
cryptocurrency
talk,
reminds
me
of
the
1990s:
We
don't
have
profits,
probably
never
will,
but
we
have
clicks.
And
that's
what
matters.
"It's not the return on my money I'm concerned with, it's the return of my money that I'm
concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money that I'm
concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money that
I'm concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of my money
that I'm concerned with." Will Rogers, circa 1930. How easily we all forget.
V
"It's not the return on my money I'm concerned with, it's the return of
my money that I'm concerned with." Will Rogers, circa 1930. How easily we
all forget.
V
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies as
the poster child of this mania. "The S&P 500 stock index now trades at about 22 times the
coming year's profits, according to FactSet, a level only exceeded at the peak of the dot-com
boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of political leadership in America (more than one
hundred years ago), I was struck by "the certitude of the salary [provided by office] to the
great multitude who in every country either fail in life, or shrink from the conflicts which
the competitive system makes necessary, is very attractive; it soon converted the civil
service into what has been called "spoils"; that is, booty won by victories at the polls".
Roll forward one hundred years and we can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified individuals. The result is that when I go
to the grocery store now, I am paying 1.5x what I used to pay 2 years ago. And that is the
only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually birst.
Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal Reserve
is fueling a new investor euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record. Individual
investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields rise
one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of political leadership in America (more than
one hundred years ago), I was struck by "the certitude of the salary [provided by office]
to the great multitude who in every country either fail in life, or shrink from the
conflicts which the competitive system makes necessary, is very attractive; it soon
converted the civil service into what has been called "spoils"; that is, booty won by
victories at the polls". Roll forward one hundred years and we can only be in a worse spot:
bigger, more complex problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what I used to pay 2
years ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually
birst. Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with cryptocurrencies
as the poster child of this mania. "The S&P 500 stock index now trades at about 22 times
the coming year's profits, according to FactSet, a level only exceeded at the peak of the
dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal
Reserve is fueling a new investor euphoria. Is this a new bubble? And when could it
burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the lowest rates on record.
Individual investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a result,
the 10-year Treasury bond yield is well below inflation -- that is, real yields are deeply
negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how do
they reprice if the Fed has to tighten monetary policy to combat inflation and bond yields
rise one to 1.5 percentage points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of
Democracy". Describing the election / selection process of political leadership in
America (more than one hundred years ago), I was struck by "the certitude of the salary
[provided by office] to the great multitude who in every country either fail in life,
or shrink from the conflicts which the competitive system makes necessary, is very
attractive; it soon converted the civil service into what has been called "spoils";
that is, booty won by victories at the polls". Roll forward one hundred years and we
can only be in a worse spot: bigger, more complex problems are being addressed by even
less qualified individuals. The result is that when I go to the grocery store now, I am
paying 1.5x what I used to pay 2 years ago. And that is the only inflation measure I
trust.
Everybody is afiad to say that this is another dot-com bubble which will eventually
birst. Because after it burst there will be a lot of blood on the floor.
But the current situation can be defined as a crazy financial mania with
cryptocurrencies as the poster child of this mania. "The S&P 500 stock index now
trades at about 22 times the coming year's profits, according to FactSet, a level only
exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the Federal
Reserve is fueling a new investor euphoria. Is this a new bubble? And when could it
burst?
To veterans of financial bubbles, there is plenty familiar about the present. Stock
valuations are their richest since the dot-com bubble in 2000. Home prices are back to
their pre-financial crisis peak. Risky companies can borrow at the lowest rates on
record. Individual investors are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital commerce to
fiscally greased growth that will likely be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a
result, the 10-year Treasury bond yield is well below inflation -- that is, real yields
are deeply negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're headed for
sustained high inflation it's completely possible we'll have several quarters of hot
readings on inflation."
Since stocks' valuations are only justified if interest rates stay extremely low, how
do they reprice if the Fed has to tighten monetary policy to combat inflation and bond
yields rise one to 1.5 percentage points, he asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen Tendencies of
Democracy". Describing the election / selection process of political leadership
in America (more than one hundred years ago), I was struck by "the certitude of
the salary [provided by office] to the great multitude who in every country
either fail in life, or shrink from the conflicts which the competitive system
makes necessary, is very attractive; it soon converted the civil service into
what has been called "spoils"; that is, booty won by victories at the polls".
Roll forward one hundred years and we can only be in a worse spot: bigger, more
complex problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what I used
to pay 2 years ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble which will
eventually birst. Because after it burst there will be a lot of blood on the
floor.
But the current situation can be defined as a crazy financial mania with
cryptocurrencies as the poster child of this mania. "The S&P 500 stock index
now trades at about 22 times the coming year's profits, according to FactSet, a
level only exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by the
Federal Reserve is fueling a new investor euphoria. Is this a new bubble? And when
could it burst?
To veterans of financial bubbles, there is plenty familiar about the present.
Stock valuations are their richest since the dot-com bubble in 2000. Home prices
are back to their pre-financial crisis peak. Risky companies can borrow at the
lowest rates on record. Individual investors are pouring money into green energy
and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital
commerce to fiscally greased growth that will likely be the strongest since 1983. .
..
the Federal Reserve.... is buying hundreds of billions of dollars of bonds. As a
result, the 10-year Treasury bond yield is well below inflation -- that is, real
yields are deeply negative -- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I don't think we're
headed for sustained high inflation it's completely possible we'll have several
quarters of hot readings on inflation."
Since stocks' valuations are only justified if interest rates stay extremely
low, how do they reprice if the Fed has to tighten monetary policy to combat
inflation and bond yields rise one to 1.5 percentage points, he asked. " You
could get a serious correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s, "Unforeseen
Tendencies of Democracy". Describing the election / selection process of
political leadership in America (more than one hundred years ago), I was
struck by "the certitude of the salary [provided by office] to the great
multitude who in every country either fail in life, or shrink from the
conflicts which the competitive system makes necessary, is very
attractive; it soon converted the civil service into what has been called
"spoils"; that is, booty won by victories at the polls". Roll forward one
hundred years and we can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified individuals. The
result is that when I go to the grocery store now, I am paying 1.5x what
I used to pay 2 years ago. And that is the only inflation measure I
trust.
Everybody is afiad to say that this is another dot-com bubble which
will eventually birst. Because after it burst there will be a lot of blood
on the floor.
But the current situation can be defined as a crazy financial mania
with cryptocurrencies as the poster child of this mania. "The S&P 500
stock index now trades at about 22 times the coming year's profits,
according to FactSet, a level only exceeded at the peak of the dot-com boom
in 2000."
And the shadlow of "Long-Term Capital Management" is all over Wall
Street.
May 8, 2021
An unprecedented fiscal and monetary stimulus led by
the Federal Reserve is fueling a new investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar about the
present. Stock valuations are their richest since the dot-com bubble in
2000. Home prices are back to their pre-financial crisis peak. Risky
companies can borrow at the lowest rates on record. Individual investors
are pouring money into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances in digital
commerce to fiscally greased growth that will likely be the strongest since
1983. . ..
the Federal Reserve.... is buying hundreds of billions of dollars of
bonds. As a result, the 10-year Treasury bond yield is well below inflation
-- that is, real yields are deeply negative -- for only the second time in
40 years.
....Harvard University economist Jeremy Stein... "while I don't think
we're headed for sustained high inflation it's completely possible we'll
have several quarters of hot readings on inflation."
Since stocks' valuations are only justified if interest rates stay
extremely low, how do they reprice if the Fed has to tighten monetary
policy to combat inflation and bond yields rise one to 1.5 percentage
points, he asked. " You could get a serious correction in asset
prices."
C Cam Dipalo
I was reading a book from the late 1800 early 1900s,
"Unforeseen Tendencies of Democracy". Describing the election /
selection process of political leadership in America (more than
one hundred years ago), I was struck by "the certitude of the
salary [provided by office] to the great multitude who in every
country either fail in life, or shrink from the conflicts which
the competitive system makes necessary, is very attractive; it
soon converted the civil service into what has been called
"spoils"; that is, booty won by victories at the polls". Roll
forward one hundred years and we can only be in a worse spot:
bigger, more complex problems are being addressed by even less
qualified individuals. The result is that when I go to the
grocery store now, I am paying 1.5x what I used to pay 2 years
ago. And that is the only inflation measure I trust.
Everybody is afiad to say that this is another dot-com bubble
which will eventually birst. Because after it burst there will be
a lot of blood on the floor.
But the current situation can be defined as a crazy financial
mania with cryptocurrencies as the poster child of this mania.
"The S&P 500 stock index now trades at about 22 times the
coming year's profits, according to FactSet, a level only
exceeded at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management" is all over
Wall Street.
May 8, 2021
An unprecedented fiscal and monetary
stimulus led by the Federal Reserve is fueling a new investor
euphoria. Is this a new bubble? And when could it burst?
To veterans of financial bubbles, there is plenty familiar
about the present. Stock valuations are their richest since the
dot-com bubble in 2000. Home prices are back to their
pre-financial crisis peak. Risky companies can borrow at the
lowest rates on record. Individual investors are pouring money
into green energy and cryptocurrency.
This boom has some legitimate explanations, from the advances
in digital commerce to fiscally greased growth that will likely
be the strongest since 1983. . ..
the Federal Reserve.... is buying hundreds of billions of
dollars of bonds. As a result, the 10-year Treasury bond yield is
well below inflation -- that is, real yields are deeply negative
-- for only the second time in 40 years.
....Harvard University economist Jeremy Stein... "while I
don't think we're headed for sustained high inflation it's
completely possible we'll have several quarters of hot readings
on inflation."
Since stocks' valuations are only justified if interest rates
stay extremely low, how do they reprice if the Fed has to tighten
monetary policy to combat inflation and bond yields rise one to
1.5 percentage points, he asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book from the late 1800 early
1900s, "Unforeseen Tendencies of Democracy".
Describing the election / selection process of
political leadership in America (more than one
hundred years ago), I was struck by "the certitude
of the salary [provided by office] to the great
multitude who in every country either fail in life,
or shrink from the conflicts which the competitive
system makes necessary, is very attractive; it soon
converted the civil service into what has been
called "spoils"; that is, booty won by victories at
the polls". Roll forward one hundred years and we
can only be in a worse spot: bigger, more complex
problems are being addressed by even less qualified
individuals. The result is that when I go to the
grocery store now, I am paying 1.5x what I used to
pay 2 years ago. And that is the only inflation
measure I trust.
Everybody is afiad to say that this is another
dot-com bubble which will eventually birst. Because
after it burst there will be a lot of blood on the
floor.
But the current situation can be defined as a
crazy financial mania with cryptocurrencies as the
poster child of this mania. "The S&P 500 stock
index now trades at about 22 times the coming year's
profits, according to FactSet, a level only exceeded
at the peak of the dot-com boom in 2000."
And the shadlow of "Long-Term Capital Management"
is all over Wall Street.
May 8, 2021
An unprecedented fiscal and
monetary stimulus led by the Federal Reserve is
fueling a new investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles, there is plenty
familiar about the present. Stock valuations are
their richest since the dot-com bubble in 2000. Home
prices are back to their pre-financial crisis peak.
Risky companies can borrow at the lowest rates on
record. Individual investors are pouring money into
green energy and cryptocurrency.
This boom has some legitimate explanations, from
the advances in digital commerce to fiscally greased
growth that will likely be the strongest since 1983.
. ..
the Federal Reserve.... is buying hundreds of
billions of dollars of bonds. As a result, the
10-year Treasury bond yield is well below inflation
-- that is, real yields are deeply negative -- for
only the second time in 40 years.
....Harvard University economist Jeremy Stein...
"while I don't think we're headed for sustained high
inflation it's completely possible we'll have several
quarters of hot readings on inflation."
Since stocks' valuations are only justified if
interest rates stay extremely low, how do they
reprice if the Fed has to tighten monetary policy to
combat inflation and bond yields rise one to 1.5
percentage points, he asked. " You could get a
serious correction in asset prices."
C Cam Dipalo
I was reading a book from the late
1800 early 1900s, "Unforeseen
Tendencies of Democracy". Describing
the election / selection process of
political leadership in America (more
than one hundred years ago), I was
struck by "the certitude of the
salary [provided by office] to the
great multitude who in every country
either fail in life, or shrink from
the conflicts which the competitive
system makes necessary, is very
attractive; it soon converted the
civil service into what has been
called "spoils"; that is, booty won
by victories at the polls". Roll
forward one hundred years and we can
only be in a worse spot: bigger, more
complex problems are being addressed
by even less qualified individuals.
The result is that when I go to the
grocery store now, I am paying 1.5x
what I used to pay 2 years ago. And
that is the only inflation measure I
trust.
Everybody is afiad to say that this
is another dot-com bubble which will
eventually birst. Because after it
burst there will be a lot of blood on
the floor.
But the current situation can be
defined as a crazy financial mania with
cryptocurrencies as the poster child of
this mania. "The S&P 500 stock
index now trades at about 22 times the
coming year's profits, according to
FactSet, a level only exceeded at the
peak of the dot-com boom in 2000."
And the shadlow of "Long-Term
Capital Management" is all over Wall
Street.
May 8, 2021
An unprecedented
fiscal and monetary stimulus led by the
Federal Reserve is fueling a new
investor euphoria. Is this a new
bubble? And when could it burst?
To veterans of financial bubbles,
there is plenty familiar about the
present. Stock valuations are their
richest since the dot-com bubble in
2000. Home prices are back to their
pre-financial crisis peak. Risky
companies can borrow at the lowest
rates on record. Individual investors
are pouring money into green energy and
cryptocurrency.
This boom has some legitimate
explanations, from the advances in
digital commerce to fiscally greased
growth that will likely be the
strongest since 1983. . ..
the Federal Reserve.... is buying
hundreds of billions of dollars of
bonds. As a result, the 10-year
Treasury bond yield is well below
inflation -- that is, real yields are
deeply negative -- for only the second
time in 40 years.
....Harvard University economist
Jeremy Stein... "while I don't think
we're headed for sustained high
inflation it's completely possible
we'll have several quarters of hot
readings on inflation."
Since stocks' valuations are only
justified if interest rates stay
extremely low, how do they reprice if
the Fed has to tighten monetary policy
to combat inflation and bond yields
rise one to 1.5 percentage points, he
asked. " You could get a serious
correction in asset prices."
C Cam Dipalo
I was reading a book
from the late 1800
early 1900s,
"Unforeseen
Tendencies of
Democracy".
Describing the
election / selection
process of political
leadership in America
(more than one
hundred years ago), I
was struck by "the
certitude of the
salary [provided by
office] to the great
multitude who in
every country either
fail in life, or
shrink from the
conflicts which the
competitive system
makes necessary, is
very attractive; it
soon converted the
civil service into
what has been called
"spoils"; that is,
booty won by
victories at the
polls". Roll forward
one hundred years and
we can only be in a
worse spot: bigger,
more complex problems
are being addressed
by even less
qualified
individuals. The
result is that when I
go to the grocery
store now, I am
paying 1.5x what I
used to pay 2 years
ago. And that is the
only inflation
measure I trust.
Everybody is afiad
to say that this is
another dot-com bubble
which will eventually
birst. Because after it
burst there will be a
lot of blood on the
floor.
But the current
situation can be
defined as a crazy
financial mania with
cryptocurrencies as the
poster child of this
mania. "The S&P 500
stock index now trades
at about 22 times the
coming year's profits,
according to FactSet, a
level only exceeded at
the peak of the dot-com
boom in 2000."
And the shadlow of
"Long-Term Capital
Management" is all over
Wall Street.
May 8,
2021
An
unprecedented fiscal
and monetary stimulus
led by the Federal
Reserve is fueling a
new investor euphoria.
Is this a new bubble?
And when could it
burst?
To veterans of
financial bubbles,
there is plenty
familiar about the
present. Stock
valuations are their
richest since the
dot-com bubble in 2000.
Home prices are back to
their pre-financial
crisis peak. Risky
companies can borrow at
the lowest rates on
record. Individual
investors are pouring
money into green energy
and cryptocurrency.
This boom has some
legitimate
explanations, from the
advances in digital
commerce to fiscally
greased growth that
will likely be the
strongest since 1983. .
..
the Federal
Reserve.... is buying
hundreds of billions of
dollars of bonds. As a
result, the 10-year
Treasury bond yield is
well below inflation --
that is, real yields
are deeply negative --
for only the second
time in 40 years.
....Harvard
University economist
Jeremy Stein... "while
I don't think we're
headed for sustained
high inflation it's
completely possible
we'll have several
quarters of hot
readings on
inflation."
Since stocks'
valuations are only
justified if interest
rates stay extremely
low, how do they
reprice if the Fed has
to tighten monetary
policy to combat
inflation and bond
yields rise one to 1.5
percentage points, he
asked. " You could
get a serious
correction in asset
prices."
C Cam Dipalo
I was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I go
to
the
grocery
store
now,
I am
paying
1.5x
what
I
used
to
pay 2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a new
investor
euphoria.
Is
this
a new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in 40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Everybody
is
afiad
to
say
that
this
is
another
dot-com
bubble
which
will
eventually
birst.
Because
after
it
burst
there
will
be
a
lot
of
blood
on
the
floor.
But
the
current
situation
can
be
defined
as
a
crazy
financial
mania
with
cryptocurrencies
as
the
poster
child
of
this
mania.
"The
S&P
500
stock
index
now
trades
at
about
22
times
the
coming
year's
profits,
according
to
FactSet,
a
level
only
exceeded
at
the
peak
of
the
dot-com
boom
in
2000."
And
the
shadlow
of
"Long-Term
Capital
Management"
is
all
over
Wall
Street.
May
8,
2021
An
unprecedented
fiscal
and
monetary
stimulus
led
by
the
Federal
Reserve
is
fueling
a
new
investor
euphoria.
Is
this
a
new
bubble?
And
when
could
it
burst?
To
veterans
of
financial
bubbles,
there
is
plenty
familiar
about
the
present.
Stock
valuations
are
their
richest
since
the
dot-com
bubble
in
2000.
Home
prices
are
back
to
their
pre-financial
crisis
peak.
Risky
companies
can
borrow
at
the
lowest
rates
on
record.
Individual
investors
are
pouring
money
into
green
energy
and
cryptocurrency.
This
boom
has
some
legitimate
explanations,
from
the
advances
in
digital
commerce
to
fiscally
greased
growth
that
will
likely
be
the
strongest
since
1983.
.
..
the
Federal
Reserve....
is
buying
hundreds
of
billions
of
dollars
of
bonds.
As
a
result,
the
10-year
Treasury
bond
yield
is
well
below
inflation
--
that
is,
real
yields
are
deeply
negative
--
for
only
the
second
time
in
40
years.
....Harvard
University
economist
Jeremy
Stein...
"while
I
don't
think
we're
headed
for
sustained
high
inflation
it's
completely
possible
we'll
have
several
quarters
of
hot
readings
on
inflation."
Since
stocks'
valuations
are
only
justified
if
interest
rates
stay
extremely
low,
how
do
they
reprice
if
the
Fed
has
to
tighten
monetary
policy
to
combat
inflation
and
bond
yields
rise
one
to
1.5
percentage
points,
he
asked.
"
You
could
get
a
serious
correction
in
asset
prices."
C
Cam
Dipalo
I
was
reading
a
book
from
the
late
1800
early
1900s,
"Unforeseen
Tendencies
of
Democracy".
Describing
the
election
/
selection
process
of
political
leadership
in
America
(more
than
one
hundred
years
ago),
I
was
struck
by
"the
certitude
of
the
salary
[provided
by
office]
to
the
great
multitude
who
in
every
country
either
fail
in
life,
or
shrink
from
the
conflicts
which
the
competitive
system
makes
necessary,
is
very
attractive;
it
soon
converted
the
civil
service
into
what
has
been
called
"spoils";
that
is,
booty
won
by
victories
at
the
polls".
Roll
forward
one
hundred
years
and
we
can
only
be
in
a
worse
spot:
bigger,
more
complex
problems
are
being
addressed
by
even
less
qualified
individuals.
The
result
is
that
when
I
go
to
the
grocery
store
now,
I
am
paying
1.5x
what
I
used
to
pay
2
years
ago.
And
that
is
the
only
inflation
measure
I
trust.
Just yesterday,
we showed that only a few quarters after banks effectively shut down, refusing to give out
C&I, credit card or auto loans and mortgages to virtually anyone as a result of record
Draconian credit standards, credit standards saw a complete U-turn and as of April, lending
standards for credit cards and autos were the loosest on record.
This was not lost on US consumers who after suffering through a miserable 12 months in which
they dutifully repaid their credit card debt like total idiots who acted responsibly (instead
of doing what US corporations are doing and loading up on even more debt to ensure they all get
bailed out during the next crisis), in March aggregate consumer credit surged by $25.8BN,
smashing expectations for the 2nd month in a row (
as a reminder February was the biggest beat on record ) and barely slowing down from last
month's massive $26.1BN increase.
... non-revolving credit - i.e., student and auto loans - continued its relentless ramp
higher, increasing by $19.4BN in March, the most since June of 2020...
Just a Little Froth in the Market 10 minutes ago
"Americans are once again highly confident about the future, and are spending far beyond
their means, as they always tend to do."
Ah no, they are using credit cards because they have no real money. Asinine article.
Archimedes bathwater PREMIUM 7 minutes ago
If Americans use their credit cards for the same stuff as last year, but everything costs
20% more, is that also called an explosion in consumer credit? MOAR WINNING??!
nsurf9 8 minutes ago (Edited) remove link
Well, the average revolving credit card rate is only 16%.
brian91145 12 minutes ago
lol so no one is working and everyone is using credit cards? Sounds like a great
economy!
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist (first
red flag of many). It was created as a joke. Yet people are buying for one reason and one
reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com stocks
in the 90s, housing in the 2000s), it always ended with a crash. I got that feeling with
crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist (first
red flag of many). It was created as a joke. Yet people are buying for one reason and one
reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics and
Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you can
justify a wide range of valuations," says Robin Greenwood, a Harvard Business School professor
who has studied bubbles. He says another classic example was a 1920s boom in closed-end funds,
investment portfolios that trade on an exchange. Before the 1929 stock crash, issuance of
closed-end funds soared and the prices on the funds raced ahead of the underlying values of
their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi scheme
that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in borrowing.
"Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped fuel
mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than doubled from
$8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to $14.1
trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com
stocks in the 90s, housing in the 2000s), it always ended with a crash. I got that feeling
with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist
(first red flag of many). It was created as a joke. Yet people are buying for one reason and
one reason only: They think someone will come behind them and pay even more. Until that stops
happening the sky is the limit. If this is not a sign of the bubble I do not knw what
is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias, Panics
and Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because you
can justify a wide range of valuations," says Robin Greenwood, a Harvard Business School
professor who has studied bubbles. He says another classic example was a 1920s boom in
closed-end funds, investment portfolios that trade on an exchange. Before the 1929 stock
crash, issuance of closed-end funds soared and the prices on the funds raced ahead of the
underlying values of their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert Knight,
who helped cook the books of the South Sea Company, fled England and landed in an Antwerp
prison for a time. Then there was Bernie Madoff, who cooked up his own investment Ponzi
scheme that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped
fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than
doubled from $8.7 trillion to $18 trillion; among households it doubled from $7.2 trillion to
$14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more slowly
than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion, from $13.6
trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns (dot-com
stocks in the 90s, housing in the 2000s), it always ended with a crash. I got that
feeling with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can exist
(first red flag of many). It was created as a joke. Yet people are buying for one reason
and one reason only: They think someone will come behind them and pay even more. Until
that stops happening the sky is the limit. If this is not a sign of the bubble I do not
knw what is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book, "Manias,
Panics and Crashes," called such speculation and crisis a hardy perennial.
"Periods of great innovation are interesting from an investor's perspective because
you can justify a wide range of valuations," says Robin Greenwood, a Harvard Business
School professor who has studied bubbles. He says another classic example was a 1920s
boom in closed-end funds, investment portfolios that trade on an exchange. Before the
1929 stock crash, issuance of closed-end funds soared and the prices on the funds raced
ahead of the underlying values of their investment holdings.
Swindlers are oftentimes attached to the financial boom, too. That included Robert
Knight, who helped cook the books of the South Sea Company, fled England and landed in an
Antwerp prison for a time. Then there was Bernie Madoff, who cooked up his own investment
Ponzi scheme that crashed in December 2008. He died in jail last month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations helped
fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector more than
doubled from $8.7 trillion to $18 trillion; among households it doubled from $7.2
trillion to $14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt in the
financial sector remains below its 2008 peak and household debt has been rising more
slowly than in the 2000s. Between 2012 and 2020, household debt rose to $16.6 trillion,
from $13.6 trillion. That is something that gives Mr. Buiter some peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of an
unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy returns
(dot-com stocks in the 90s, housing in the 2000s), it always ended with a crash.
I got that feeling with crypto currency. I know to resist the urge. I did.
Dogecoin is completely worthless in the grand scheme. Unlimited dogecoins can
exist (first red flag of many). It was created as a joke. Yet people are buying for
one reason and one reason only: They think someone will come behind them and pay
even more. Until that stops happening the sky is the limit. If this is not a sign
of the bubble I do not knw what is...
... ... ...
Charles Kindleberger, the late MIT professor who wrote the popular book,
"Manias, Panics and Crashes," called such speculation and crisis a hardy
perennial.
"Periods of great innovation are interesting from an investor's perspective
because you can justify a wide range of valuations," says Robin Greenwood, a
Harvard Business School professor who has studied bubbles. He says another classic
example was a 1920s boom in closed-end funds, investment portfolios that trade on
an exchange. Before the 1929 stock crash, issuance of closed-end funds soared and
the prices on the funds raced ahead of the underlying values of their investment
holdings.
Swindlers are oftentimes attached to the financial boom, too. That included
Robert Knight, who helped cook the books of the South Sea Company, fled England and
landed in an Antwerp prison for a time. Then there was Bernie Madoff, who cooked up
his own investment Ponzi scheme that crashed in December 2008. He died in jail last
month.
.... The problem might be when investment in the vehicle is fueled by a surge in
borrowing. "Leverage is the killer," Mr. Buiter said.
That was certainly the case for the 2000s, when collateralized debt obligations
helped fuel mortgage borrowing. Between 2000 and 2008, debt in the financial sector
more than doubled from $8.7 trillion to $18 trillion; among households it doubled
from $7.2 trillion to $14.1 trillion, according to Federal Reserve data.
This time the pattern is different. Though government debt is rising fast, debt
in the financial sector remains below its 2008 peak and household debt has been
rising more slowly than in the 2000s. Between 2012 and 2020, household debt rose to
$16.6 trillion, from $13.6 trillion. That is something that gives Mr. Buiter some
peace of mind.
"There are signs, indicators of excess, but they haven't led us down the path of
an unsustainable credit boom yet," Mr. Buiter said.
C curt meinecke
Whenever I got that panicked feeling that I was missing out on crazy
returns (dot-com stocks in the 90s, housing in the 2000s), it always
ended with a crash. I got that feeling with crypto currency. I know to
resist the urge. I did.
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Are we suppose to believe that Credit Suisse, Morgan Stanley, Goldman Sachs, et al, were
really blindly investing billions with a family office? Is it really true that the head of
the office had had his brokerage license taken away by the SEC and only recently restored by
the Trump administration?
Goldman Sachs apparently knew enough to pull their money out in time.
The real issue is whether investment bankers were taking advantage of the less stringent
regulation of a family office in order to manipulate the markets. Manipulation like the
creation of short squeezes on target stocks. Is that even legal?
Banks including Goldman
Sachs Group Inc., Morgan Stanley and UBS are focused on hedge funds with very concentrated
positions, including those that attempt to increase their returns by borrowing a significant
amount of money, fund managers said. Some are running stress tests to see where they could have
shortfalls if some of a fund's positions precipitously drop. Newly empowered credit-risk
departments are reviewing clients with portfolios that are far more diversified than
Archegos's.
Several banks are starting to rework agreements with a number of clients to change the terms
of equities total-return swaps, said prime-brokerage executives and advisers to funds.
Total-return swaps are derivative contracts that helped Archegos anonymously amass huge
positions across multiple lenders, without the knowledge of those lenders and with little money
upfront. Archegos's collapse has sparked calls for tougher regulation of such swaps.
Swaps give their holders exposure to the profits and losses of the securities underlying the
agreements but not ownership. In the case of Archegos, for example, the family office had swap
agreements with multiple banks giving it exposure to ViacomCBS Inc. But the banks actually held
the shares.
As things stand now, some margin requirements are fixed. Going forward, some clients will be
regularly required to post additional collateral based on the changing market value of their
portfolios or factors such as increases in volatility or concentration. Many swaps agreements
already have such a margin requirement, though some larger clients with more negotiating power
don't.
Elizabeth Schubert, a partner at Sidley Austin LLP who advises hedge-fund clients on
negotiating their trading relationships with dealers, said she has seen several banks recently
move to look at a client's cash and swaps positions together when determining the collateral
required.
For dealers, "it gives them more control from a risk-management perspective -- but clients
lose a lot of control and transparency about the margin they have to post," Ms. Schubert said.
She added that fund managers who lived through the failure of Lehman Brothers, which tied up
some funds' assets for years, remain wary about posting more than a minimal amount of
margin.
Several banks, including Morgan Stanley, have spoken with clients about fully or partly
terminating swaps, said people briefed on the conversations. Such moves could help lower the
lenders' exposure to swaps and in instances reduce the leverage a fund is using.
Are we suppose to believe that Credit Suisse, Morgan Stanley, Goldman Sachs, et al, were
really blindly investing billions with a family office? Is it really true that the head of
the office had had his brokerage license taken away by the SEC and only recently restored
by the Trump administration?
Goldman Sachs apparently knew enough to pull their money out in time.
The real issue is whether investment bankers were taking advantage of the less stringent
regulation of a family office in order to manipulate the markets. Manipulation like the
creation of short squeezes on target stocks. Is that even legal?
big institutions are currently selling into strength.
2) May and June (especially the second half of June) tend to be challenging months for the
market. After the first week of May, approximately 80% of S&P 500 companies will have
reported their earnings. The news cycle will then shift away from fundamentals to politics,
interest rates, and any geopolitical concerns. Speaking of interest rates, as the economy
slowly gets back to normal, it wouldn't surprise me to see the 10-year yield return to its
levels from January 2020 (around 1.8%-2.0%). If this happens, it will lead to further
compression in the multiples of growth stocks.
3) The IRS deadline for filing tax returns was extended this year to May 17. We will likely
see tax selling prior to this because 2020 was a strong year for the markets, and many people
will have capital gains taxes to pay by this date. On a related note, the new administration
seems determined to raise taxes, specifically capital gains taxes. I don't believe they will
get any of these new proposals approved, but the continuous headlines could keep some pressure
on the market over the near-term.
4) The S&P 500 ( ^GSPC ) historically averages a 10% return per
year. So far this year, it is up over 11%. It wouldn't be unreasonable to see a normal
correction or some technical digestion before heading higher later in the year. Also, since
1980, the average intra-year correction is -14.3%.
5) A few sentiment measures are showing high levels of bullishness. For example, the latest
NAAIM Exposure
Index , which measures exposure by active investment managers, is at its highest level in
over two months. Any minor pullback would shake out some of this excess bullishness, as
investors are still quick to rush out the door when the market starts to drop.
Art 14 hours ago The major fundamental issue now is the soon-to-be-obvious inflation triggered
by the six trillion dollar man and the always wrong federal reserve policies. Ultimately,
fundamentals decide stock market valuations. Reply 13 2 Allen 1 day ago If Apple's earnings
couldn't lift the market then nothing will. Look the market is near or at all time highs and
valuations are stretched to say the least. The easy money has already been made the current
risk reward is to the downside. The market is way overdue for at least a 10-20% correction
which would be healthy. "As they say... stairs up elevator down." Reply 7 1 EmEs 1334 14 hours
ago Several things wrong with the article. First, some Biden taxes will pass, because budget
reconciliation process works for taxing and spending. Not clear whether they will be
retroactive or when they will take effect, but I'd say next year. People with gains might be
induced to sell this year to take advantage of disappearing low cap gains rates - and selling
puts downward pressure on the market. Very little about that, here. Very little here about
fundamentals, like stretched P/E or CAPE ratios. Very little here about the tremendous amount
of money in the system from the Fed and from the fiscal stimulus bills that are pushing the
market higher, both because of more money chasing assets and because of expectations that the
economy will launch into hyper-drive because of the stimulus. Instead, this guy just thinks
that prices return to a mean of 10% per year - many years it is more and many it is less, so
that is no measure at all. Infantile analysis. But he could be right about the run-up running
out of steam. It certainly would be nice if the froth was skimmed off because I'd like a buying
opportunity and buying any stocks at these prices is pretty crazy. I'd by TAIL. Reply 4
DoublinDown 1 day ago Think you nailed it. Quality growth stocks selling off after great ER's
points to weakness underneath. This doesn't bode well for the overall market in the near term.
When the Federal Open Market Committee begins its two-day meeting on Tuesday, it ought to
consider whether its policies aimed to bolster housing may be having negative side effects.
With the market for new and existing homes red hot, the rationale for subsidizing the mortgage
market has largely passed. Indeed, the Fed’s policies may be hurting home
affordability as much as they’re helping.
"... Deluard points out that the level of stock gains we are seeing now is unprecedented, with one exception: the Great Depression. After passing 4,000 points for the first time this month, the S&P 500 is on track to soon double its COVID-19 pandemic low of 2,237 points 14 months ago. ..."
"... individual investors have been throwing money at the market while insiders are getting out. An unprecedented $105 billion flowed into U.S. equity exchange-traded funds in the last eight weeks, Deluard says. Meanwhile, the strategist says equity offerings raised a record $262 billion in the first quarter and Nasdaq insiders sold $41.5 billion in the past three quarters. ..."
"... The strategist also points to inflation as a worrying sign. He believes the argument that COVID-19 is distorting inflation is flawed, and that the current level of inflation, such as in commodity prices, represents more than normalization from the pandemic shock ..."
Our
call
of the day
, from strategist Vincent Deluard at broker StoneX, takes a close look at the big question hovering above these
recent market gains. Are we seeing a new roaring economic cycle that started in March 2020, or “the spectacular apotheosis of a
decade plus-long expansion and overvalued bull market�
The strategist uses “the duck test†â€" which follows from the saying, “if it looks like a duck, swims like a duck, and quacks like a
duck, then it probably is a duck.†His conclusion isn’t good news for stocks.
Deluard points out that the level of stock gains we are seeing now is unprecedented, with one exception: the Great Depression. After
passing 4,000 points for the first time this month, the S&P 500 is on track to soon double its COVID-19 pandemic low of 2,237 points
14 months ago.
There have been 12 major bear markets in the last century, according to Deluard, and stock prices never doubled in the ensuing rally
after five of them. In the seven cases where stock prices in the post-bear market doubled, it took an average of four years.
“There is only one precedent in history for such a rapid doubling, when U.S. stocks doubled between June and September 1932,â€
Deluard says. “A 40% correction quickly followed, and then another 100% + rally in a confusing sequence of brutal bear markets and
dazzling rebounds which lasted until the battle of Stalingrad turned the fate of World War II.â€
Another troubling sign is that the recent, spectacular rebound in corporate earnings amid the wider economic recovery from the
pandemic hasn’t led to a rise in share buybacks, which are still 30% below pre-pandemic levels, according to Deluard. “As a result,
the total shareholder yield (buybacks & dividend divided by market cap) of U.S. large-caps is at its lowest level in a generation,â€
Deluard says.
Further to that,
individual investors have been throwing money at the market while insiders are getting out. An unprecedented $105
billion flowed into U.S. equity exchange-traded funds in the last eight weeks, Deluard says. Meanwhile, the strategist says equity
offerings raised a record $262 billion in the first quarter and Nasdaq insiders sold $41.5 billion in the past three quarters.
Chart via StoneX.
The strategist also points to inflation as a worrying sign. He believes the argument that COVID-19 is distorting inflation is
flawed, and that the current level of inflation, such as in commodity prices, represents more than normalization from the pandemic
shock
The last point Deluard makes is that banks’ loan-to-deposit ratio has collapsed to 50%, which is half of its pre-2007 levels. This
is a red flag for “trapped kinetic energy†that will be unleashed by steeper yield curves, stronger demand for loans, and other
factors, according to the strategist. Deluard notes that the big four banks would need to issue an additional $2.1 trillion in loans
to return to the pre-pandemic loan-to-deposit ratio average.
“Inflation is the 800-pound gorilla that will kill this aging bull,†Deluard says.
Would you pay more than 100 million dollars for a single deli in rural New Jersey that had
less than $36,000 in sales during the last two years combined? I know that sounds like a
completely ridiculous question, but the stock market apparently thinks that deli is worth that
much. On Thursday, the Dow Jones Industrial Average closed above 34,000 for the first time in
history, and investors all over the country cheered. But this financial bubble is not real. It
is a giant mirage that is built on a foundation of fraud.
Einhorn Sees
Broken Markets in N.J. Deli’s $105 Million Valuation
Investors have lost all touch with reality, and in this sort of euphoric environment a small
deli in rural New Jersey can literally be valued
at more than 100 million dollars …
The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown
International, which has an eye-popping market value despite totaling $35,748 in sales in the
last two years combined, according to securities filings.
“Someone pointed us to Hometown International (HWIN), which owns a
single deli in rural New Jersey … HWIN reached a market cap of $113
million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director,
who also happens to be the wrestling coach of the high school next door to the deli. The
pastrami must be amazing,†Einhorn said in a letter to clients published
Thursday.
For young people getting ready to graduate from high school and go to college,
don’t waste your time.
Just open up a small deli and go public.
Soon you will be a multi-millionaire.
Alternatively, you could start a fake cryptocurrency as a joke and watch it become worth
billions of dollars.
The digital currency Dogecoin surged by more than 85 percent so far this week in thrilling
scenes for fans of the bizarre coin. Launched in 2013 and created by Jackson Palmer and Billy
Markus as a joke, the cryptocurrency has never seen the highs of rival coins like bitcoin,
which is currently worth $63,531.49. But a growing fanbase has helped kickstart the meme
coins value, and today has seen the prices skyrocket.
Looking at it objectively, I don’t know why any rational investor would
ever put one red cent into Dogecoin.
But in 2021, rational investors are being left in the dust, and those that foolishly rush in
are getting filthy rich.
Coinbase was briefly valued at as much as $100 billion in its Nasdaq debut Wednesday, a
landmark event for the cryptocurrency industry. The stock closed at $328.28 per share,
valuing Coinbase at $85.8 billion on a fully diluted basis.
Don’t you wish that you would have been the one to launch Coinbase?
Of course all of these absurd valuations are just temporary.
This bubble will inevitably pop, and those that did not sell at the top of the market will
be kicking themselves.
In the financial markets, enormous fortunes are being won and lost all the time, but none of
this is real.
What is real are the riots that are happening in our streets on a nightly basis. Last night,
rioters “waved
a pig’s head†at police officers in
Minnesota…
DAUNTE Wright protesters waved a pig’s head at cops as chaos again
erupted in Brooklyn Center, with hundreds storming the police station.
Demonstrators came out for the fourth night in a row since Wright, 20, was fatally shot by
police officer Kim Potter during a traffic stop on Sunday.
A prominent activist who supports the Black Lives Matter movement has appeared to support
violent protests, arguing that rioting and looting are ‘a legitimate,
politically-informed response to state violence’.
Bree Newsome, 35, made the passionate remarks in a series of tweets this week, arguing
that police are not limited to non-violence, and that a violent response to injustice can be
appropriate and justified.
Homeless men lie on the sidewalk while others wearing blankets and rags loiter on a street
strewn with garbage, feces, and drug paraphernalia along the notorious Kensington Avenue drag
in Philadelphia.
Video posted online on March 10 shows people living out of suitcases on the sidewalks in
the area adjacent to the entrance to the Somerset train station along the Market-Frankford
train line while others openly brandish needles.
Cardboard boxes with trash bags stacked on top of them lie feet away from the entrances to
various pawn shops, check-cashing stores, delis, and bodegas.
The financial bubble that we are experiencing right now will go away, but the problems on
our streets are not going away.
But if you don’t want to believe this, go ahead and pour your life
savings into Hometown International or Dogecoin and see what happens.
You only make money in the markets if you get out in time, and time is quickly running out
for those that have put their faith in this financial bubble.
* * *
Michael’s new book entitled “Lost Prophecies Of The
Future Of America†is now available in paperback and for the
Kindle on Amazon.
Educated_Redneck 12 hours ago (Edited)
This article is late by 13 years (i.e. 2008 financial crisis) or dare I say 49 years (i.e.
1972 leaving the gold standard) or maybe 108 years (i.e. 1913 FED creation). Pick your
favorite year.
Lordflin 12 hours ago
Our civilization is now run on fraud...
People expect fraud... depend on it... entire industries are built around it...
What hasn't fraud touched...?
chunga 12 hours ago
A few years ago I was semi-obsessed with looking for it. If you look you will see it is
literally everywhere. It is what it is.
Lordflin 12 hours ago
Sadly...
In too many situations over the past thirty years it has come looking for me...
From my experience in education to my experience at the hands of the justice system here
in Idaho...
And I have been trying to mind my own business... imagine what I could accomplish if I
were actually looking for trouble...
Kreditanstalt 12 hours ago (Edited)
They're not "filthy rich" until they successfully sell their Dogecoins to some other
fool...which might one day become difficult.
It's a Ponzi scheme and only the early entries get rich
truthseeker47 12 hours ago
I would not call it a bubble; looks more like a Ponzi Scheme to me.
"... In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the hope of capital gains big enough to make up the gap. Land speculators are a prime example. ..."
"... The parallel in the stock market is the hunt for the greater fool . Sure, GameStop shares bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone willing to pay even more because they 'like the stock.' ..."
"... The concern for investors: How much of the market's gain is thanks to this pure speculation, and how much to the justifiable gains of the improving economy and low rates? If too much comes from speculation, the danger is that we run out of greater fools and prices quickly drop back. ..."
In Minsky's second stage, borrowers plan only to repay the interest, and
refinance when the main debt is due to be repaid; much company debt works like this. It is
taken out with a plan to roll it over indefinitely. Interest rates matter a lot: If they go
down when the company needs to refinance, it will pay less.
The equity parallel is to gains in valuation due to lower long-term rates. As with corporate
debt, this is entirely justified and sustainable so long as rates stay low, because future
earnings are now more appealing. The danger is that rates rise, in which case the stock might
be hit no matter how earnings pan out.
A big chunk of the gains in stocks in the past year came from the sharply lower rates in the
first response to the pandemic when the Federal Reserve flooded the system with money.
Price-to-forward-earnings multiples soared. From the S&P 500's low on
March 23 to the end of June, the market went from 14 to more than 21 times estimated earnings
12 months ahead, even as those estimated earnings fell amid lockdown gloom. The yield on the
10-year Treasury, already down sharply from mid-February's high, fell
further as stocks rebounded.
In Minsky's third phase, borrowers take loans where they can't afford to pay either the interest or principal from income, in the
hope of capital gains big enough to make up the gap. Land speculators are a prime
example.
The parallel in the stock market is the
hunt for the greater fool . Sure, GameStop shares
bear no relation to the reality of the company, but I can make money from buying an overpriced stock if I can find someone
willing to pay even more because they 'like the stock.'
Wild bets became obvious this year, as newcomers armed with stimulus, or 'stimmy,' checks
drove up the price of many tiny stocks, penny shares and those popular on Reddit discussion
boards.
The concern for investors: How much of the market's gain is thanks to
this pure speculation, and how much to the justifiable gains of the improving economy and low
rates? If too much comes from speculation, the danger is that we run out of greater fools
and prices quickly drop back.
Builders are struggling to construct new homes given an ongoing lumber shortage. Without more homeowners listing, buyers are scrambling
to compete for the limited number of homes on the market, which continues to drive prices up to new heights.
Trying to guess when the bubble burst is fools game. But the fact support the idea that this
is a huge bubble.
Notable quotes:
"... 'Fake earnings, fake GDP, fake interest rates and super-high valuations' make for an increasingly untenable situation, he warns. The expanding market bubble has been building since 2008. But the Federal Reserve keeps averting the next huge crisis by continuously 'printing money,' declares the Harvard Business School MBA. ..."
"... It's the riskiest market since 1929. The difference is that '29 wasn't as global. This is an everything bubble. And with the $1.9 trillion fiscal stimulus bill, we're wiling to stimulate 40-something percent of GDP just to prevent a slowdown in the economy. That's going to go down in history as the most insane thing ever. They'll say, 'What were they smoking?' ..."
"... The next crash will be worse than the last one because it will come from higher levels and [plummet] to lower levels. ..."
"... If you're willing to take more risk, you'll have one bucket in long-term U.S. Treasury bonds and maybe in a few other good governments, like Sweden or Australia. Triple-A corporate could go in there too. Then you'll have another bucket '" of short stocks, not leveraged. ..."
"... Jeremy Grantham [GMO co-founder] said [on Jan. 5] this level of euphoria means you're within months '" not years '" of a major bubble peak. You're at the end. ..."
"... The only reason people are spending is because the government handed businesses and consumers tons of money. But it will get to a point where it's not going to matter how much money is printed '" and then you'll have an avalanche. A huge collapse is coming. ..."
"... Loans will fail by the boatload. Then money disappears. That causes bank and business failures. We have to get all the financial leverage, financial assets and debt out of our economy. Twenty percent of public companies are zombies. They can't even pay their debt service in a growth economy. ..."
That's what 'The Contrarian's Contrarian, as Dent has been dubbed, tells ThinkAdvisor in an interview.
The strategist correctly called Japan's 1989 bubble bust and recession,
the dot-com crash and the populist swell that made Donald Trump president.
What could be 'the biggest crash ever,' he argues, will hit by the end of June, if not sooner. It will be 'the initiation of the next
big economic downturn,' Dent predicts.
'Fake earnings, fake GDP, fake interest rates and super-high
valuations' make for an increasingly untenable situation, he warns. The expanding market bubble has been building since 2008.
But the Federal Reserve keeps averting the next huge crisis by continuously 'printing money,' declares the
Harvard Business School MBA.
His HSD Publishing, an independent research firm, generates monthly newsletters that he and
Rodney Johnson, HSD president, each write.
In the interview, Dent delivers his prescription for investing amid the weakened economy and
impending disaster, as he sees it: Zero in on long-term Treasurys.
'What's better than sleeping with 30-year Treasury
bonds,' he exults. They'll 'magnify your money.'
He then describes a portfolio allocation for the investor that's 'willing to take more risk.' As for
the notion of high inflation, 'no way in hell,' he says.
Dent, whose latest book is ' What to Do When the
Bubble Pops: Personal and Business Strategies for the Coming Economic Winter '
(G&D Media-April 2020), also tells ThinkAdvisor his considered opinions on cryptocurrency
('a big trend long term'), the GameStop frenzy
('stupid but admirable') and Sen. Elizabeth
Warren's wealth tax bill ('First of all, those assets are
going to crash.')
ThinkAdvisor interviewed Dent on March 5. He was speaking by phone from his base in San
Juan, Puerto Rico, where he has resided for the last several years. When the conversation
pivoted to folks who attack him for his frequently inaccurate predictions, he offered some
choice words and an explanation, then described key indicators he employs that show 'very clear cycles.'
Here are highlights of our interview:
THINKADVISOR: How much risk is there in the stock market right now?
HARRY DENT JR.: It's the riskiest market since 1929. The
difference is that '29 wasn't as global. This is an
everything bubble. And with the $1.9 trillion fiscal stimulus bill, we're
wiling to stimulate 40-something percent of GDP just to prevent a slowdown in the economy.
That's going to go down in history as the most insane thing ever.
They'll say, 'What were they smoking?'
Please elaborate on the extent of the risk you see.
This may be the biggest bubble crash ever: stocks, commodities, real estate.
The next crash is the initiation of the next big [economic] downturn, which will be much worse
than the one in 2008-2009.
When do you think the next crash will occur?
It will likely come by the end of June, probably sooner. The S&P falls to 2,100
'" lower than the March 2020 low '" and that would be a 47% to 48% drop
from recent highs, though it may go to 4,000 first. The next crash will be worse than the last
one because it will come from higher levels and [plummet] to lower levels.
Why will the downturn that you see be so harsh?
The only reason the 2008 downturn didn't turn into a depression was that
they turned on the monetary spigots so hard and blew us out of it, which kept the bubble going.
They kept printing money and put it off. Now we've got a bigger bubble. This
downturn is going to be the Great Depression that the deep recession of 2008 was [falling
into].
How long do you think the depression will last?
If the economy finally falls apart after this much stimulus, economists will flip from being
endlessly bullish to endlessly bearish. They'll say, 'Now
we're in a decade-long-plus depression, like the 1930s.' But
I'll say, 'Nope, this thing will be hell:
It's going to do its work very fast. By 2024, it will be over.'
By 2023 or 2024, we're going to be coming out of it into what I call the
next Spring Boom.
Right now, you favor investing in Treasury bonds. What's your
strategy?
Man, what's better than sleeping with 30-year Treasury bonds
'" the safest investment in the reserve currency of a country
that's in big trouble '" but not as much as Europe and Japan are
in and nowhere near as much as China is in. We're in the best house in a bad
neighborhood.
What will happen to the 30-year Treasury bond during the massive crash you
foresee?
It's going to fall to half a percent and maybe zero. It will expand your
money 30%, 40%, 50%, while stocks are crashing 70%, 80%, 90%. Real estate will go down 30%,
40%, 50%. Commodities are already down 50% and are going down another 30% or 40%. Everything is
going to default. Cash will preserve your money. The 30-year Treasury will magnify your
money.
So, do you think 50% of an investment portfolio should be in Treasurys?
If you're willing to take more risk, you'll have one
bucket in long-term U.S. Treasury bonds and maybe in a few other good governments, like Sweden
or Australia. Triple-A corporate could go in there too. Then you'll have
another bucket '" of short stocks, not leveraged.
Stocks are very volatile on the way down. You can also be in REITs that are in very solid
areas, like multi-family housing in affordable cities and medical facilities because those will
hold up the best.
There's a discernable euphoria now among investors. But John
Templeton, the renowned investor and fund manager, famously said that 'bull
markets die on euphoria.' Do you agree with that?
Yes. And Jeremy Grantham [GMO co-founder] said [on Jan. 5] this level of euphoria means
you're within months '" not years '" of a major
bubble peak. You're at the end.
Wil cryptocurrency be part of that huge crash?
Yes. I think Bitcoin is the big thing long term and that crypto and blockchain is a big
trend. It's like the internet of finance '" money and assets
'" instead of information. So it's a big deal '" but
in its early stages.
Bitcoin is going to go to 58 [thousand], 60, 80 '" and then end up back at 3,000
to 4,000. I would buy it long term, a couple of years from now. I wouldn't
touch it between now and then.
What are your expectations for the economy once the pandemic substantially fades?
Some industries are never going to come back. We're not back to where we
were before COVID '" by GDP or any other major indicator. Everybody is acting like 'When we get over COVID, we'll be back better than
ever.' The stock market is already anticipating that. But it's
wrong.
The only reason people are spending is because the government handed businesses and
consumers tons of money. But it will get to a point where it's not going to
matter how much money is printed '" and then you'll have an
avalanche. A huge collapse is coming.
What specifically will cause it?
There's is no way you can [keep] having fake earnings, fake GDP, fake
interest rates and super-high valuations. Financial assets have to come down to reality.
What are the implications?
Loans will fail by the boatload. Then money disappears. That causes bank and business
failures. We have to get all the financial leverage, financial assets and debt out of our
economy. Twenty percent of public companies are zombies. They can't even pay their
debt service in a growth economy. They're already dead.
We've just keeping them alive with embalming.
Jensen joined
Bloomberg's "What Goes Up" podcast to discuss this week's Federal Reserve meeting and how
ample liquidity from the central bank, combined with a booming economic rebound, make
conditions ripe for markets to get more bubbly.
Q. Bubbles are a very strange phenomenon because the risk-reward relationship is so
interesting. It almost seems that as an investor, you have to participate in bubbles. Because
if you think it's a bubble too early, you really miss the best returns from them. How do you
know when it's time to get out of an overvalued market?
A: All along through Bridgewater's history we've been systematic. So we've taken the kind
of discussion we're having now -- a very qualitative view of the world -- but translated into
ways to measure it. So you take something like a bubble, right? A classic qualitative thing.
What do you mean by bubble? How do you measure that it's a bubble? Is it enough to say prices
are high relative to history, or what's the actual measure? And then how reliable is it?
And we have six gauges of a bubble that we use all over the world. Then you could apply it
to cryptocurrency. You can apply it to anything you wanted in the world to stocks, to bonds
to anything. Our basic scoreboard is: Are prices high relative to traditional measures? Are
prices discounting unsustainable conditions?
So, as an example today, there's something like 10% of stocks that are pricing in more
than 20% revenue growth and margin expansion. If you look at history, 2% of stocks actually
achieved that. That's an extremely hard thing to do.
Q: That's not counting the base effects from last year, right?
A: No. I'm talking about ongoing growth rates without the base effect. It doesn't happen.
That's very, very unlikely to happen. Potentially with inflation or something you might, but
in a normal kind of forward-looking picture, you don't get that. So that's an example of
discounting unsustainable conditions. They can't, as a group, actually achieve that
condition.
The third thing is new buyers entering the market. How many new buyers are there? How big
a part of the market are they? There's the broad sentiment measures. There's purchases being
financed by leverage and buyers and businesses sort of making extended forward purchases .
That's all part of our checklist for a bubble. And you see today a fair amount of the equity
market in the U.S. in a bubble, but not the aggregate.
There are definitely pockets that meet those standards and that's dangerous. And then,
like you said, what do you want to do, buy or sell them? Well, that's a whole other dangerous
thing.
And that's where, when we had a drawdown in 2000-2001 associated with the bubble -- both
the dollar and the equity market and how that was playing out at the time -- that really
forced us to get into flows, which is basically how we measure bubbles today. Where's the
money coming from? Who are the buyers and sellers? What are their balance sheets? How much
more money can they put into this bubble versus how much income they're getting and when does
that start to flip? And so for us, that process of being able to look at the balance sheets
of the buyers and sellers and think about when they've been stretched to an extreme -- where
they won't have the money, where there's more supply coming than possible demand."
So you look at the IPO pipeline, you look at the creation of new instruments, how fast
those balance sheets are growing. And that's how we try to measure that criss-cross. And it's
still a very, very dangerous game, like you're saying.
So the third part is be careful and be conservative in your thinking around the ability to
time those things, because that's kind of the easiest place to die in asset prices is trying
to be short a bubble too early.
"... Mr. Courtney's calculation was one of several supporting the disclosure in a Journal article last fall that taxpayers could ultimately be on the hook for roughly a third of the $1.6 trillion federal student loan portfolio. This could amount to more than $500 billion, exceeding what taxpayers lost on the saving-and-loan crisis 30 years ago. ..."
The federal budget assumes the government will recover 96 cents of every dollar borrowers
default on. That sounded high to Mr. Courtney because in the private sector 20 cents would be
more appropriate for defaulted consumer loans that aren't backed by an asset.
He asked Education Department budget officials how they calculated that number. They told
him that when borrowers default, the government often puts them into new loans. These pay off
the old loans, and this is considered a recovery, even though in many cases the borrowers
haven't repaid anything and default on the new loans as well.
In reality, the government is likely to recover just 51% to 63% of defaulted amounts,
according to Mr. Courtney's forecast in a 144-page report of his findings, which was reviewed
by The Wall Street Journal.
"If you accounted this way in the private sector, you wouldn't be in business anymore," Mrs.
DeVos said in a December interview. "You'd probably be behind bars."
Mr. Courtney's calculation was one of several supporting the disclosure in
a Journal article last fall that taxpayers could ultimately be on the hook for roughly a
third of the $1.6 trillion federal student loan portfolio. This could amount to more than $500
billion, exceeding what taxpayers lost on the saving-and-loan crisis 30 years ago.
If Mr. Courtney is right, there are big implications for taxpayers and families alike. While
defaulted student loans can't cause the federal government to go bankrupt the way bad mortgage
lending upended banks during the financial crisis, they expose a similar problem: Billions of
dollars lent based on flawed assumptions about whether the money can be repaid.
There are periods when you should sit on your money, despite inflation. This is probably one of those. When no one believes in the future, that's an opportunity. When everyone does, sell
Notable quotes:
"... Take Quantumscape, which went public via a SPAC and produces solid-state lithium metal batteries. Bill Gates and Volkswagen are investors. In 2020 it had no revenue and lost more than $1 billion. Quantumscape had a peak valuation of $50 billion last December. ..."
When I read that technology can construct an image of your face from your DNA, my initial reaction was: That's the stupidest
thing I've ever heard.
Fortunately, I've had a lifetime
of stupidest-things-I've-heard things (
like Bleep ) became
reality. Like the Kübler-Ross stages of grief -- denial, anger, bargaining, depression, acceptance -- technology goes through similar
phases.
My phases of techno-hype: Incredulous. Will never happen. Dread. I'll try it. Booster. Overhype. Failed expectations.
On to the next paradigm. Understand these before plunking money into passing fancies. We know the famous will-never-happen
predictions.
Understand these before plunking money into passing fancies.
We know the famous will-never-happen predictions.
IBM 's Thomas
Watson : "I think there is a world market for maybe five computers." Digital's Ken Olsen : "There is no reason anyone would want a computer
in their home." Funny now, but not unreasonable at the time.
I've learned to harness those knee-jerk denials when I know that technology performance will increase and costs decrease.
Classic scale. I'm actually suspicious of things that aren't controversial from the start. I live in those denial phases -- ask
my wife. Why? Because almost every time, no one believes in the future. That's the time to invest. Until everyone believes it and
then some. Then it's probably time to sell.
I live in those denial phases -- ask my wife. Why? Because almost every time, no one believes in
the future. That's the time to invest. Until everyone believes it and then some. Then it's probably time to sell.
Think of the 2007 iPhone introduction. Typing on glass, are you kidding me? So many white-collar warriors hurdling through airports
were thumb-writing on BlackBerry s -- aka Crackberrys. Take
away my keyboard, even though it's tiny and painful to use? Over my dead body. Well, we know how that turned out. BlackBerry is now
worth $5 billion. Apple a bit more.
Same for electric cars. It's my God-given right to guzzle gas and shift gears with abandon. I don't want a car that works like a
high school electronics lab with a battery and a fan. No way. Yet batteries got cheaper, and range went up.
It wasn't that long ago that everyone was dubious of autonomous cars. The 2005 Darpa Grand Challenge saw Stanley, a Stanford robot,
win $2 million in a 132-mile self-driving race. But on real streets with bicyclists and old ladies? No way. Well, we're not there yet,
but it's certainly accepted that it will happen.
The stock market allocates capital to those ideas it believes are winners. Remember investing guru Benjamin Graham's stock market
as a short-run voting machine, long-run weighing machine? So where are we now -- especially amid a Fed-fueled feeding frenzy? When markets
overpay, they're voting that all that good stuff is practically guaranteed to happen. Huge expectations are built into many stock prices.
Entrepreneurs, naturally, love the overhype stage -- almost free money thrown at them at billion-dollar valuations. But it's the
most dangerous time for investors. HBO has a show named "Euphoria." It's about teen drug use, but no matter; the show's best line is
by the main character, Rue: "Every time I feel good, I think it will last forever . . . but it doesn't."
Expectations eventually get dashed. Reality bites. Stocks come down. Even if the market or product ends up successful, I've noticed
that overhyped stocks can return to their peak values, but five to 10 years later. That's a long time to wait for hype to become real.
Take Quantumscape, which went public via a SPAC and produces solid-state lithium metal batteries. Bill Gates and
Volkswagen are investors. In 2020 it had no revenue
and lost more than $1 billion. Quantumscape had a peak valuation of $50 billion last December. Now it's $13.5 billion. It could work.
I hope it does work. But unless something radical changes, I think it will take a long time for the company to be worth $50 billion
again.
There are plenty of overhyped things to choose from, many with zero revenue. Some may be successful, others certainly won't: Air
taxis (Archer and Joby). Hydroponic vertical farms (AeroFarms). Space travel (Momentus).
Gamestop 's turnaround.
My advice is always to invest in the fog. When everyone else is incredulous, look for scale. Usually, no one else can see it. Squint
hard, but don't make stuff up. If you can see something that everyone dismisses, and that will get cheaper over a long period of time,
maybe decades, buy in cheap and go along for the long ride. Others will eventually overpay.
On the flip side, when the fog clears and we've moved from the acceptance to hype, it's time to unload your shares to those late
to the party. One hint is that stocks are now worth twice gross domestic product. You might sell early. So what? No one ever lost money
taking a profit. But please, know which phase we're in -- don't be the last one in the pool. Instead, start hunting for the next wave
no one believes in.
But constructing a face from DNA? That'll never happen. Well, maybe . . .
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all the
day traders from 2020 have actually put aside enough money to pay their taxes . Those gains
were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many years . Of
course all bets are off if Biden pays every one's taxes for them and gives them an extra "
stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide to
get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That is
effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all the
day traders from 2020 have actually put aside enough money to pay their taxes . Those gains
were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many years .
Of course all bets are off if Biden pays every one's taxes for them and gives them an extra
" stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb to
fresh highs. They are also upping the ante by borrowing to magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets in
April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal Reserve
data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that investors'
allocations to the stock market hit around a three-year high of 70% in March. And margin
debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over the
past year. At some point, given how high their equity allocation is, the risk is they decide
to get out and take profits," said Mr. Panigirtzoglou, a managing director at JPMorgan. "That
is effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure th@t all
the day traders from 2020 have actually put aside enough money to pay their taxes .
Those gains were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for many
years . Of course all bets are off if Biden pays every one's taxes for them and gives
them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major indexes climb
to fresh highs. They are also upping the ante by borrowing to magnify their bets or
increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial assets
in April, the highest level on record. That is according to JPMorgan Chase & Co. and Federal
Reserve data going back to 1952 that includes 401(k) retirement accounts.
... A survey by the American Association of Individual Investors showed that
investors' allocations to the stock market hit around a three-year high of 70% in March.
And margin debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities over
the past year. At some point, given how high their equity allocation is, the risk is they
decide to get out and take profits," said Mr. Panigirtzoglou, a managing director at
JPMorgan. "That is effectively what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not sure
th@t all the day traders from 2020 have actually put aside enough money to pay
their taxes . Those gains were all short term ordinary income .
We won't crash , we will have just put a high in that may not be breached for
many years . Of course all bets are off if Biden pays every one's taxes for them
and gives them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major indexes
climb to fresh highs. They are also upping the ante by borrowing to magnify their
bets or increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total financial
assets in April, the highest level on record. That is according to JPMorgan Chase &
Co. and Federal Reserve data going back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of Individual Investors showed that
investors' allocations to the stock market hit around a three-year high of 70% in
March. And margin debt -- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority figures
show.
... "Retail investors have made a lot of money on many things including equities
over the past year. At some point, given how high their equity allocation is, the
risk is they decide to get out and take profits," said Mr. Panigirtzoglou, a
managing director at JPMorgan. "That is effectively what happened before in
2000."
I believe there is 60% chance we put in a top before May 17 th . I'm not
sure th@t all the day traders from 2020 have actually put aside enough
money to pay their taxes . Those gains were all short term ordinary
income .
We won't crash , we will have just put a high in that may not be breached
for many years . Of course all bets are off if Biden pays every one's
taxes for them and gives them an extra " stimmy" .
Individual investors are holding more stocks than ever before as major
indexes climb to fresh highs. They are also upping the ante by borrowing to
magnify their bets or increasingly buying on small dips in the market.
Stockholdings among U.S. households increased to 41% of their total
financial assets in April, the highest level on record. That is according
to JPMorgan Chase & Co.
and Federal Reserve data going back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of Individual Investors showed
that investors' allocations to the stock market hit around a three-year
high of 70% in March. And margin debt -- or money that investors borrow
to buy securities --
stood at a record as of March , Financial Industry Regulatory Authority
figures show.
... "Retail investors have made a lot of money on many things including
equities over the past year. At some point, given how high their equity
allocation is, the risk is they decide to get out and take profits," said
Mr. Panigirtzoglou, a managing director at JPMorgan. "That is effectively
what happened before in 2000."
I believe there is 60% chance we put in a top before May 17 th
. I'm not sure th@t all the day traders from 2020 have actually
put aside enough money to pay their taxes . Those gains were
all short term ordinary income .
We won't crash , we will have just put a high in that may not
be breached for many years . Of course all bets are off if
Biden pays every one's taxes for them and gives them an extra "
stimmy" .
Individual investors are holding more stocks than ever before
as major indexes climb to fresh highs. They are also upping the
ante by borrowing to magnify their bets or increasingly buying on
small dips in the market.
Stockholdings among U.S. households increased to 41% of their
total financial assets in April, the highest level on record.
That is according to JPMorgan Chase
& Co. and Federal Reserve data going back to 1952 that
includes 401(k) retirement accounts.
... A survey by the American Association of Individual
Investors showed that investors' allocations to the stock market
hit around a three-year high of 70% in March. And margin debt
-- or money that investors borrow to buy securities --
stood at a record as of March , Financial Industry Regulatory
Authority figures show.
... "Retail investors have made a lot of money on many things
including equities over the past year. At some point, given how
high their equity allocation is, the risk is they decide to get
out and take profits," said Mr. Panigirtzoglou, a managing
director at JPMorgan. "That is effectively what happened before
in 2000."
I believe there is 60% chance we put in a top
before May 17 th . I'm not sure th@t all the day
traders from 2020 have actually put aside enough
money to pay their taxes . Those gains were all
short term ordinary income .
We won't crash , we will have just put a high in
that may not be breached for many years . Of course
all bets are off if Biden pays every one's taxes
for them and gives them an extra " stimmy" .
Individual investors are holding more stocks than
ever before as major indexes climb to fresh highs.
They are also upping the ante by borrowing to magnify
their bets or increasingly buying on small dips in
the market.
Stockholdings among U.S. households increased to
41% of their total financial assets in April, the
highest level on record. That is according to
JPMorgan
Chase & Co. and Federal Reserve data going
back to 1952 that includes 401(k) retirement
accounts.
... A survey by the American Association of
Individual Investors showed that investors'
allocations to the stock market hit around a
three-year high of 70% in March. And margin debt
-- or money that investors borrow to buy securities
--
stood at a record as of March , Financial
Industry Regulatory Authority figures show.
... "Retail investors have made a lot of money on
many things including equities over the past year. At
some point, given how high their equity allocation
is, the risk is they decide to get out and take
profits," said Mr. Panigirtzoglou, a managing
director at JPMorgan. "That is effectively what
happened before in 2000."
I believe there is 60% chance we put
in a top before May 17 th . I'm not
sure th@t all the day traders from
2020 have actually put aside enough
money to pay their taxes . Those
gains were all short term ordinary
income .
We won't crash , we will have just
put a high in that may not be
breached for many years . Of course
all bets are off if Biden pays every
one's taxes for them and gives them
an extra " stimmy" .
Individual investors are holding
more stocks than ever before as major
indexes climb to fresh highs. They are
also upping the ante by borrowing to
magnify their bets or increasingly
buying on small dips in the market.
Stockholdings among U.S. households
increased to 41% of their total
financial assets in April, the highest
level on record. That is according to
JPMorgan Chase & Co. and
Federal Reserve data going back to 1952
that includes 401(k) retirement
accounts.
... A survey by the American
Association of Individual Investors
showed that investors' allocations to
the stock market hit around a
three-year high of 70% in March. And
margin debt -- or money that investors
borrow to buy securities --
stood at a record as of March ,
Financial Industry Regulatory Authority
figures show.
... "Retail investors have made a
lot of money on many things including
equities over the past year. At some
point, given how high their equity
allocation is, the risk is they decide
to get out and take profits," said Mr.
Panigirtzoglou, a managing director at
JPMorgan. "That is effectively what
happened before in 2000."
I believe there is
60% chance we put in
a top before May 17
th . I'm not sure
th@t all the day
traders from 2020
have actually put
aside enough money to
pay their taxes .
Those gains were all
short term ordinary
income .
We won't crash , we
will have just put a
high in that may not
be breached for many
years . Of course all
bets are off if Biden
pays every one's
taxes for them and
gives them an extra "
stimmy" .
Individual investors
are holding more stocks
than ever before as
major indexes climb to
fresh highs. They are
also upping the ante by
borrowing to magnify
their bets or
increasingly buying on
small dips in the
market.
Stockholdings among
U.S. households
increased to 41% of
their total financial
assets in April, the
highest level on
record. That is
according to
JPMorgan Chase
& Co. and Federal
Reserve data going back
to 1952 that includes
401(k) retirement
accounts.
... A survey by the
American Association of
Individual Investors
showed that investors'
allocations to the
stock market hit around
a three-year high of
70% in March. And
margin debt -- or money
that investors borrow
to buy securities --
stood at a record as of
March , Financial
Industry Regulatory
Authority figures
show.
... "Retail
investors have made a
lot of money on many
things including
equities over the past
year. At some point,
given how high their
equity allocation is,
the risk is they decide
to get out and take
profits," said Mr.
Panigirtzoglou, a
managing director at
JPMorgan. "That is
effectively what
happened before in
2000."
I
believe
there
is
60%
chance
we
put
in a
top
before
May
17 th
. I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
... A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
-- or
money
that
investors
borrow
to
buy
securities
--
stood
at a
record
as of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
Individual
investors
are
holding
more
stocks
than
ever
before
as
major
indexes
climb
to
fresh
highs.
They
are
also
upping
the
ante
by
borrowing
to
magnify
their
bets
or
increasingly
buying
on
small
dips
in
the
market.
Stockholdings
among
U.S.
households
increased
to
41%
of
their
total
financial
assets
in
April,
the
highest
level
on
record.
That
is
according
to
JPMorgan
Chase
&
Co.
and
Federal
Reserve
data
going
back
to
1952
that
includes
401(k)
retirement
accounts.
...
A
survey
by
the
American
Association
of
Individual
Investors
showed
that
investors'
allocations
to
the
stock
market
hit
around
a
three-year
high
of
70%
in
March.
And
margin
debt
--
or
money
that
investors
borrow
to
buy
securities
--
stood
at
a
record
as
of
March
,
Financial
Industry
Regulatory
Authority
figures
show.
...
"Retail
investors
have
made
a
lot
of
money
on
many
things
including
equities
over
the
past
year.
At
some
point,
given
how
high
their
equity
allocation
is,
the
risk
is
they
decide
to
get
out
and
take
profits,"
said
Mr.
Panigirtzoglou,
a
managing
director
at
JPMorgan.
"That
is
effectively
what
happened
before
in
2000."
I
believe
there
is
60%
chance
we
put
in
a
top
before
May
17
th
.
I'm
not
sure
th@t
all
the
day
traders
from
2020
have
actually
put
aside
enough
money
to
pay
their
taxes
.
Those
gains
were
all
short
term
ordinary
income
.
We
won't
crash
,
we
will
have
just
put
a
high
in
that
may
not
be
breached
for
many
years
.
Of
course
all
bets
are
off
if
Biden
pays
every
one's
taxes
for
them
and
gives
them
an
extra
"
stimmy"
.
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft is up
1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot com
peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left to buy
) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to Dow
Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in Vanguard investments, roughly
70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into early
2020 with the highest expectations for stock returns in the upcoming year. They ended up
reducing their exposure to stocks much more sharply during the crash of February and March 2020
than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but not
until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go up
" so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other massive
interventions . Meanwhile, emergency government programs pumped trillions of dollars of
stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation below
.
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long as
the central bank is drenching the markets with liquidity, why not buy stocks -- and why fear
another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52 billion
to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft is
up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot com
peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left to
buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock market
used to take years, sometimes decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however, stocks regained record highs in
only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's the
fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according to
Dow Jones Market Data. Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be cautious.
These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If anyone
should come through the sharpest market decline in decades unperturbed, it's the people in
this survey -- typically about 60 years old, with about $225,000 in Vanguard investments,
roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into
early 2020 with the highest expectations for stock returns in the upcoming year. They ended
up reducing their exposure to stocks much more sharply during the crash of February and March
2020 than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold -- but
not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that stocks
aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go
up " so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing interest
rates toward zero and by buying more than $2.5 trillion in
Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation
below .
Fund managers fruitlessly complained about how these policies were distorting markets, but
individual investors simply followed the old Wall Street adage: Don't fight the Fed. So long
as the central bank is drenching the markets with liquidity, why not buy stocks -- and why
fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52
billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy them;
otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present msft
is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed the Dot
com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing left
to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy . Cash is a
wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high for 95% of stocks"
...That's what some investors seem to believe -- and who can blame them? The stock
market used to take years, sometimes decades, to recover its prior peak after the start
of a bear-market decline. After last year's 34% meltdown, however, stocks regained record
highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009, that's
the fastest-ever recovery to a prior peak. The S&P 500 has fallen at least 20% -- the
conventional definition of a bear market -- 26 times in the past nine decades, according
to Dow Jones Market Data. Recoveries to previous highs have typically taken almost three
years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be
cautious. These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky. If
anyone should come through the sharpest market decline in decades unperturbed, it's the
people in this survey -- typically about 60 years old, with about $225,000 in Vanguard
investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went into
early 2020 with the highest expectations for stock returns in the upcoming year. They
ended up reducing their exposure to stocks much more sharply during the crash of February
and March 2020 than those who had been expecting lower returns.
They also tended to turn around and buy back much of the stock they had just sold --
but not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery that
stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks only go
up " so often that it began to seem like a magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing
interest rates toward zero and by buying more than $2.5 trillion
in Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the conversation
below .
Fund managers fruitlessly complained about how these policies were distorting markets,
but individual investors simply followed the old Wall Street adage: Don't fight the Fed.
So long as the central bank is drenching the markets with liquidity, why not buy stocks
-- and why fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar Inc. Investors added $52
billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make market
crashes
self-correcting . The more stocks fall, the more the target-date funds have to buy
them; otherwise, the portfolios would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to present
msft is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has surpassed
the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is nothing
left to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT buy .
Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too early"
From commnets: "Barrons reports that as of Friday the total value of stocks v
GDP has surpassed the Dot com peak in early 2000 .Case Schiller PE is at all time
record
margin loans at all time record . 200 day moving average at high for 95% of
stocks"
...That's what some investors seem to believe -- and who can blame them? The
stock market used to take years, sometimes decades, to recover its prior peak after
the start of a bear-market decline. After last year's 34% meltdown, however, stocks
regained record highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop in early 2009,
that's the fastest-ever recovery to a prior peak. The S&P 500 has fallen at
least 20% -- the conventional definition of a bear market -- 26 times in the past
nine decades, according to Dow Jones Market Data. Recoveries to previous highs have
typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend to be
cautious. These people often follow the philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that stocks are risky.
If anyone should come through the sharpest market decline in decades unperturbed,
it's the people in this survey -- typically about 60 years old, with about $225,000
in Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood out: those who went
into early 2020 with the highest expectations for stock returns in the upcoming
year. They ended up reducing their exposure to stocks much more sharply during the
crash of February and March 2020 than those who had been expecting lower
returns.
They also tended to turn around and buy back much of the stock they had just
sold -- but not until prices had already shot above the March lows.
Investors elsewhere seem to have concluded from the swiftness of the recovery
that stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks
only go up " so often that it began to seem like a magic incantation. And, for
the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by squashing
interest rates toward zero and by buying more than $2.5
trillion in Treasury securities since February 2020, along with other
massive interventions . Meanwhile, emergency government programs pumped
trillions of dollars of stimulus into the economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained about how these policies were distorting
markets, but individual investors simply followed the old Wall Street adage: Don't
fight the Fed. So long as the central bank is drenching the markets with liquidity,
why not buy stocks -- and why fear another crash?
What's more, target-date
funds , which continually seek to keep a predetermined exposure to stocks,
command in excess of $2.8 trillion, according to Morningstar Inc. Investors added
$52 billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped make
market crashes
self-correcting . The more stocks fall, the more the target-date funds have to
buy them; otherwise, the portfolios would fall below their mandated ratios of
stocks to other assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 , from2009 to
present msft is up 1000% dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value of stocks v GDP has
surpassed the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation : there is
nothing left to buy ) .
The course of action is clear ..Don't sell but whatever you do ..Do NOT
buy . Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by selling too
early"
From commnets: "Barrons reports that as of Friday the total value of
stocks v GDP has surpassed the Dot com peak in early 2000 .Case Schiller PE
is at all time record
margin loans at all time record . 200 day moving average at high for 95% of
stocks"
...That's what some investors seem to believe -- and who can blame them?
The stock market used to take years, sometimes decades, to recover its
prior peak after the start of a bear-market decline. After last year's 34%
meltdown, however, stocks regained record highs in only 126 trading
days.
With the exception of a 100-day rebound after an interim drop in early
2009, that's the fastest-ever recovery to a prior peak. The S&P 500 has
fallen at least 20% -- the conventional definition of a bear market -- 26
times in the past nine decades, according to Dow Jones Market Data.
Recoveries to previous highs have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard investors, who tend
to be cautious. These people often follow the philosophy of the firm's late
founder,
Jack Bogle , who preached patience and repeatedly warned that stocks
are risky. If anyone should come through the sharpest market decline in
decades unperturbed, it's the people in this survey -- typically about 60
years old, with about $225,000 in Vanguard investments, roughly 70% in
stocks.
Yet they didn't all sit tight. One group in the survey stood out: those
who went into early 2020 with the highest expectations for stock returns in
the upcoming year. They ended up reducing their exposure to stocks much
more sharply during the crash of February and March 2020 than those who had
been expecting lower returns.
They also tended to turn around and buy back much of the stock they had
just sold -- but not until prices had already shot above the March
lows.
Investors elsewhere seem to have concluded from the swiftness of the
recovery that stocks aren't risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared " Stocks
only go up " so often that it began to seem like a magic incantation.
And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped markets by
squashing interest rates toward zero and by buying more than
$2.5 trillion in Treasury securities since February 2020, along with
other massive interventions . Meanwhile, emergency government programs
pumped trillions of dollars of stimulus into the economy.
SHARE YOUR
THOUGHTS
Have you lost your fear of a bear market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained about how these policies were
distorting markets, but individual investors simply followed the old Wall
Street adage: Don't fight the Fed. So long as the central bank is drenching
the markets with liquidity, why not buy stocks -- and why fear another
crash?
What's more,
target-date funds , which continually seek to keep a predetermined
exposure to stocks, command in excess of $2.8 trillion, according to
Morningstar Inc.
Investors added $52 billion to target-date funds in 2020.
The popularity of these portfolios has -- so far, anyway -- helped
make market crashes
self-correcting . The more stocks fall, the more the target-date funds
have to buy them; otherwise, the portfolios would fall below their mandated
ratios of stocks to other assets.
Mr. Sinclair is correct . While I lost 100% in WAMU in 2008 ,
from2009 to present msft is up 1000% dwarfing my loss in WAMU
.
Barrons reports that as of Friday the total value of stocks v
GDP has surpassed the Dot com peak in early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks ( translation
: there is nothing left to buy ) .
The course of action is clear ..Don't sell but whatever you do
..Do NOT buy . Cash is a wonderful hedge .
When asked how he got so rich Bernard Baruch replied " by
selling too early"
From commnets: "Barrons reports that as of Friday the total
value of stocks v GDP has surpassed the Dot com peak in early
2000 .Case Schiller PE is at all time record
margin loans at all time record . 200 day moving average at high
for 95% of stocks"
...That's what some investors seem to believe -- and who can
blame them? The stock market used to take years, sometimes
decades, to recover its prior peak after the start of a
bear-market decline. After last year's 34% meltdown, however,
stocks regained record highs in only 126 trading days.
With the exception of a 100-day rebound after an interim drop
in early 2009, that's the fastest-ever recovery to a prior peak.
The S&P 500 has fallen at least 20% -- the conventional
definition of a bear market -- 26 times in the past nine decades,
according to Dow Jones Market Data. Recoveries to previous highs
have typically taken almost three years,
often much longer .
... ... ...
That complacency takes a toll -- even among Vanguard
investors, who tend to be cautious. These people often follow the
philosophy of the firm's late founder,
Jack Bogle , who preached patience and repeatedly warned that
stocks are risky. If anyone should come through the sharpest
market decline in decades unperturbed, it's the people in this
survey -- typically about 60 years old, with about $225,000 in
Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the survey stood
out: those who went into early 2020 with the highest expectations
for stock returns in the upcoming year. They ended up reducing
their exposure to stocks much more sharply during the crash of
February and March 2020 than those who had been expecting lower
returns.
They also tended to turn around and buy back much of the stock
they had just sold -- but not until prices had already shot above
the March lows.
Investors elsewhere seem to have concluded from the swiftness
of the recovery that stocks aren't risky at all. After last
spring's rebound,
Dave Portnoy , a social-media celebrity, declared "
Stocks only go up " so often that it began to seem like a
magic incantation. And, for the past year,
just about every stock has gone up .
That's largely because the Federal Reserve has backstopped
markets by squashing interest rates toward zero and by buying
more than $2.5 trillion in Treasury securities since February
2020, along with
other massive interventions . Meanwhile, emergency government
programs pumped trillions of dollars of stimulus into the
economy.
SHARE YOUR THOUGHTS
Have you lost your fear of a bear market? Why or why not?
Join the conversation below .
Fund managers fruitlessly complained about how these policies
were distorting markets, but individual investors simply followed
the old Wall Street adage: Don't fight the Fed. So long as the
central bank is drenching the markets with liquidity, why not buy
stocks -- and why fear another crash?
What's more,
target-date funds , which continually seek to keep a
predetermined exposure to stocks, command in excess of $2.8
trillion, according to Morningstar
Inc. Investors added $52 billion to target-date funds in
2020.
The popularity of these portfolios has -- so far, anyway --
helped make market crashes
self-correcting . The more stocks fall, the more the
target-date funds have to buy them; otherwise, the portfolios
would fall below their mandated ratios of stocks to other
assets.
Mr. Sinclair is correct . While I lost 100% in WAMU
in 2008 , from2009 to present msft is up 1000%
dwarfing my loss in WAMU .
Barrons reports that as of Friday the total value
of stocks v GDP has surpassed the Dot com peak in
early 2000 .
Case Schiller PE is at all time record
margin loans at all time record .
200 day moving average at high for 95% of stocks (
translation : there is nothing left to buy ) .
The course of action is clear ..Don't sell but
whatever you do ..Do NOT buy . Cash is a wonderful
hedge .
When asked how he got so rich Bernard Baruch
replied " by selling too early"
From commnets: "Barrons reports that as of Friday
the total value of stocks v GDP has surpassed the Dot
com peak in early 2000 .Case Schiller PE is at all
time record
margin loans at all time record . 200 day moving
average at high for 95% of stocks"
...That's what some investors seem to believe --
and who can blame them? The stock market used to take
years, sometimes decades, to recover its prior peak
after the start of a bear-market decline. After last
year's 34% meltdown, however, stocks regained record
highs in only 126 trading days.
With the exception of a 100-day rebound after an
interim drop in early 2009, that's the fastest-ever
recovery to a prior peak. The S&P 500 has fallen
at least 20% -- the conventional definition of a bear
market -- 26 times in the past nine decades,
according to Dow Jones Market Data. Recoveries to
previous highs have typically taken almost three
years,
often much longer .
... ... ...
That complacency takes a toll -- even among
Vanguard investors, who tend to be cautious. These
people often follow the philosophy of the firm's late
founder,
Jack Bogle , who preached patience and repeatedly
warned that stocks are risky. If anyone should come
through the sharpest market decline in decades
unperturbed, it's the people in this survey --
typically about 60 years old, with about $225,000 in
Vanguard investments, roughly 70% in stocks.
Yet they didn't all sit tight. One group in the
survey stood out: those who went into early 2020 with
the highest expectations for stock returns in the
upcoming year. They ended up reducing their exposure
to stocks much more sharply during the crash of
February and March 2020 than those who had been
expecting lower returns.
They also tended to turn around and buy back much
of the stock they had just sold -- but not until
prices had already shot above the March lows.
Investors elsewhere seem to have concluded from
the swiftness of the recovery that stocks aren't
risky at all. After last spring's rebound,
Dave Portnoy , a social-media celebrity, declared
"
Stocks only go up " so often that it began to
seem like a magic incantation. And, for the past
year,
just about every stock has gone up .
That's largely because the Federal Reserve has
backstopped markets by squashing interest rates
toward zero and by buying
more than $2.5 trillion in Treasury securities
since February 2020, along with
other massive interventions . Meanwhile,
emergency government programs pumped trillions of
dollars of stimulus into the economy.
SHARE
YOUR THOUGHTS
Have you lost your fear of a bear market? Why
or why not? Join the conversation below .
Fund managers fruitlessly complained about how
these policies were distorting markets, but
individual investors simply followed the old Wall
Street adage: Don't fight the Fed. So long as the
central bank is drenching the markets with liquidity,
why not buy stocks -- and why fear another crash?
What's more,
target-date funds , which continually seek to
keep a predetermined exposure to stocks, command in
excess of $2.8 trillion, according to Morningstar
Inc. Investors added $52 billion to target-date funds
in 2020.
The popularity of these portfolios has -- so
far, anyway -- helped make market crashes
self-correcting . The more stocks fall, the more
the target-date funds have to buy them; otherwise,
the portfolios would fall below their mandated ratios
of stocks to other assets.
Mr. Sinclair is correct . While I
lost 100% in WAMU in 2008 , from2009
to present msft is up 1000% dwarfing
my loss in WAMU .
Barrons reports that as of Friday the
total value of stocks v GDP has
surpassed the Dot com peak in early
2000 .
Case Schiller PE is at all time
record
margin loans at all time record .
200 day moving average at high for
95% of stocks ( translation : there
is nothing left to buy ) .
The course of action is clear ..Don't
sell but whatever you do ..Do NOT buy
. Cash is a wonderful hedge .
When asked how he got so rich Bernard
Baruch replied " by selling too
early"
From commnets: "Barrons reports that
as of Friday the total value of stocks
v GDP has surpassed the Dot com peak in
early 2000 .Case Schiller PE is at all
time record
margin loans at all time record . 200
day moving average at high for 95% of
stocks"
...That's what some investors seem
to believe -- and who can blame them?
The stock market used to take years,
sometimes decades, to recover its prior
peak after the start of a bear-market
decline. After last year's 34%
meltdown, however, stocks regained
record highs in only 126 trading
days.
With the exception of a 100-day
rebound after an interim drop in early
2009, that's the fastest-ever recovery
to a prior peak. The S&P 500 has
fallen at least 20% -- the conventional
definition of a bear market -- 26 times
in the past nine decades, according to
Dow Jones Market Data. Recoveries to
previous highs have typically taken
almost three years,
often much longer .
... ... ...
That complacency takes a toll --
even among Vanguard investors, who tend
to be cautious. These people often
follow the philosophy of the firm's
late founder,
Jack Bogle , who preached patience
and repeatedly warned that stocks are
risky. If anyone should come through
the sharpest market decline in decades
unperturbed, it's the people in this
survey -- typically about 60 years old,
with about $225,000 in Vanguard
investments, roughly 70% in stocks.
Yet they didn't all sit tight. One
group in the survey stood out: those
who went into early 2020 with the
highest expectations for stock returns
in the upcoming year. They ended up
reducing their exposure to stocks much
more sharply during the crash of
February and March 2020 than those who
had been expecting lower returns.
They also tended to turn around and
buy back much of the stock they had
just sold -- but not until prices had
already shot above the March lows.
Investors elsewhere seem to have
concluded from the swiftness of the
recovery that stocks aren't risky at
all. After last spring's rebound,
Dave Portnoy , a social-media
celebrity, declared "
Stocks only go up " so often that
it began to seem like a magic
incantation. And, for the past year,
just about every stock has gone up
.
That's largely because the Federal
Reserve has backstopped markets by
squashing interest rates toward zero
and by buying
more than $2.5 trillion in Treasury
securities since February 2020,
along with
other massive interventions .
Meanwhile, emergency government
programs pumped trillions of dollars of
stimulus into the economy.
SHARE
YOUR THOUGHTS
Have you lost your fear of a bear
market? Why or why not? Join the
conversation below .
Fund managers fruitlessly complained
about how these policies were
distorting markets, but individual
investors simply followed the old Wall
Street adage: Don't fight the Fed. So
long as the central bank is drenching
the markets with liquidity, why not buy
stocks -- and why fear another
crash?
What's more,
target-date funds , which
continually seek to keep a
predetermined exposure to stocks,
command in excess of $2.8 trillion,
according to
Morningstar Inc. Investors added
$52 billion to target-date funds in
2020.
The popularity of these
portfolios has -- so far, anyway --
helped make market crashes
self-correcting . The more stocks
fall, the more the target-date funds
have to buy them; otherwise, the
portfolios would fall below their
mandated ratios of stocks to other
assets.
Mr. Sinclair is
correct . While I
lost 100% in WAMU in
2008 , from2009 to
present msft is up
1000% dwarfing my
loss in WAMU .
Barrons reports that
as of Friday the
total value of stocks
v GDP has surpassed
the Dot com peak in
early 2000 .
Case Schiller PE is
at all time
record
margin loans at all
time record .
200 day moving
average at high for
95% of stocks (
translation : there
is nothing left to
buy ) .
The course of action
is clear ..Don't sell
but whatever you do
..Do NOT buy . Cash
is a wonderful hedge
.
When asked how he got
so rich Bernard
Baruch replied " by
selling too early"
From commnets:
"Barrons reports that
as of Friday the total
value of stocks v GDP
has surpassed the Dot
com peak in early 2000
.Case Schiller PE is at
all time record
margin loans at all
time record . 200 day
moving average at high
for 95% of stocks"
...That's what some
investors seem to
believe -- and who can
blame them? The stock
market used to take
years, sometimes
decades, to recover its
prior peak after the
start of a bear-market
decline. After last
year's 34% meltdown,
however, stocks
regained record highs
in only 126 trading
days.
With the exception
of a 100-day rebound
after an interim drop
in early 2009, that's
the fastest-ever
recovery to a prior
peak. The S&P 500
has fallen at least 20%
-- the conventional
definition of a bear
market -- 26 times in
the past nine decades,
according to Dow Jones
Market Data. Recoveries
to previous highs have
typically taken almost
three years,
often much longer
.
... ... ...
That complacency
takes a toll -- even
among Vanguard
investors, who tend to
be cautious. These
people often follow the
philosophy of the
firm's late founder,
Jack Bogle , who
preached patience and
repeatedly warned that
stocks are risky. If
anyone should come
through the sharpest
market decline in
decades unperturbed,
it's the people in this
survey -- typically
about 60 years old,
with about $225,000 in
Vanguard investments,
roughly 70% in
stocks.
Yet they didn't all
sit tight. One group in
the survey stood out:
those who went into
early 2020 with the
highest expectations
for stock returns in
the upcoming year. They
ended up reducing their
exposure to stocks much
more sharply during the
crash of February and
March 2020 than those
who had been expecting
lower returns.
They also tended to
turn around and buy
back much of the stock
they had just sold --
but not until prices
had already shot above
the March lows.
Investors elsewhere
seem to have concluded
from the swiftness of
the recovery that
stocks aren't risky at
all. After last
spring's rebound,
Dave Portnoy , a
social-media celebrity,
declared "
Stocks only go up "
so often that it began
to seem like a magic
incantation. And, for
the past year,
just about every stock
has gone up .
That's largely
because the Federal
Reserve has backstopped
markets by squashing
interest rates toward
zero and by buying
more than $2.5 trillion
in Treasury
securities since
February 2020, along
with
other massive
interventions .
Meanwhile, emergency
government programs
pumped trillions of
dollars of stimulus
into the
economy.
SHARE
YOUR THOUGHTS
Have you lost
your fear of a bear
market? Why or why not?
Join the conversation
below .
Fund managers
fruitlessly complained
about how these
policies were
distorting markets, but
individual investors
simply followed the old
Wall Street adage:
Don't fight the Fed. So
long as the central
bank is drenching the
markets with liquidity,
why not buy stocks --
and why fear another
crash?
What's more,
target-date funds ,
which continually seek
to keep a predetermined
exposure to stocks,
command in excess of
$2.8 trillion,
according to
Morningstar Inc.
Investors added $52
billion to target-date
funds in 2020.
The popularity of
these portfolios has --
so far, anyway --
helped make market
crashes
self-correcting .
The more stocks fall,
the more the
target-date funds have
to buy them; otherwise,
the portfolios would
fall below their
mandated ratios of
stocks to other
assets.
Mr.
Sinclair
is
correct
.
While
I
lost
100%
in
WAMU
in
2008
,
from2009
to
present
msft
is up
1000%
dwarfing
my
loss
in
WAMU
.
Barrons
reports
that
as
of
Friday
the
total
value
of
stocks
v
GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.
Case
Schiller
PE
is
at
all
time
record
margin
loans
at
all
time
record
.
200
day
moving
average
at
high
for
95%
of
stocks
(
translation
:
there
is
nothing
left
to
buy
)
.
The
course
of
action
is
clear
..Don't
sell
but
whatever
you
do
..Do
NOT
buy
.
Cash
is
a
wonderful
hedge
.
When
asked
how
he
got
so
rich
Bernard
Baruch
replied
"
by
selling
too
early"
From
commnets:
"Barrons
reports
that
as of
Friday
the
total
value
of
stocks
v GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.Case
Schiller
PE is
at
all
time
record
margin
loans
at
all
time
record
. 200
day
moving
average
at
high
for
95%
of
stocks"
...That's
what
some
investors
seem
to
believe
--
and
who
can
blame
them?
The
stock
market
used
to
take
years,
sometimes
decades,
to
recover
its
prior
peak
after
the
start
of a
bear-market
decline.
After
last
year's
34%
meltdown,
however,
stocks
regained
record
highs
in
only
126
trading
days.
With
the
exception
of a
100-day
rebound
after
an
interim
drop
in
early
2009,
that's
the
fastest-ever
recovery
to a
prior
peak.
The
S&P
500
has
fallen
at
least
20%
--
the
conventional
definition
of a
bear
market
-- 26
times
in
the
past
nine
decades,
according
to
Dow
Jones
Market
Data.
Recoveries
to
previous
highs
have
typically
taken
almost
three
years,
often
much
longer
.
...
...
...
That
complacency
takes
a
toll
--
even
among
Vanguard
investors,
who
tend
to be
cautious.
These
people
often
follow
the
philosophy
of
the
firm's
late
founder,
Jack
Bogle
, who
preached
patience
and
repeatedly
warned
that
stocks
are
risky.
If
anyone
should
come
through
the
sharpest
market
decline
in
decades
unperturbed,
it's
the
people
in
this
survey
--
typically
about
60
years
old,
with
about
$225,000
in
Vanguard
investments,
roughly
70%
in
stocks.
Yet
they
didn't
all
sit
tight.
One
group
in
the
survey
stood
out:
those
who
went
into
early
2020
with
the
highest
expectations
for
stock
returns
in
the
upcoming
year.
They
ended
up
reducing
their
exposure
to
stocks
much
more
sharply
during
the
crash
of
February
and
March
2020
than
those
who
had
been
expecting
lower
returns.
They
also
tended
to
turn
around
and
buy
back
much
of
the
stock
they
had
just
sold
--
but
not
until
prices
had
already
shot
above
the
March
lows.
Investors
elsewhere
seem
to
have
concluded
from
the
swiftness
of
the
recovery
that
stocks
aren't
risky
at
all.
After
last
spring's
rebound,
Dave
Portnoy
, a
social-media
celebrity,
declared
"
Stocks
only
go
up
" so
often
that
it
began
to
seem
like
a
magic
incantation.
And,
for
the
past
year,
just
about
every
stock
has
gone
up
.
That's
largely
because
the
Federal
Reserve
has
backstopped
markets
by
squashing
interest
rates
toward
zero
and
by
buying
more
than
$2.5
trillion
in
Treasury
securities
since
February
2020,
along
with
other
massive
interventions
.
Meanwhile,
emergency
government
programs
pumped
trillions
of
dollars
of
stimulus
into
the
economy.
SHARE
YOUR
THOUGHTS
Have
you
lost
your
fear
of a
bear
market?
Why
or
why
not?
Join
the
conversation
below
.
Fund
managers
fruitlessly
complained
about
how
these
policies
were
distorting
markets,
but
individual
investors
simply
followed
the
old
Wall
Street
adage:
Don't
fight
the
Fed.
So
long
as
the
central
bank
is
drenching
the
markets
with
liquidity,
why
not
buy
stocks
--
and
why
fear
another
crash?
What's
more,
target-date
funds
,
which
continually
seek
to
keep
a
predetermined
exposure
to
stocks,
command
in
excess
of
$2.8
trillion,
according
to
Morningstar
Inc.
Investors
added
$52
billion
to
target-date
funds
in
2020.
The
popularity
of
these
portfolios
has
-- so
far,
anyway
--
helped
make
market
crashes
self-correcting
. The
more
stocks
fall,
the
more
the
target-date
funds
have
to
buy
them;
otherwise,
the
portfolios
would
fall
below
their
mandated
ratios
of
stocks
to
other
assets.
Mr.
Sinclair
is
correct
.
While
I
lost
100%
in
WAMU
in
2008
,
from2009
to
present
msft
is
up
1000%
dwarfing
my
loss
in
WAMU
.
Barrons
reports
that
as
of
Friday
the
total
value
of
stocks
v
GDP
has
surpassed
the
Dot
com
peak
in
early
2000
.
Case
Schiller
PE
is
at
all
time
record
margin
loans
at
all
time
record
.
200
day
moving
average
at
high
for
95%
of
stocks
(
translation
:
there
is
nothing
left
to
buy
)
.
The
course
of
action
is
clear
..Don't
sell
but
whatever
you
do
..Do
NOT
buy
.
Cash
is
a
wonderful
hedge
.
When
asked
how
he
got
so
rich
Bernard
Baruch
replied
"
by
selling
too
early"
"... nobody, myself included, knows when this is going to end. We just watch the things that would normally indicate an end. ..."
"... "I think we should recognize we're pulling demand forward and that the longer-term outlook is not particularly favorable, in my view," he said. Cooperman said he expects Federal Reserve Chairman Jerome Powell, who has described a recent pickup in price pressures as "transitory," will ultimately be surprised by inflation, forcing the central bank to signal action before the end of 2022. ..."
Billionaire investor Leon Cooperman says he's a "fully invested bear" with "an eye on the exit.
'I suspect the market will be lower a year from today. But I
don't have to make that guess now. This is not going to end well.'
-- Leon Cooperman, Omega Family Office
That's self-described "fully invested bear" Leon Cooperman,
who told CNBC
on Friday that given a coming rise in taxes, inflation and a "reasonably richly appraised market," he has "an eye
on the exit."
Cooperman, the chair of the Omega Family Office, added that "
nobody, myself included, knows when this is going to end. We
just watch the things that would normally indicate an end.
"
Stocks were
weaker Friday
, on track for a mixed weekly performance despite a hectic week of corporate results that featured blowout
results for some of the world's largest tech-related companies. The Dow Jones Industrial Average
DJIA,
-0.54%
was down more than 200 points, dragging the blue-chip gauge lower for the week. The S&P 500
SPX,
-0.72%
was down 0.7% for the session, while the Nasdaq Composite
COMP,
-0.85%
was down 0.5%.
Cooperman warned that the pace of market gains since bottoming out in March 2020 following
the pandemic-induced bear market plunge can't continue indefinitely.
"I think we should recognize we're pulling demand forward and that the longer-term outlook is not particularly favorable,
in my view," he said. Cooperman said he expects Federal Reserve Chairman Jerome Powell, who has described a recent pickup in
price pressures as "transitory," will ultimately be surprised by inflation, forcing the central bank to signal action before the
end of 2022.
dougc
1 hour ago
If he is a fully invested BEAR he should be invested FOR the pullback and not eyeing an exit. If
he's fully invested now in a bull market strategy, he's lying about his expectations.
Reply
1
1 reply
Jolly
2 hours ago
The fed and biden are committed to endless cash until we go bankrupt or bonds pricing go way up and
this thing is forced to crash. you stay in the market and make the fed raise rates.
1Economist
4 hours ago
Popcorn: Do intelligent people erase Glass/Steagall, and uptick rule? At the same time powers in charge are unable to
grasp the significant loss of market makers, the progress of Ai & dark pools. Throw in new monetary policy that debt
doesn't matter and you get huge liquidity and a big BANG!
John
31 minutes ago
Saw the exact same thing in the 1990's. Everyone knew it was a bubble, but they all thought they could get out before
everyone else if they had to.
aaa
1 hour ago
I would never trust the epitome of greed, when it comes to investments that they can go long or
short...into a decree of direction. You have to ask yourself how and why entities like this have
accumulated billions on the market....
Reply
1
Scott
3 hours ago
Leon Cooperman says he has an "eye on the exit?" So? Anyone who doesn't at all times have an eye on
the exit is a fool. Tell me something I don't know, Leon.
C
49 minutes ago
Another shorter trying to manipulate the market
"Retail clients were the only buyers last week, while institutional and hedge fund clients sold," said Bank of America strategists
led by Jill Carey Hall. "Retail clients have been buyers for the eighth straight week, while hedge fund clients sold for the third
straight week."
The team at Bank of America notes that cumulative equity flows last week totaled a net $5.2 billion worth of outflows, the largest
one-week move out of stocks since November and the fifth-largest on record. In the past, these kinds of exoduses from the market
have portended shaky periods for investors.
"In the prior times weekly flows were this (or more) negative, the subsequent week's returns were -1% on avg/median with negative
returns 75% of the time," the firm notes. "Four-week average flows have been trending lower in recent weeks and have now turned negative
for the first time since mid-Feb, suggesting a pause to increasingly euphoric sentiment."
...But data from strategists on the Street does show that retail's participation in this market is not what it once was. The strategy
team over at Deutsche Bank led by Binky Chadha published a report late last week showed that single-stock call options â€"
a core part of the YOLO trade
powered by retail â€" has been declining in recent weeks.
Indices such as the Dow Jones Industrial Average (DJIA) and S&P 500 ( ( SPY ) ) are generally viewed
as convenient ways to measure the health of the entire stock market. Indeed, they are the
indicators that most folks in the business media use to determine if there are uptrends,
downtrends, bull markets, or bear markets.
The major indices generally do a good job of measuring overall market health, but there are
times when they can be very misleading. The problem is that there a small number of big-cap
stocks that can move the indices in one direction while hundreds or even thousands of smaller
stocks are moving in the other way.
Over the last 10 weeks, there has been a significant disconnect between the stocks that led
early in the year and the indices. Growth stocks, speculative small-caps, hot theme names, and
other groups have been very weak for a while, but the S&P 500 was hitting a new high
Thursday morning.
For a clearer picture of what is going on out there, a much better indicator is the ARK
Innovation ETF ( ARKK ) . ARKK was in a very strong
uptrend off the March 2020 low and gained nearly 400%. The fund held the stocks that market
participants favored for a very long time. It topped at $160 on Feb. 16 and a week later had
fallen 20% to $128, which is the definition of a bear market.
Since falling into a bear market, ARKK has been in a trading range and continued to
languish. It is down more than 3% Thursday as growth stocks and small-caps are taking it on the
chin again.
This is what is really going on in the market for most individual traders that focus on
stock-picking. The S&P 500 and DJIA are totally disconnected from this action. For most
traders it has been a bear market for over two months now, but we never hear about it in the
media.
This presents the most crucial question right now: What will happen to ARKK and the stocks
that it reflects if there is a major correction in the senior indices? Will they continue to
fall, or will there be some rotational action as money comes out of the names that are
currently at highs?
There is no easy answer, but that is the dilemma we face if we start to see deeper
corrective action in the S&P 500 and DJIA.
The trouble with this line of reasoning is that it is hard to square with last year's market
logic. A year ago, we were a month into a rebound as the valuations of big technology stocks
soared, something explained at the time by
far lower Treasury yields . That made sense: Lower bond yields make earnings that are
expected to grow far into the future look more attractive, and Big Tech is full of those.
Growth stocks were a great place to be as the longest-dated Treasury yields plumbed new lows.
Valuations should rise when bond yields fall a long way.
Here we come to the problem: Just as lower yields justified a higher valuation for stocks
last year, higher yields should mean a lower price-to-earnings multiple -- albeit a lower
multiple of much higher earnings. Instead, valuations have gone broadly sideways as bond yields
first rose and then this month pulled back a bit. The result is that the stock market's
relationship with the bond market has gone haywire.
The strangeness shows up in the correlation between stocks and bond yields. Since the late
1990s higher yields have typically been good for stocks, so they tended to rise and fall
together daily -- even as over the long run, yields fell and stocks rose.
Last year, this relationship broke down. Investors got into a cycle where bad news on the
economy was good news for stocks, because it resulted in such
extreme support from the Federal Reserve and the government. The effect canceled out the
usual relationship almost entirely, breaking the link between stocks and bonds by late
summer.
The odd relationship of yields up, stocks up...Yields dropped a little and growth stocks
made more new highs. The tendency for both to move in the same direction, measured by the
50-day correlation of growth stocks to bond yields, has reversed and is at its most negative
since the boom times of 1999. Bizarrely, the link between value stocks and bonds has also
turned reversed, although not in such an extreme way, as value stocks also made new highs.
The bearish investor can take this as a sign of over-exuberance.
The trouble with this line of reasoning is that it is hard to square with last year's market
logic. A year ago, we were a month into a rebound as the valuations of big technology stocks
soared, something explained at the time by
far lower Treasury yields . That made sense: Lower bond yields make earnings that are
expected to grow far into the future look more attractive, and Big Tech is full of those.
Growth stocks were a great place to be as the longest-dated Treasury yields plumbed new lows.
Valuations should rise when bond yields fall a long way.
Here we come to the problem: Just as lower yields justified a higher valuation for stocks
last year, higher yields should mean a lower price-to-earnings multiple -- albeit a lower
multiple of much higher earnings. Instead, valuations have gone broadly sideways as bond yields
first rose and then this month pulled back a bit. The result is that the stock market's
relationship with the bond market has gone haywire.
The strangeness shows up in the correlation between stocks and bond yields. Since the late
1990s higher yields have typically been good for stocks, so they tended to rise and fall
together daily -- even as over the long run, yields fell and stocks rose.
Last year, this relationship broke down. Investors got into a cycle where bad news on the
economy was good news for stocks, because it resulted in such
extreme support from the Federal Reserve and the government. The effect canceled out the
usual relationship almost entirely, breaking the link between stocks and bonds by late
summer.
The odd relationship of yields up, stocks up...Yields dropped a little and growth stocks
made more new highs. The tendency for both to move in the same direction, measured by the
50-day correlation of growth stocks to bond yields, has reversed and is at its most negative
since the boom times of 1999. Bizarrely, the link between value stocks and bonds has also
turned reversed, although not in such an extreme way, as value stocks also made new highs.
The bearish investor can take this as a sign of over-exuberance.
Thanks for the insightful article. Yet for the time being the facts don't matter. The Fed has
turned investors--those who put money into the markets for the long term--into
speculators--those who put money into the markets with the hope of selling to a greater fool
in the short to near term. And just as most believe themselves above average, most of these
speculators believe they'll be amongst those who will get out at the top. Never mind that as
the saying goes, "There will be a whole bunch of fat people all trying to get out one skinny
door."
The rise in commodity prices has pushed inflation and that raise questions about the Fed's
assurances that any bump in inflation will be short-lived. Gundlach Says Fed Is Guessing That
Inflation Will Be Transitory
The stock market's recovery from the pandemic may be a mere continuation of the bull market
that preceded this crisis. If so, stocks may be at the end of their run, rather than beginning
an upswing.
It could actually be seen as the end of a longer bull market that began after the 2008-2009
financial crisis. That would mean the 2020 bear market and recession -- a health-induced crisis
rather than one caused by financial excess -- interrupted a bull market that had gone on for
more than a decade.
dopie 3 hours ago Apple....2.2 trillion market cap trading at 35 times EARNINGS? Reply 1 1
Patrick dopie 2 hours ago You think THAT'S a bubble? So that means you don't own any AMZN (P/E
of 82), NFLX (61), or TSLA (695!!) either, right?
There are dozens of charts that illustrate how closely today’s financial
bubble resembles its predecessors. But simple is better when expressing a hard truth, so
let’s go with that old standby, margin debt. This is debt created when
over-stimulated investors borrow against their stocks to buy more stocks. At its high extremes,
the result is always the same: A price decline that forces overleveraged investors to liquidate
at any price, turning correction into bloodbath. Note that the steeper the rise in margin debt,
the more severe the resulting plunge in share prices.
The next chart illustrates more clearly the “steep†thing.
The current spike is one for the record books.
Now, during past spikes in margin debt the “investors†who
were swept up in the euphoria of easy money frequently responded to criticism with a variation
on “corporate earnings are about to soar, which will make everything okay.
Plus we know you’re only complaining because you missed the gravy train and
you’re jealous.â€
But corporate earnings almost never completely offset extreme valuations and soaring margin
debt. A useful measure for visualizing this fact is “earnings
yield,†which is the S&P 500 index’s aggregate earnings
expressed as a percentage of its aggregate market cap. This is how much a buyer of the average
stock receives in earnings per dollar invested. Common sense says the more the buyer receives
the better the deal. And history says the less the buyer receives the higher the likelihood of
stock prices falling in the ensuing few years. Today’s yield of 2.36% is the
second-lowest ever. That’s really bad.
Market will definitely collapse sooner or later. But nobody knows when. Especially taking into account FED Plunge protection team activities. If is stupid and irresponsible to talk about June crash...
Dent’s forecast
seems to have struck some kind of chord. For about a week or longer, the article was the most popular article at ThinkAdvisor.com. But although he may be unique in setting a deadline, he’s not the only guru predicting disaster.
Just this week I got a note from Jonathan Ruffer, an eminent money manager in London, with this dire warning: “I take it pretty much
for granted that the 40 year bull market is ending, and that it will be replaced by hard investment times.†And Jeremy Grantham
(also born in England, but long based in the U.S.)
recently
concluded
that stocks, bonds and real estate are all in a bubble and may well collapse together in the next year or two.
Longstanding gloomster John Hussman
estimates
the
S&P 500
SPX,
+1.09%
could
end up losing us all money over the next 20 years even before you deduct inflation, and suspects a quick 25-30% market slump may be
ahead.
I have a guilty secret. I’m a sucker for these warnings (OK, maybe not for Dent’s). They often make for compelling reading. The most
bearish stock market forecasters are generally more intelligent, more freethinking, and more interesting than the average Wall
Street salesman. They usually write much better, too. Hussman’s math and logic are almost unarguable. Why, asked John Wesley, does
the devil have the best tunes? (I am not comparing these people to a religious devil, of course, only to the Wall Street equivalent:
Sinners who may interfere with the business.)
And their arguments make plenty of sense. Maybe not those predicting a market collapse in time for Wimbledon, but those warning us
of grim years ahead. The U.S. stock market is
almost
90% above the level
where the “Warren Buffett Rule†is supposed to trigger red flashing lights and deafening warning sounds. The
so-called
“Shillerâ€
or
cyclically adjusted price to earnings ratio ], the
Tobin’s
Q
â€" all sorts of measures are telling us some version of Alien’s “Danger! The emergency destruct system is now activated! The
ship will detonate in 30 minutes... 10 minutes ...†Run, don’t walk, to the escape pod. Don’t forget the cat.
And most of the most bullish forecasts we hear from Wall Street involve the simple fallacy of double-counting: The more stocks rise
the better their “historic returns,†which a salesman then cheerfully extrapolates into the future.
... ... ...
It’s not that the bull market salesmen are clearly right. Actually, math and cold hard logic should give anyone cause for concern,
especially about the most euphoric U.S. stocks.
But even if these skeptics turn out to be right, when is it going to happen? Will the market go up another 10% or 20% or 50% before
it turns? Will it happen in June this year â€" or June in 2025?
I always figure that the day I finally decide to tune these guys out altogether will be the moment the Titanic hits the iceberg.
But there are options instead of trying to guess on Boom and Doom. We can just let the market decide for us instead. Money manager
Meb Faber
worked
out
years ago that pretty much every stock market crash or bear market in history has been signaled in advance. If you just
cashed out when the market index first fell below its 200-day moving average, you avoided nearly all the carnage. (OK, in the sudden
1987 one-day crash you got all of a single day’s notice.)
Even if you didn’t end up making more money in the long-term than a buy-and-hold investor, he found, you made pretty much the same
amount … and with far less “volatility“ (and sleepless nights).
Last year this trigger got you out of the S&P 500 on March 2, just before the main implosion. The market rose above the 200-day
moving average again, triggering it was time to get back in, on June 1.
Most people will use the S&P 500 index as their trigger, but Faber found it worked for other assets such as REITs as well. Global
investors may prefer the MSCI All-Country World Index.
Is this system guaranteed to work? Of course not. But nor is anything else. That includes all those bullish predictions that stocks
will earn you inflation plus 6% a year. And those bearish predictions that once the market reaches a certain valuation triggers it’s
heading for disaster. All rules are rely on some assumption that the future will resemble the past.
And using this rule means you can safely and happily ignore all the people predicting the end of the world.
Brett Arends is an award-winning financial writer with many years experience writing about markets, economics and personal
finance. He has received an individual award from the Society of American Business Editors and Writers for his financial
writing, and was part of the Boston Herald team that won two others. He has worked as an analyst at McKinsey & Co., and is a
Chartered Financial Consultant. His latest book, "Storm Proof Your Money", was published by John Wiley & Co.
Amos Library
8 hours ago
It took 19 years and 2 crashes to get to even (inflation adjusted) from the 2000 peak.
James Goodwin
7 hours ago
I've been among the gloomsters for the last decade and evidently wrong. That pessimism (and
lost opportunity) rests on debt and demography which are connected into the future. Our vast
debts are unstainable at these low interest rates unless savings are substantial and
economic growth is high. For now the substantial baby boomer generation (now in their mid
70s and in their mid 50s to 60s) have no alternative but to invest in the stock market. This
is self fulfilling lowering the cost of capital and pushing up returns as central banks can
afford to come to the rescue. That seems to have hit the limits with record low interest
rates and QE now being tested by rising bond yields. But as more retire there will be a
double hit from the higher costs of their health and pensions, and a shrinking workforce
which presents wage bargaining power (technology and globalisation included). That is a
situation which has been slowly developing this last decade (beginning in Japan in the 1990s
and more recently China) and will now accelerate across the developed world (notably in
Italy and Germany). This pivots on Covid caused inflation which seems likely to be more than
a blip. As part of this I am reminded that Japan's Nikkei Index is still 25% below its 1989
high of 38,000. I will retain my wait and see approach while others enjoy themselves talking
and acting like its the roaring 20s.
Reply
6
1
lee Hoffman
James Goodwin
1 hour ago
Well James you will be waiting another 10 years. Your prognostications have been
wrong in the past, and will continue in the future. Bond yields in the US?
What's the bond yields in Germany and Japan? Negative. Yes, the US monetary
policy is suspect. But, compared to what? The Euro? The yen? The Chinese
currency value is tied to ours, not an independent currency at all. Bond yields
here have decelerated mostly because of the ability to arbitrage currency abroad
and buy a 10 year US bond guaranteed by the US at 1.5 as opposed to a German
Bund at negative .30! Yes, there is a wrinkle in the supply chain caused by
Covid, and perhaps exasperated by reluctant workers to return to work, and
frankly an incentive domestically not to go back to work. But the deflationary
levers at work have not abated. The internet, international competition, more
efficient supply chains, and the ability to tap into inexpensive labor worldwide
are still there. You've missed in the last 10 years, by being out of the market
a return of over 500%. Do you really feel qualified to provide investing advice?
Reply
2
David Binkowski
8 hours ago
The ones who treat ever rustle in the grass as a lion, also never become millionaires
because they run every time the grass rustles. Sometimes surviving inhibits thriving.
Reply
6
2
William Howell
David Binkowski
7 hours ago
Wait a minute! Your death also means thriving - for the lion! It's much better
to die as a contributor to vibrant being than to get run over by an inanimate
car. (Message paid for by the Lion's Pride)
Reply
2
Darryl Egbert
David Binkowski
7 hours ago
I became a millionaire through hard work and frugal living and not touching the
stock market (except for some shorts in 2000 and 2008).
Todd Johnson
5 hours ago
In April of this last year 2020 there were many "experts" predicting
an even larger crash after the March 20th bottom from Covid, mainly
due to the economic slowdown and huge jump in unemployment. I felt
that as the pandemic waned the thirst for consumption would
re-emerge so I bought, bought, bought. While Warren Buffet was
selling all his airline stock I was buying them. I made over 50%
return on these investments since then. Not bad!
Reply
2
Mike Mayo
5 hours ago
A homeowner since 1995, I live in St Petersburg, Florida - where
real estate values have exploded over the past few years (since
'17), and there is very little inventory. Without question, this is
NOT a healthy market, and I'm hopeful that prices will in fact
decrease modestly while inventory increases. I have over $400K in
equity in the house, and can't even buy a loaf of bread with it. In
fact, I continue to put money into the house, with repairs,
renovations, etc. Making matters worse, I can't even downsize into
something smaller and less expensive - and bank or invest the
difference - since prices are sky-high and inventory so low. This is
not a healthy or sustainable market. As for the financial markets,
it remains the greatest wealth creator in the history of human-kind.
Markets will always fluctuate, sometimes wildly, but if you keep
cash on the ready, consistently buy the dips and don't sell in a
panic into weakness, you will always make money - and lots of it.
Throughout the bull-market that started in '09, we've had some very
significant down-turns and corrections. December '18 is an excellent
example. The market dropped like a rock, nearly 20% in a month. The
following month, the market came roaring back. I'm confident that at
some point this year, the market will have a 10%+ correction. I will
stay the course, buy that dip aggressively, only to have the market
come roaring back and my net-worth grow.
Reply
2
Paul Johnston
Mike Mayo
5 hours ago
Just curious: If you want to cash out the gains on the
house, why not downsize and buy elsewhere? There are
lots of pleasant places to live besides St Pete, and not
all have low inventory and sky-high prices. Just sayin'....
Reply
don stern
2 hours ago
Since 1793, there has never been a stock market crash
that hasn't resulted, ultimately, in another all time
stock market high.
Reply
2
Thor B
don stern
2 hours ago
The key word is "ultimately"...
Reply
Amos Library
1 hour ago
from a major investment research company V and L weekly
summary 4/30 There are potential flies in the ointment,
however. First, there is a recent jump in inflation,
with the U.S. homebuilding sector and several regional
manufacturing surveys The Value Line View In This Issue
suggesting greater cost pressures. Then, there’s the
troubling uptick in COVID-19 cases, which could slow
progress on the recovery front. Meanwhile, earnings
season is proving to be a solid one so far, with strong
performances from a number of banking giants, as well as
several consumer and tech entities. In all, we think
Corporate America will do well in the coming weeks.
Here, too, there should be further improvement in the
next few quarters. The bull market is rambling on, with
the Dow Jones Industrial Average recently ascending
34,000 for the first time ever while the NASDAQ, off
notably to close the first quarter, is back near 14,000.
What’s more, the recent trends could well continue,
although the high price-earnings ratios and low dividend
yields now in place make the stock market, now priced
for near perfection, vulnerable to unwelcome news. So,
some caution is warranted. Conclusion: We think
investors should proceed with some care, with a wary eye
on price-earnings ratios and dividend yields.
Reply
1
Michael Wilson
2 hours ago
Using both the 50 and 200 DMA as signals works good
also. Sell 1/2 if the 50 is crossed and the other half
if the 200 is crossed. Reverse the method to buy. Worked
great over the last two years.
Jakob Bear
7 hours ago
Well written article thanks.. Growth stocks already crashed though so I'm guessing he is referring to tech and the dow?
Could be, always a good idea to have money on the sidelines to pick up any drastic or non-sensical dips. Dividend stocks
still give dividends also so the economy really would have to crash. Consider we are just coming out of covid and there
is robust growth ahead, it is unlikely the economy is going to crash anytime soon, maybe not grow as fast as
anticipated. But once again bond rates will go down and growth stocks will go up if that happens. Who knows I'll stick
with a few select spec stocks for now they don't follow the market anyways except in short term movements. Good luck
all!
CARLOS T BAEZ
7 hours ago
Discipline always works in the long term. If one treats every
historical proven trigger consistantly, one would do better than
average. The reason that it is called discipline is because it most
be acted upon consistanly. Wealth always runs to where it has been
treated the best historically: Real Estate, US Treasuries,
Commodities (between a cookie brand and a company that provides the
flour, butter, salt and suggar I would always choose the latter),
significant companies' dividend stocks, defensive stocks, major
financial stocks, and major consumer staples stocks. No matter how
the economy/stocks do one has to eat, drink, shelter, utilities,
transportation, communication, health care and die (funeral homes).
If one can not make money (consistantly) with the S&P 500, one can
not make money in any other index consistantly. Never bet against
the USA. We are the Financial/Wealth Heaven in the unniverse.
Reply
2
2
Darryl Egbert
7 hours ago
I really do believe we are now at the point that the Fed cannot
allow assets prices to fall without the real economy taking a huge
nosedive. They have essentially sucked (forced) everyone into the
equities to avoid losing the purchasing power of their savings. If
asset price were to drop by 50%, people would look into their
savings accounts and realize they have to stop consuming and start
saving their a significant income to make up for the losses (the
"wealth effect" that the Fed built the recovery on would go into
reverse). They have said as much in congressional testimony - if a
fall asset prices flows through to the real economy, there is a Fed
"put". One my favorite advisors made a comment this weekend that 20%
fall in equities would be met by the Fed jumping in with $50
billion/month of more QE. He also postulated that they would go find
some good lawyers who could find a loophole around the Federal
Reserve Act, allowing the Fed to directly purchase equities - like
they have been doing in Japan. As Hussman says, even if they could
prevent asset prices from falling materially, the forward returns
will dismal if not negative for decades to come. Fed can postpone -
or maybe even prevent price discovery, but they cannot change the
underlying value of assets. And long as the price of assets exceed
the underlying value, you are swimming against the currents.
Reply
1
William Howell
7 hours ago
Fun article by Brett Arends. This seems to be a basic need of every
human : to carry around at least five "end-of-the-world scenarios"
at all times. Why 5? Because these scenarios have a habit of
[washing out, breaking in two, being mis-placed or forgotten]. But
historically they also become true, even in recent times, and
perhaps to far greater depths than the imaginations of Hollywood?
But one can't stop living for fear of death (or a bad-return year).
At least one of your doomsayers has also been a super-bull on and
off, not a perma-bear.
Reply
1
T Cr
5 hours ago
In the modern data-tracking of stocks, there has never been a
worldwide pandemic coming a few years after a global equities and
banking meltdown. This time right now is unheralded. So, all of the
old "rules" for predicting a turn toward the bears simply can't and
don't count. This is one data point, and you never base a
statistical conclusion on one data point; you need at least 10 for
significance and preferably 20. So, ignore anyone who is using these
old metrics to try to win any argument about upcoming market
conditions. They simply don't even enough data points to base the
future on the past. Instead, look to current forces at play and use
your ability to rank order investment choices for both individual
and institutional investors: inflation and bond yields are
ultra-low, central banks are still involved in some degree of
quantitative easy, federal governments are still stimulating
economic activity, unemployed resources still exist in any number of
sectors (entertainment, food service, vacationing, labor), major
corporations still pay dividends well in excess of inflation (I see
you Verizon and AT&T), and profits in any and all health care
related industries are booming as is residential real estate and IT
(remote learning and work from home). As long as these factors hold,
well chosen stocks or indexes will flourish. Investors don't want
either bonds or CDs, and a tin can in the back yard rarely feels
like a savvy choice.
Reply
michael pyles
3 hours ago
Falling interest rates, decreasing taxes, higher government
spending, rising productivity via automation, and loss of labor
bargaining power via globalization and the destruction of unions,
have all kept the market rising since 1982. Keep your eye of these.
If they begin to change, the outlook for earnings will change. Don't
be a victim to recency bias.
Reply
Amos Library
1 hour ago
Lance Roberts Real investment advice dot com For Jeremy Siegel, making wild
predictions about markets has no consequence. If he is wrong, he makes
another prediction to cover for the first. However, for you, following such
a prediction can have a devastating impact on your short- and long-term
financial goals. The reality is that markets are pushing “rarified air.†It
is unlikely that corporate earnings will achieve the lofty goals set out by
analysts currently. It is also very probable that economic growth may be
weaker than expected. Of course, these are just “concerns†of an overvalued,
extended, and overly bullish market. Sure, the current cyclical bull market
could rise another 30%. Momentum-driven markets are hard to kill in the
latter stages, particularly as exuberance builds. However, they do
eventually end. Will the market likely be higher in another decade from now?
Maybe. However, if interest rates or inflation rise sharply, the economy
moves through a normal recessionary cycle, or if Jack Bogle is
correct, things could be much more disappointing. As Seth Klarman from
Baupost Capital once stated: “Can we say when it will end? No. Can we say
that it will end? Yes. And when it ends and the trend reverses, here is what
we can say for sure. Few will be ready. Few will be prepared.â€
Amos Library
1 hour ago
Lance Roberts Real investment advice dot com For Jeremy Siegel,
making wild predictions about markets has no consequence. If he is
wrong, he makes another prediction to cover for the first. However,
for you, following such a prediction can have a devastating impact
on your short- and long-term financial goals. The reality is that
markets are pushing “rarified air.†It is unlikely that corporate
earnings will achieve the lofty goals set out by analysts currently.
It is also very probable that economic growth may be weaker than
expected. Of course, these are just “concerns†of an overvalued,
extended, and overly bullish market. Sure, the current cyclical bull
market could rise another 30%.
Jay Arant
5 hours ago
Dent's thinking sounds dented. We've had quite a few pullbacks since the
beginning of this year and I believe a correction is coming whenever but no one
know exactly WHEN.....Do not put any "stock" into some fringe thinking doomsday
prophesyer which we've all heard before.
Reply
1
1
Gerry Cruzman
Jay Arant
3 hours ago
The US is approaching $30 trillion dollars of National Debt, and we
have a mentally incompetent President and Dems in control of
Congress who have no interest or clue in controlling Federal
spending - and it’s but a matter of time until that massive debt and
uncontrolled spending reeks havoc with our economy...
Reply
1
3
Show 2 more replies
Mike Staples
8 hours ago
When hype runs into reality, there’s a crash. As long as reality is being hid by
money from above, there’s no need to worry.
Reply
Alberto Perez
6 hours ago
With central bankers' feet on the accelerator, it's hard for me to envision a
"crash" anytime soon.
Reply
Maitreya riske
Alberto Perez
5 hours ago
Almost every crash has been caused by the Central Bank trying to
goose the economy. The next one will be also.
Reply
Maitreya riske
6 hours ago
The BIG issue with the market as currently configured is that we are relying on
the FED to save us if something goes wrong even though these are the exactly the
same people who have destroyed all market pricing signals/ pushed us all to the
same side of the boat at the same time/ continually tried to goose the economy
over and over until interest rates have been lowered to zero. Well guess what?
Now they are trapped because how do you engineer a new bull market when you
can't lower rates the next time something bad happens. That's the problem, we're
told everything is fine but its not. If we actually had a real economy based on
savings and investing instead of a giant pozzi game based on IOU's and Debt then
maybe people wouldn't be so worried. You should be worried because trusting
these people is a fool's errand. But don't worry Goldman Sachs will be there
with plenty of cash to buy all your assets for dirt cheap when the time comes.
Reply
T Cr
Maitreya riske
5 hours ago
You see only the FED as a key actor in macro policy. Keynes holds
most of the cards, though, not the FED. Stimulus by the Treasury for
brick and mortar projects is ultimately much more powerful than the
FED, and requires no changes in either taxation or the
buying/selling of Treasuries. Any spending that is needed is simply
done by creating new money via the Treasury, which is its
Constitutional authority. As long as inflation is well under 3%, say
most economists, creating new money nudges innovation, upgrading of
infrastructure, enhanced education for a smarter future work force
and enhanced productivity. Priming the economic pump is not a Ponzi
scheme, since no one has to be "paid back", ever, as in a Ponzi
scheme. There is no "debt" when the Treasury creates new money.
Reply
1
Hey Now
4 hours ago
I just figured loose monetary policy from the Fed would keep this bull market
going.
Reply
Mike Elek
5 hours ago
Somewhere between market doomsday and the never-ending party is the truth. For
those who have warned, "Cash out now!" for the past five years, well, they
missed out on an incredible bull run. Then there are those who post rocket
emojis and expect this bull run to continue forever. I'm OK with a market
downturn, because it's healthy. Fundamentals should win out, because someone
always wins on Wall Street. All of those who short stocks help the market,
because their bearish predictions help to keep stock prices in check (my
theory). Another of my theories is that Trump kept the market in check. Every
time the market seemed ready for a big run-up, he would say something
ridiculous, and the market would slide. I think that this prevented a massive
bubble and crash. His big mouth caused mini-corrections, which in the long run
helped the market. ...
See
more
Reply
Dave N Japan
1 hour ago
I see the market not doing much in he next 4 years, but not a collapse, It all
depends on China and Taiwan I think
Reply
average american
3 hours ago
Please read this info from Indian medical experts regarding COVID triple
mutation. If this is true a market crash is around the corner. Western world
doesn’t want you to know. The Times of India spoke to Vinod Scaria, a researcher
at the CSIR-Institute of Genomics and Integrative Biology in India, who said the
triple-mutant was also an "immune escape variant" â€" a strain that helps the
virus attach to human cells and hide from the immune system. In other words, you
may not be safe from this variant even if you were previously infected by
another strain, or even if you have been vaccinated," Chinnaswamy said.
Reply
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
"... The Fed has been buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets. ..."
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
The spread between the two-year Treasury yield and a key interest rate set by the Federal Reserve is the narrowest since the depths
of the coronavirus market selloff, a potential sign of financial-system stress.
The two-year Treasury yield, which closed Tuesday at 0.115%, is 0.015 percentage point above the interest rate on excess reserves,
or IOER. It traded as low as 0.105% earlier in February. The Fed pays banks on the reserves held above and beyond those required by
central-bank regulatory policy as part of its effort to maintain liquidity in the financial system.
When the coronavirus
sent
markets and the economy into a tailspin
in March, the Fed cut IOER by 1 percentage point to 0.10% --
alongside
other interventions
-- to shore up short-term lending markets and support economic activity. The spread between IOER and the
two-year yield has typically been above 0.05 percentage point since the Fed cut the rate to its lowest level ever in March.
Yield on U.S. 10-year Treasury note
Source:
Tullett Prebon
%
March
2020
'21
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Traders said the shrinking of this spread reflects appetite for short-term debt as investors gobble up safe assets and park
their cash. It also highlights a key tension point in financial markets: to what extent is Fed support for markets taking asset
prices to unsustainable levels, and how vulnerable does that leave bond markets and other areas exposed to sudden reversals
...bond traders are concerned that inflation could rise in coming months and years as the government prints money to support the
economy and cover future borrowing costs.
Traders contend that short-term yields would be higher if the central bank wasn't anchoring rates.
The Fed has been
buying $80 billion in Treasurys each month since June and slashed rates to near zero in March to stabilize financial markets.
The idea is that low interest rates and bond buying boost spending by providing cheap credit to businesses and households.
Some bond investors fear too much cheap credit will mean inflation.
...
Another
corner of U.S. markets is sending warning signals: the 10-year break-even rate, which tracks annual inflation expectations over
the next decade, traded as high as 2.24% last week.
....The difference between the break-even rate and the Treasury yield recently widened to more than 1 percentage point. For some
this is a sign that inflation isn't far off, and in the meantime that financial markets remain vulnerable to bubbles.
"I would characterize the phase we are in now as an era of hyperstimulation between fiscal and monetary policy," said Thomas
Pluta, global head of linear rates trading at JPMorgan Chase & Co. "The byproduct is all this cash sloshing around the system
chasing assets like crypto, commodities and meme stocks." (Traders on Reddit's WallStreetBets forum use memes such as a rocket
emoji to accompany favorite stock picks like GameStop Corp.)
SUBSCRIBER
1 month ago
So every time the stock market wobbles the Fed is going to step up and say "don't worry, hang onto your stocks
and bonds, we'll keep printing more money?"
Printing money has its limits after which the Central Bank loses the control of inflation. The only question is when this limit will be reached.
Notable quotes:
"... The Fed is underestimating the massive amount of money printing it will have to do to finance the largest peacetime spending the U.S. has ever engaged in. Banks, foreign governments and U.S. agenciesâ€"chiefly Social Security, which is no longer running large surplusesâ€"are not going to be the big buyers of bonds, as has previously been the case. That leaves the Fed doing the heavy lifting, and the scale of money creation it will need to do will fire up a sizable inflation. ..."
The stock market
is assuming that the damage the Biden
administration and the Federal Reserve are beginning to inflict on the recovering economy will be limited. This episode of
What’s
Ahead
examines why that happy assumption will explode.
The Fed is
underestimating the massive amount of money printing it will have to do to finance the largest peacetime spending the U.S. has
ever engaged in. Banks, foreign governments and U.S. agenciesâ€"chiefly Social Security, which is no longer running large
surplusesâ€"are not going to be the big buyers of bonds, as has previously been the case. That leaves the Fed doing the heavy
lifting, and the scale of money creation it will need to do will fire up a sizable inflation.
Then there are
the enormous tax increases that Democrats are determined to enact on capital gains, businesses, higher incomes, gasoline, car
mileage, energy, inheritances and more, which will whack the nascent recovery later this year and in 2022.
The economy has
real strengths coming out of the pandemic, but it won’t be able to withstand the magnitude of these abuses.
"... This widespread concern is entirely consistent with a bubble’s formation, according to a definition proposed several decades ago by Robert Shiller, the Yale finance professor and Nobel laureate. According to him, a bubble is “a market situation in which news of price increases spurs investor enthusiasm which spreads by psychological contagion from person to person, bringing in a larger and larger class of investors, who, despite doubts about fundamental value ..."
"... Rather than responding by taking some chips off the table, however, many began freely admitting that a bubble was forming. They no longer tried to justify higher prices on fundamentals, but began justifying it instead in terms of the market’s momentum. Prices should keep going up as FOMO seduces more and more investors to jump on the bandwagon. ..."
"... As a recent Wall Street Journal article outlined , the dogecoin “serves no purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.†Yet investors are flocking to it, for no other apparent reason than it has already gone up so much. Billy Markus, the co-creator of dogecoin, was quoted in that Wall Street Journal article saying “This is absurd. I haven’t seen anything like it. It’s one of those things that once it starts going up, it might keep going up.†..."
"... Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at [email protected] ..."
I have no idea whether the stock market is actually forming a bubble
that’s about to break.
But I do know that many bulls are fooling themselves when they think a bubble
can’t happen when so many of us are concerned about one. In fact, one of the
distinguishing characteristics of a bubble is that such concern is widespread.
This seems counterintuitive. You would think that a bubble is most vulnerable to forming and
then popping when investors are oblivious to that possibility. But you would be wrong.
It’s important for all of us to be aware of this bubble psychology, but
especially if you’re a retiree or a near-retiree. That’s
because, in that case, your investment horizon will be shorter than for those who are younger,
and you therefore are less able to recover from the deflation of a market bubble.
To appreciate how widespread current concern about a bubble is, consider the accompanying
chart of data from Google Trends. It plots the relative frequency of Google searches based on
the term “stock market bubble.†Notice that this frequency has
recently jumped to a far-higher level than at any other point over the last five years.
This widespread concern is entirely consistent with a bubble’s
formation, according to a definition proposed several decades ago by Robert Shiller, the Yale
finance professor and Nobel laureate. According to him, a bubble is “a
market situation in which news of price increases spurs investor enthusiasm which spreads by
psychological contagion from person to person, bringing in a larger and larger class of
investors, who, despite doubts about fundamental value , are drawn to the investment
partly through envy of others’ successes and partly through a
gambler’s excitement.†(I italicized the above phrase, not
Shiller.)
Notice that recognition of overvaluation is an integral part of the definition.
This recognition was certainly present during the weeks and months prior to the popping of
the Internet bubble in March 2000. During the early and middle years of the 1990s, you may
recall, it was possible to justify higher prices while keeping a straight face. But that became
less and less possible as prices continued going higher in the late 1990s, and especially as
some dot-com companies went public with huge valuations despite having no assets, revenue or
business plan.
Rather than responding by taking some chips off the table, however, many began freely
admitting that a bubble was forming. They no longer tried to justify higher prices on
fundamentals, but began justifying it instead in terms of the market’s
momentum. Prices should keep going up as FOMO seduces more and more investors to jump on the
bandwagon.
There is no shortage of current analogies, of course. Take dogecoin, which was created as a
joke and has no fundamental value. As a
recent Wall Street Journal article outlined , the dogecoin “serves no
purpose and, unlike Bitcoin, faces no limit on the number of coins that exist.†Yet
investors are flocking to it, for no other apparent reason than it has already gone up so much.
Billy Markus, the co-creator of dogecoin, was quoted in that Wall Street Journal article saying
“This is absurd. I haven’t seen anything like it.
It’s one of those things that once it starts going up, it might keep going
up.â€
Needless to say, things don’t go up forever. Those who nevertheless
continue to invest in such an environment do so with the implicit assumption that they will be
able to recognize it, in advance, when the bubble is about to popâ€"and therefore
able to leave the party before everyone else. This is a dangerous delusion, however; not
everyone can be the first to leave the party.
The bottom line? Far from being a reason why a bubble isn’t forming, the
widespread current concern about a possible bubble is actually a reason to worry that it could
be. Take heed.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat
fee to be audited. He can be reached at [email protected]
"... Bitcoin right now is IMO hyperinflated and gotten ahead of itself, and that is definitely not a good sign for a purported stable 'store of value' asset. ..."
"... Perhaps historically that Weimar hyperinflation event gives us some intriguing evidence of what might transpire here. No, it wasn't the end of the world for the Germans of that era (they bounced back rather quickly as a nation) but a lot of everyday people suffered and a lot of wealth evaporated into thin air. ..."
"... "That description applies to most Wall Streeters and banksters, whose titanic egos are amazing given the fact that most are parasites that contribute less than a woodlouse to society. " ..."
"... The so called "Buffet Indicator" (Market Cap / GDP) now over 200%. I believe -- from memory – in Dot Com bomb bust was around 156% and, at housing crisis around 140% ..."
"... Schiller PE indicator – I believe around 37 again from memory only a few times above 30. ..."
"... I wish my wage growth is like this stock market chart sadly there's never been a WTF moment in my earnings compare to the market. That's what I get for pursuing a normal job that produce something rather than pushing money around to multiple it from nothing.. ..."
"I do not like to even think how many Americans will wind up."
The average clueless American sadly likely will not fare too well as this End Game gets closers to a reversion of means reset state.
When this debt tsunami is over those who went 'all in' on this carnival spectacle of
national debt and spendthrifts will be clinging to the flotsam and jetsam of their pitifully
reduced 'assets', or will be simply wiped out.
The question is, will non-fiat currency alternatives like cryptos (especially Bitcoin and
precious metals) be safe haven life preservers after the deluge? Bitcoin right now is IMO
hyperinflated and gotten ahead of itself, and that is definitely not a good sign for a
purported stable 'store of value' asset.
Perhaps historically that Weimar hyperinflation event gives us some intriguing evidence of
what might transpire here. No, it wasn't the end of the world for the Germans of that era
(they bounced back rather quickly as a nation) but a lot of everyday people suffered and a
lot of wealth evaporated into thin air.
"No, it wasn't the end of the world for the Germans of that era (they bounced back rather
quickly as a nation)". Please think again. What happened after was one of the darkest
chapters of mankind.
"That description applies to most Wall Streeters and banksters, whose titanic egos are
amazing given the fact that most are parasites that contribute less than a woodlouse to
society. "
Given historical facts, same "Wall Streeters" with their "titanic egos" might ... boosting both
cryptocurrency as well as a soon unserviceable US national debt.
Indeed, it takes massive egos that have crossed the line in recklessness to deal in such
markets in that manner. Problem, is that they will hurt many people through "osmosis" in due time. In addition to
the items pointed out in the article, two additional items that are beyond comprehension:
The so called "Buffet Indicator" (Market Cap / GDP) now over 200%. I believe -- from
memory – in Dot Com bomb bust was around 156% and, at housing crisis around 140%
Schiller PE indicator – I believe around 37 again from memory only a few times
above 30.
The destruction that has taken place has simply been ignored and, all the "bombs" like
Archegos that are under the surface and that won't come to light until a big problem exposes
them.
The insanity continues until it doesn't. It is world wide, but our corner of the world
does seem a bit more outrageous.
I wish my wage growth is like this stock market chart sadly there's never been a WTF
moment in my earnings compare to the market. That's what I get for pursuing a normal job that
produce something rather than pushing money around to multiple it from
nothing..
Learned some new things about margin debt. Thank you.
It is unbelievable that firms only know and track their own client margin debt. How so?
Try this with a mortgage. Imagine multiple second mortgages no one knows about collectively.
Where are the rules and laws.
And now on mortgages in Canada 90% first mortgages are a norm. A few add second mortgages
that actually exceed 100% LTV . to have play money for a new SUV.
In March 2021 margin debt exceed 800 billions. Previous max were around 120 billons
Money quote: "> A major correction needs a reason. What is it? Corporate debt". Just
remember that "the Market Can Remain Irrational Longer Than You Can Remain Solvent".
On the other hand as Minsky wrote increased leverage increases instability by amplifying
small events into systemic ones.
Credit spreads remain historically narrow (the premium charged for junk for example over the
risk free treasury rate.) That's another sign of bubble -- too much cash chasing investments
leads investors to increase the level of risk to get a decent return. That also could lead to
amplified losses when things start going south.
...Margin debt – the amount that individuals and institutions borrow against their
stock holdings as tracked by FINRA at its member brokerage firms – is just one indication
of stock market leverage. But FINRA reports it monthly. Other types of stock market leverage are
not reported at all, or are disclosed only piecemeal in SEC filings by brokers and banks that
lend to their clients against their portfolios, such as Securities-Based Loans (SBLs). No one
knows how much total stock market leverage there is. But margin debt shows the trend.
In February, margin debt jumped by another $15 billion to $813 billion, according to FINRA.
Over the past four months, margin debt has soared by $154 billion, a historic surge to historic
highs. Compared to February last year, margin debt has skyrocketed by $269 billion, or by nearly
50%, for another WTF sign that the zoo has gone nuts:
Just imagine at what leverage Softbank and Cathie Wood's Ark are playing the market; I'm
going to be just these are at least 10:1 leverage level. The explosion of all these bubble will
be so big that makes the crashes of 2000 and 2008 look like a child play.
But margin debt is not cheap, especially smaller amounts. For example, Fidelity charges
8.325% on margin balances of less than $25,000 – in an environment where banks, money
market accounts, and Treasury bills pay near 0%. Margin debt gets cheaper for larger balances,
an encouragement to borrow more. For margin debt of $1 million or more, the interest rate at
Fidelity drops to 4.0%
"Whether you need extra money for a short-term financing need or buying more securities, a
margin loan may help you get the money you need," Fidelity says on its website. In other words,
take out a margin loan to buy a car or much needed bitcoin or NFTs.
Every broker has its own margin interest rate schedule. Morgan Stanley charges 7.75% for
margin balances below $100,000, compared to Fidelity's 6.875% for balances between $50,000 and
$99,999. For margin balances over $50 million, Morgan Stanley charges 3.375%.
And it's risky leverage for the borrower. It seems like risk-free leverage when stocks go
up, but when your stocks do the unheard-of and tank below a certain level, your broker will ask
you to put more cash into your account or sell stocks into the tanking market, whereby you then
join the legions of forced sellers.
In the past, a big surge in margin balances tended to precede history-making stock market
declines:
Over the two-decade period of the chart, the long-term changes in the dollar amounts are
less important since the purchasing power of the dollar with regards to stocks has dropped.
But short-term, the changes show what is happening to margin debt in the run-up before the
sell-off, and what is happening during the sell-off when margin requirements turn investors
into legions of forced sellers.
Leverage is the great accelerator of stock prices, on the way up, and on the way down.
Purchasing stocks with borrowed money creates buying pressure, and prices rise, and rising
prices increase the margin balances a portfolio can support, and this encourages more
stock-buying on margin.
On the other hand, selling stocks to deal with margin calls adds more selling pressure to an
already declining market. The more prices fall, the more selling pressure there is from
frazzled forced sellers trying to deal with margin requirements.
Then at some magic point, margin debt has been reduced enough, and its contribution to the
selling pressure fades.
The historic surge in margin balances in recent months is another indicator of how
hyper-speculative and blindly courageous the mega-bubble has become. All kinds of new theories
are being proffered why fundamentals and valuations are meaningless, and why prices of all
assets will shoot to the moon, no matter what.
Whether or not the broader stock market is in a bubble, ultra-growth stocks seem to be,
according to an analyst at JPMorgan.
While some Wall Street analysts are concerned about a broader stock market bubble,
JPMorgan's Eduardo Lecubarri, global head of small- and mid-cap equity strategy, wrote in a
note that ultra-growth equities are the area of most concern. "We have argued since the start
of the year that investors needed to run away from stocks trading on high multiples over rich
growth expectations," said Lecubarri in...
The US dollar could collapse by the end of 2021 and the economy can expect a more than
50% chance of a double-dip recession, the economist Stephen Roach told CNBC on
Wednesday.
The US has seen economic output rise briefly and then fall in eight of the past 11
business-cycle recoveries, Roach said.
Grim second-quarter data cannot be dismissed, he said, pointing out that "the
current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration."
Roach last predicted a crash in the dollar index in June, when it was trading at about
96. He said at the time that it would collapse 35% against other major currencies within the
next year or two.
The "seemingly crazed idea" that the
US dollar will collapse against other major currencies in the post-pandemic global economy
is not so crazy anymore, the economist Stephen Roach
told CNBC's "Trading Nation" on Wednesday.
Roach, a former chairman of Morgan Stanley Asia, also said he sees a more than 50%
probability of a double-dip recession in the United States.
He based that prediction on historical evidence, saying that in eight of the past 11
business-cycle recoveries economic output has risen briefly and then fallen.
"It's certainly something that happens more often than not," he said.
Roach
last predicted a dollar crash in June , saying it would collapse 35% against other major
currencies within the next couple of years. At the time, the dollar index traded at about 96.
On Thursday, the index traded at about 94.41.
He said on Wednesday that he expected the collapse to happen by the end of 2021, but he did
not say by how much.
"The current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration in the
second quarter," he said.
"The so-called net national savings rate, which is the sum of savings of individuals,
businesses, and the government sector, also recorded a record decline in the second quarter,
going back into negative territory for the first time since the global financial crisis."
Lingering vulnerability and the aftermath of the initial decline are two factors driving the
dollar's ominous future, he said.
"Lacking in saving and wanting to grow, we run these current-account deficits to borrow
surplus saving, and that always pushes the currencies lower," Roach said. "And the dollar is
not immune to that time-honored adjustment."
Additionally, Roach said, new COVID-19 infections and higher mortality rates must be part of
assessing the risk of an aftershock, Roach said.
"As we head into flu season with the new infection rates moving back up again, with
mortality unacceptably high, the risk of an aftershock is not something you can dismiss," he
said. "So that's a tough combination. And I think the record of history suggests that this is
not a time, unlike what the frothy markets are doing, to bet that this is different."
"The current-account deficit in the United States, which is the broadest measure of our
international imbalance with the rest of the world, suffered a record deterioration in the
second quarter," he said.
"The so-called net national savings rate, which is the sum of savings of individuals,
businesses, and the government sector, also recorded a record decline in the second quarter,
going back into negative territory for the first time since the global financial crisis."
Lingering vulnerability and the aftermath of the initial decline are two factors driving the
dollar's ominous future, he said.
"Lacking in saving and wanting to grow, we run these current-account deficits to borrow
surplus saving, and that always pushes the currencies lower," Roach said. "And the dollar is
not immune to that time-honored adjustment."
Additionally, Roach said, new COVID-19 infections and higher mortality rates must be part of
assessing the risk of an aftershock, Roach said.
"As we head into flu season with the new infection rates moving back up again, with
mortality unacceptably high, the risk of an aftershock is not something you can dismiss," he
said. "So that's a tough combination. And I think the record of history suggests that this is
not a time, unlike what the frothy markets are doing, to bet that this is different."
In his 2008 letter to shareholders, Warren Buffett shared an important lesson.
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get,'"
Buffett wrote. "Whether we're talking about socks or stocks, I like buying quality merchandise
when it is marked down."
This is one of the most fundamental concepts in investing. No matter how good a company is,
or how fast it's growing, it's always possible to overpay.
This is why analysts talk so much about valuation . The market price gyrates on a
daily basis, especially during a market crash. But over the long term, price and value
ultimately converge.
So where are stocks valued today? Despite the difficult environment, many markets are
trading at historically high multiples.
"The current P/E on the U.S. market is in the top 10% of its history," said GMO Asset
Management co-founder Jeremy Grantham. The Canadian stock market isn't too far behind,
especially when you strip out the ailing fossil fuel industry.
Prices suggest that conditions are in the top 10% of history, but is that actually true?
"The U.S. economy in contrast is in its worst 10%, perhaps even the worst 1%," concluded
Grantham. "In addition, everything is uncertain, perhaps to a unique degree."
Prepare for
a market crash
The numbers are clear. Stock prices are sky-high. The value that you're getting in return,
meanwhile, could be quite low.
At minimum, there's an unprecedented range of outcomes over the next 12 to 24 months. A
complete return to normal could occur. Alternatively, we could slide into a deep and dark
recession.
Just take a look at what some major CEOs are saying about the market crash.
Air Canada CEO Calin Rovinescu said, "It's the darkest period ever in the history of
commercial aviation." He doesn't expect conditions to normalize for three years. Linamar Corp
Linda Hasenfratz warned that the industry must brace for a resurgence of COVID-19. Canadian
Federation of Independent Business CEO Dan Kelly said that just 17% of Canadian restaurants are
reporting an average volume of sales.
Things just don't line up. Whenever the gap between price and value rises, the odds of a
market crash also rise. Grantham thinks we could be experiencing one of the biggest gaps
ever .
"The market's P/E level typically reflects current conditions. Markets have historically
loved fat margins, low inflation, stability and, by inference, low levels of uncertainty," he
explains. Yet prices are high and conditions are terrible.
"This is apparently one of the most impressive mismatches in history," Grantham
concluded.
Most stocks are too expensive, but some still trade at bargain prices.
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The S&P 500's price-to-sales ratio is worryingly high
A second reason to be concerned can be found in the S&P 500's price-to-sales
(P/S) ratio . This ratio describes the value of the S&P 500 index relative to the
aggregate revenue its 500 components are bringing in. As a general rule, the lower the
price-to-sales ratio, the more fundamentally attractive an investment.
As of April 21, the S&P 500's price-to-sales ratio was estimated at 3.06. This is an
unquestioned high point dating back at least 21 years. In fact, the S&P 500's P/S ratio
hadn't ended the year higher than 2 at any point this century prior to 2017. Since the end of
2018, the P/S ratio for the widely followed index has expanded 64%.
On one hand, an increased reliance on technology should allow companies to be more
efficient, thus expanding their operating margins. On the other hand, nothing historically
shows that P/S ratios this high can be sustained.
IMAGE SOURCE: GETTY IMAGES. 3. The S&P 500's price-to-book value spells
trouble
A third metric that could cause warning bells to go off is the S&P 500's price-to-book (P/B)
ratio . This is a measure of the S&P 500's market capitalization divided by the book
value of the equities that make up the index. Like the P/S ratio, a lower value is generally
indicative of an equity or index being undervalued.
As of this past week, the price-to-book-value of the S&P 500 topped 4.5. That's closing
in on the highest level reached this century, 5.06, set back in March 2000. If March 2000 rings
a bell, it's because that's when the dot-com bubble hit its peak. For some context, the average
P/B value over the past 21 years is 2.87.
Although the P/B ratio has lost much of its importance as technology and innovation have
taken over, it's still concerning that the index subsequently lost about half of its value the
last time the ratio was this high.
The fourth worrisome metric is the S&P 500's earnings
yield . Whereas the price-to-earnings ratio is a measure of share price divided by earnings
per share, the earnings yield is earnings per share divided by share price, and multiplied by
100 to yield a percentage.
Since 1870, the average earnings yield for the S&P 500 is 7.31%. That's a lot higher
than what investors can typically generate from bonds, which is why equities are often such a
smart and desirable investment. But as of April 21, the earnings yield of the S&P 500 was a
measly 2.35%. It's been more than halved since the beginning of 2019, when it was 5.1%.
The issue here is that 30-year Treasury bonds sport a nearly identical yield (2.26%).
Although earnings can grow over time and improve the S&P 500's earnings yield, it's worth
hypothesizing that, with historically low lending rates and ongoing fiscal stimulus, earnings
growth won't get any better than it is now. Future earnings growth could slow as dovish
monetary policy is tightened, thereby exposing an unattractive risk-versus-reward ratio with
bonds.
IMAGE SOURCE: GETTY IMAGES. 5. The frequency of double-digit-percentage corrections is a
red flag
Lastly, don't overlook how common double-digit declines are for the benchmark index.
Since the beginning of 1950 (a year I've arbitrarily chosen for the sake of simplicity),
there have been 38 declines of at least 10%. This works out to an
average double-digit decline every 1.87 years . We're already about 1.1 years removed from
the bear market bottom.
Understand, though, that averages are exactly that: averages. Sometimes the market can go an
exceptionally long time without a single 10% correction (1991 through 1996), while other times
they become an annual occurrence (1997-2003, with the dot-com bubble encompassing 2000 through
2002). The point is this: Corrections and/or crashes happen often.
IMAGE SOURCE: GETTY IMAGES. Crashes are blessings in disguise
All five of these metrics would seem to point to one inevitable conclusion: The likelihood
of a stock market crash or double-digit correction is quite high. This might be unnerving to
some, but it's actually great news for investors with a long-term mindset.
Every single crash and correction throughout history has
been a blessing in disguise . That's because investors are trading short-term pain for
long-term gain.
Eventually, every double-digit decline in the S&P 500 has been completely erased by a
bull-market rally. If you buy great companies when emotion-based crashes rear their heads and
you hang on to them for long periods, there's a very good chance you'll build wealth over time.
While it's not normal to see total returns of 88% in 13 months following a crash, an annualized
double-digit total return over the long run is quite possible.
History serves as a warning for the S&P 500's Shiller P/E ratio
Arguably the biggest red flag from a fundamental standpoint is the S&P 500's Shiller
price-to-earnings (P/E) ratio, which is also commonly referred to as the cyclically adjusted
P/E, or CAPE. The Shiller P/E is based on average inflation-adjusted earnings from the previous
10 years.
As of April 21, the Shiller P/E ratio for the S&P 500 was 37.49. That's well over double
its average annual reading of 16.81 since 1870.
What's particularly
concerning is what's happened previously when the Shiller P/E ratio has surpassed and
stayed above 30. In the previous four instances (the Great Depression, the dot-com boom, Q4
2018, and the coronavirus crash), the S&P 500 has lost anywhere from 20% to 89% of its
value. While an 89% loss is very unlikely with the Federal Reserve and federal government
willing to provide seemingly unlimited support to financial markets, a sizable double-digit
correction has become the expectation when valuations extend well past historic norms.
W hat I'm about to say is going to unnerve some of you, but it's the absolute truth: A stock
market crash
might be imminent .
Since hitting a bear-market bottom on March 23, 2020, the three major U.S. indexes have been
virtually unstoppable. Through April 6, 2021, the tech-dependent Nasdaq Composite (NASDAQINDEX:
^IXIC) has doubled, while the benchmark S&P 500 (SNPINDEX: ^GSPC) and iconic Dow Jones
Industrial Average (DJINDICES: ^DJI) were up a respective 82% and 80%. There's not an optimist
on Wall Street who would be dissatisfied with gains like these in just over one year's
time.
The question is whether or not these gains will prove fleeting.
Image source: Getty Images.
Signs point to a potential crash
Right now, there is no shortage of catalysts that could knock this market off its
perch.
In recent months, Wall Street has been
worried about rapidly rising Treasury yields . Keep in mind that when I say "rapidly
rising," some context is needed. Although 10-year Treasury yields have doubled over the last
five months, a 1.7% yield is still historically very low.
Nevertheless, investors are concerned about the potential for higher lending rates, which
could slow the borrowing capacity and growth prospects for the dozens of fast-paced and
innovative companies that have led the stock market higher. It could also signal an uptick in
inflation and force the Federal Reserve to consider raising interest rates earlier than
expected.
Another
chief concern is equity valuations . Dating back 150 years, there have only been five
instances where the S&P 500's Shiller price-to-earnings (P/E) ratio has surpassed and
sustained 30. The Shiller P/E ratio measures average inflation-adjusted earnings from the
previous 10 years and is also known as the cyclically adjusted P/E ratio, or CAPE. On April 6,
the Shiller P/E ratio for the S&P 500 was nearly 36.7, which is well over double its
historic average of 16.8.
Furthermore, in the previous four instances where the S&P 500's Shiller P/E hit 30, the
index lost anywhere from 20% to as much as 89% of its value. Although we're unlikely to see
Great Depression-like losses of 89% ever again,
at least a 20% decline has been the recipe when valuations get extended.
The coronavirus pandemic also remains a concern. Though the light at the end of the tunnel
is now visible, variants of the disease threaten to minimize vaccine efficacy or push herd
immunity (i.e., a return to normal) further down the line.
Image source: Getty Images.
Three things to do right now
So, what's an investor to do?
1. Realize that downside catalysts always exist and
don't overreact
The first thing is to relax and realize that there's always a catalyst waiting in the wings
that could send the market screaming lower. Whether we're mired in a recession or the economy
is firing on all cylinders, I can't recall a time in my more than two decades of investing
where the warning siren hasn't been sounding about one thing or another.
Investors should understand that
stock market crashes and corrections are a normal part of the investing cycle and the
so-called price of admission to the greatest wealth creator on the planet. With the S&P 500
experiencing a double-digit decline every 1.87 years, on average, since the beginning of 1950,
it's important not to overreact to sharp or sudden moves lower in the market. It also helps
knowing that these moves lower
usually don't last very long .
2. Reassess what you own
Secondly, and to build on the previous point, it's always a good time to
reassess your portfolio and reaffirm your investment thesis . In other words, take a closer
look at the companies you own stakes in and revisit the reason(s) why you purchased them in the
first place. There's a very good chance that a stock market crash is going to have little or no
long-term effect on the underlying performance of the companies you've invested in and is
therefore going to have no impact on your investment thesis.
Keep in mind that you don't need to wait for a stock market crash, or even the threat of a
crash, to do this a couple of times a year. Ensuring that your investment thesis still holds
water will minimize the emotional aspects of stock market corrections and crashes and make it a
lot easier to hold on to great stocks.
Image source: Getty Images.
3. Have cash at the ready for when opportunity comes
knocking
The third thing to do is build up a healthy cash position so you can take advantage of the
market's inevitable downturns. You see, despite the S&P 500, Dow Jones Industrial Average,
and Nasdaq Composite undergoing dozens of double-digit corrections and crashes throughout their
history, each and every one of these moves lower has
eventually been erased by a bull market rally .
In fact, data from Crestmont Research shows that
at no point between 1919 and 2020 have rolling 20-year total returns (including dividends)
ever been negative. If you bought an S&P 500 tracking index at any point over the past 102
years and held on to your investment for a minimum of 20 years, you made money.
When the next correction or crash does rear its head, be thankful, because you're being
given an opportunity to buy great companies at a discount.
[Apr 24, 2021] Why Grantham Says the Next Crash Will Rival 1929, 2000 by further inflating money not by deflating it. So people who warn regular fold about risks are rare and they harm their own business, if they have any. Profit of doom and gloom are not popular and it is precarious occupation
He suggest that SPACs,Tesla, and bitcoin can serve are canary in the mine as for timing of bubble deflation.
This video is over two months old of course and the the market has continued to set new records. Ray Daleo also issued a warning as did Harry Dent. And market still is going up.
Because of the corona epidemic, investments in real production have dried up and the money has instead flooded the stockmarkets. I guess that if the crisis continues the stockmarket bubble can be kept inflated because the money has nowhere else to go!
electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla. electrification, especially in cars is a very long shot and here it is unlear if it make sense to invent int he currest companies involvedas they are in a bubble. Just look at Tesla.
Notable quotes:
"... Around 37:30 , Milton Friedman ism at the corporate level, that is sociopath by any definition... : ) ..."
"... People and corporations qho like Frieman professes are driven exclusively by profit motive are "sociopaths" ..."
"... What a refreshing honest interview. The interviewer and Mr. Grantham are professional, easy to follow and are respectful. The topic they are discussing can be disheartening, but it is nice to know someone is looking out for the retail investors instead of fleecing them of their hard earned labor by misleading the retail investor to go all in and go for broke. ..."
"... Many of the big companies are just sucking up cheap money and making it look like profits with clever accounting. The fact that the markets seem unaffected by covid shows how thick the fraud is. ..."
"... SPACs " an excuse for people with reputation and marginal ethics to take 20% and dash around the country for six months" EPIC ..."
"... COVID-19 revealed that there are two kinds of jobs: essential jobs and bullshit jobs. We just eliminated all the bullshit jobs and put them onto UBI/welfare and it removed a drag on the economy. ..."
"... 1929 and 2000? Also 2008. So we have 3 very big bubbles in the space of 20 years. This is a boom / bust economy with each action of the Federal Reserve to mitigate the pain of the bursting of the previous bubble only sews the seeds for the next bubble. ..."
His comment about how workers are treated nowadays is so true and so important. I once saw
a video of a guy who explained that his small company (service online) had made an extra
million the previous year. He went on to explain that he wasn't going to buy another house
or car or TV etc and would probably only need to employ one extra worker. He said that the
"rich" don't create jobs, the lower and upper middle class create jobs. When they have a
secure job and suitable income for the work they do, they will buy more things which will
create more manufacturing, transport, shipping, retail jobs over time which increase the
numbers in stable jobs et al
"The future value of dividends"......I'll try to remember that. He reminds me of Buffett. All I
know is, there are a lot fewer companies paying even 4% than there used to be. You're lucky now
just to get 3% and it will more likely be 2%, if anything.
I never attempt to make money on the stock market. I buy on the assumption that they could close the
market the next day and not reopen it for ten years. –Warren Buffett
I love his refutation of Milton Friedman's idea that corporate management's only job is to maximize
profit and a company has no responsibility to society in general. "If you say, as an individual,' My only
interest is to maximize my advantages,' which is what they say at the corporate level, you're a
sociopath." - Jeremy Grantham
37:20
If you say, as an individual, 'My only interest is to maximize my advantages,' which is what they say at
the corporate level, you're a sociopath.
WOW!
Stop & think about this. I don't think I have
Ever
thought about corporate America this way, but it is 100% true.
The interviewer either was playing Devil's advocate or doesn't believe Grantham. Grantham is old enough to have
seen some bear markets. It's now a game of musical chairs and when the music stops it will be a rush to the
exits. Quote 12 days before the 1929 crash: "Stock prices have reached what looks like a permanently high
plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears)
have predicted. I expect to see the stock market a good deal higher within a few months." – Irving Fisher,
Ph.D. in economics, Oct. 17, 1929
I disagree that nobody saw the 2008 real estate burst coming. I saw it when I sold my house in 2004. I mean it was
unprecedented that the value of my house doubled in 8 years. And the buyers of my house were given a loan of 105% of the
purchase price. Then I read that people had taken out balloon mortgages. Then, I was offered a "no doc" loan to purchase a
condo. I mean the red flags were HUGE
This is a stunning interview beautifully articulated, glad there are others who see through the fog too. We're living in massive,
massively fraudulent times, value is utterly misplaced, and loss has been hidden on a scale never before seen. Extraordinary
times ahead.
Wow a great interview with challenging questions and a calm exchange of ideas! Its been years since I've witnessed something like
this.... Thank you gentlemen!
What he says at the end is the most important of all. A system, a corporate mindset that they have no responsibility to their
workers, to their customers, to their communities or country or the planet, that their only responsibility is to maximize
profits... that's beyond sociopathy and it's incredibly corrosive to society and humanity.
10:10
"When you have reached this level of super-enthusiasm, the bubble has
always,
without exception, broken in the next few months - not a few years." This video was recorded on Jan 22 Today is March 27. My
daughter has been on the point of buying a house for the last 6 months, and I have been telling her to wait, so she bought a van,
and has spent the Winter in it, but with the market getting ever higher, she is starting to think "Dad, you're obviously wrong. I
should buy now. How long can I wait?"
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Great
point
34:00
Investing in Infrastructure, more jobs, creating less energy waste....now I waste my stimmy check in the market. Italy is
supporting greening of homes,....ya have too as they begin to look more and more like the colosseum.
People and corporations qho like Frieman professes are driven exclusively by profit motive are "sociopaths"
🤡 Hey no one is
stopping interviewee or interviewing company from giving away all or most of their wealth, yet strangely none of these
do-as-I-say types never do...
Great
Interview. Respect to Mr Grantham for his views on green issues and for investing in these. He sees that unless we begin to
invest heavily into something which actually MATTERS in order for us Humans to inhabit this Planet long term, then we are doomed
as a race. I thought the part referring to "Stuffed Chinese dogs" Sums this up perfectly.
This video aged well. The bubble popping in many EVs, cloud, SPACs, hyper growth techs. Now, money rotated to the junior and big
cap stocks. Nasdaq hitting new highs. Soon they would start dumping the big cap stocks, then the SP500 stocks... its playing out
just like in 2000
The market has appeared to me unreal for a long time. Soaring to ever new heights for no particular reason. Reality will have its
way eventually, perhaps soon.
I guess what this good gentleman is saying the whole system is going to collapse this year and I guess Covid was the safety net
to ease us into it. Fasten your seatbelts folks. God bless Vince in London. Brilliant interview
I just don't get the markets, and investors, we are now at a point where the U.S. has to print money in order to survive, and
printing money will never stop. Yet as far as wallstreet is concerned this is on of the best times America has ever had.
Whenever talking with a financial investor, ALWAYS remember they will encourage what benefits them personally and discourage what
benefits them personally as well.
Long terms bonds are very expensive! I am not agree with the electric cars they are not that green as they say, the good thing
about electric car is, that they aren't noisy!
"long-term discounted value of a future stream of dividends" using what interest rate? The benchmarks are either close to zero or
even negative these days, a simple geometric progression will diverge to infinity.
@
24:00
in... its will never pay a dividend.... your right its CALLED FORKING and everyone whos was in along time ago is quite rich off
the forks alone.
Great interview although I would have asked a couple of questions about the value stocks in emerging markets. I would have asked
for concrete examples. Problem with many emerging markets is that they are riddled with political instability, and they tend to
depend too much on developed economies for their exporting success. I would not bet a dime on Brazil or Russia, for example.
China is a giant scam when it comes to its stock markets. India might be a different story but not sure about the BJP either.
What a refreshing honest interview. The interviewer and Mr. Grantham are professional, easy to follow and are respectful. The
topic they are discussing can be disheartening, but it is nice to know someone is looking out for the retail investors instead of
fleecing them of their hard earned labor by misleading the retail investor to go all in and go for broke.
This is the biggest asset bubble in modern history. Very different than 99' and 08' but the same , an extremely quick increase in
asset values due to available essentially free money. People can get lending as long as they have a job. Jobs go away as soon as
there is an issue. I witnessed this in both 99 and 08. And BTW we did see it coming in 08. Then how do they pay for a mortgage? I
can't say when it will happen, but it will with certainty.
There's
some really useful long term perspective, mixed with nostalgia for dividends which stocks had to have to compete with interest to
match risk free return of government bonds along with magical thinking about total electrification. All this is wound together
with a hypnotic calm like he's imparting facts and received wisdom not opinion. Stay skeptical and take the good and leave the
rest.
"Rival"? I think "dwarf" is the word you are looking for. WW3 is a real possibility. There's a dutch ex-soldier who predicts
there is going to be be a huge war in the years between 2020 and 2022. His name is Ingo Piepers. And he did his research very
thoroughly and had it even verified in multiple peer reviews. If we look back on all the big wars, they were almost always about
money. Now there is a money problem brewing
WORLDWIDE.
Also his research was completely independent from any kind of economic information as far as I am aware, so there's a good chance
he doesn't even know about the economic side of things. But they seem to overlay frighteningly well. I hope it's all going to be
okay without any real war. Here's the video (it's in dutch tho):
https://www.youtube.com/watch?v=9wTX3CGeOJ8
Every administration since Bush knows that if you keep interest rates low, and print money, you creat inflation. Inflation
creates a strong market. TheFed has made the market the only game to invest in.
I feel what is happening at the COMEX is criminal. I feel major banks are hording the silver and trying to drive the price of
silver down for acquisition of the physical. In my mind and my gut tells me they are preparing a large horde of silver for the
automotive markets to produce electrical vehicles(EV's). Look at the price of Palladium and Platinum. P&P sored when it was/is
used for automotive catilittic converters. What is going to be used next for automotives (whispers batteries in huge demand). The
price of silver will sky rocket for automotive use just like Palladium and Platinum. Then you will see Palladium and Platinum
prices tank.
The
"usual" basics of real economy and real life are right. They have been working well for centuries despite bubbles, as well as
rational investment decision did. Mr Grantham is a successful investor that has been making money investing in the pre "New Era
economy". Probably, I think things work different there. So, I think that probably, the way to invest and gain money in markets
would change too in near the future, as it is happening in all markets and industries. Maybe, it would grow the alternative ways
to make lots of money in short periods of time (SPACS, tech startup, complex derivatives, etc..) as it already happened. There
would be investments based on extremely higher business results expectations not correlated with biz fundamentals. There would be
more bubbles. Anyway, I agreed with Mr Grantham on how real life works...
The thing I always ask about pundits and prognosticators is: what has been their record. I believe that Grantham has been bearish
and wrong for many years. I looked at GMO's Global Asset Allocation Fund (GMWAX). Since it started in June 2019, it's up 6%. The
broad market (VTI) is up 43%. Correct me if I'm wrong.
For those complaining about his big payday on QuantumScape while being against SPACs, remember he invested $12 million in
QuantumScape seven years prior to the SPAC deal, he did not have a controlling interest in the company to stop the merger.
The next step is more bond buying to control yields as inflation expectations rise. The final step before the implosion is a
"Credit Choke" where the government orders banks to stop lending to prevent hyperinflation, in tandem with big interest rate
rises that will cause mass bankruptcies in order to purge the excess currency out of the system and stabilise prices
The
correction or crash will come, statistically speaking, it has to at some time eventually. In 2021 though? I'm skeptical of that
given the enormous liquidity being unleashed, the pent up demand, the signs for employee new hire rates and unemployment rates.
All that $ has to go somewhere so business growth will continue, equity growth, EPS and ROIC will continue to lead to further
higher stock prices until they don't and then, maybe this time in 2023 things change but heck 2 years is a long time in business.
Even a broken clock is right twice a day. That being said major US corporations are over leveraged in the bond market and are
barely making interest payments while being down graded to "junk bonds". We need a hero that can trim the fat and save our
country.... excuse me while I put on my super man costume. :)
Hopefully, unlike the no-fault bank, trading, and brokerage house bailouts of the 2008 crisis, the next big market flop
will see people jailed, jumping from high windows a la 1929, and a general deep cull of the ruling and "investing" classes.
Equities traders and corporate bonds issuers have an out-of-control need for Fed support. Cold turkey is coming, not
because regulators won't rightly try to ease their massive subsidies, but because traders will just ride their
over-leveraged positions right in the ground.
It is not crash, it is correction, stock market always goes in cycle of up and down. It is called "fleecing the sheep", sheep
being their clients and the 401k owners, rainse and repeat every 8 to 12 yeas or so.
"We have lost considerable strength in the economy; we have fewer people working, and we have a reduced stream of goods and
services, and yet the [market] price is much higher." "Is it really justified that we have delivered a serious blow to the world
economy and yet the global stock market has gone way up? It doesn't feel right."
"I
don't believe in a law to prevent a man from getting rich; it would do more harm than good. So while we do not propose any war
upon capital, we do wish to allow the humblest man an equal chance to get rich with everybody else." Abraham Lincoln
"I see
in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country... corporations
have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to
prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is
destroyed." Abraham Lincoln
I have listened to this Bloomberg YouTube interview in its entirety with Jeremy Grantham, at least six times now, he shares a
lifetime of accumulated knowledge and wisdom in a time when we need sound logic and direction desperately. THANK YOU!!!!!!!!! Mr.
Grantham.
Many of the big companies are just sucking up cheap money and making it look like profits with clever accounting. The fact
that the markets seem unaffected by covid shows how thick the fraud is.
...Our markets are in whole driven by the central bank printing. Zombie companies and vulture investment firms distort what is
left, value investing is deeply buried in the grave.
13:30
COVID-19 revealed that there are two kinds of jobs: essential jobs and bullshit jobs. We just eliminated all the bullshit
jobs and put them onto UBI/welfare and it removed a drag on the economy.
"You cant predict a market to the week, or even the month" proceeds to say the bubble always pops within months and then
says people are putting in their final in for these last few weeks. This guy doesn't see the whole picture, although i
agree that eventually we will deleverage but this guy has tunnel vision on his view
37:00
If the system demands that the only way a business can make a profit is by providing Goods and Services that make
peoples lives better then what difference does the motivation make? State Power has no such obligation, in fact, the
immoral can pitch groups against each other for advantage and wealth, they can borrow to cover up inefficiencies, they
can empire build pointless departments for personal advancement. Similarly corporations can leverage state power for
advantageous regulations, a truly free market is the only moral system.
Big inflation will hit at the same time. Remember, 40% money supply increase in the last year, and a lot of that money went
into either equities or savings accounts during the uncertainty of covid. People who cash out of equities with a profit will
then spend it and put it into goods as consumer confidence will still be high when this first happens and people will no
longer be looking to hold onto investments during the uncertainty of covid. This is where the newly printed money makes its
way back into the economy and drives prices of commodities up. Simultaneously, you will have the bagholders who got caught up
in the market bubble who made little to no money or even bought in high and suffered massive losses as always happens in a
bubble. This is going to get ugly. It will then turn into hyperinflation if the government's solution is once again to print
their way through a crisis
"Bitcoin is 100% faith. Come the next market phase where faith is at a minimum, what do we think will happen to a stock
whose entire reason for existence is faith and nothing but faith?" - But doesn't that a hundred percent describe the US
dollar too??!
For your average American having a Savings account is .20 of a Percent Interest Investment and Corporations Force people
into 401ks because the Pensions are gone, That must make a big difference in how much money is in the stock market. Normal
people have no choice, The Wealthy Do.
After the disaster in Texas, I'm not so sure renewable energy is great for investment. The picture of the frozen windmills
has become an iconic image in the American mind, however much the windmills may or may not have contributed to the break
down.
1929 and 2000? Also 2008. So we have 3 very big bubbles in the space of 20 years. This is a boom / bust economy with
each action of the Federal Reserve to mitigate the pain of the bursting of the previous bubble only sews the seeds for the
next bubble.
I wonder if there is even another cycle left in this zero %, money printing economy!
I
can see how alluring a video like is... It's hard to disagree with anything that is described in the video, so on the whole
everyone will feel it's truthful, There is a strong feeling that extended rises in any market are illogical, instinctively
investors will always look for a perceived difference between current price and current real value which should be much
higher and expect that eventually prices will rise to eliminate the gap. The problem as always is defining the "imminent"
collapse... Is that supposed to happen today? Next week? Month(s) from now? Years from now? And like most prognosticators
this video doesn't identify a date or even a range of time. Eventually all bubbles burst, and are identified in hindsight.
It's an axiom that hardly anyone can properly identify the day before a bubble bursts, if that were possible than everyone
would have gotten out that day before. A reasonable strategy seems to be outlined in this video which is to always
transition your investments into risk-averse parts of the marketplace, and he identifies green industries that are likely
to become ever more important into the next years, possibly decades. People should realize that discussing an imminent
bubble burst is important, yet ironically the mere discussion by enough people will likely result in behaviors that delay
that very event, perhaps indefinitely.
Next four years, I see extemely slow growth. Maybe slight stock pullbacks (~10%) on tax increases or other event. Raising
interest rates will cause pullback greater than 20% and historically been a sure sign.
Mr. Grantham's hope in the Biden administration doing something good for the country is both sad and misplaced. How can an
intelligent person have any confidence in a corrupt liar who is barely able to read a teleprompter?
Listening to Jeremy Grantham it occurs to me that I have never in my entire life not been able to listen to someone that
says the stock market is going to crash in the near future nor at the very same time not been able to listen to someone
advocating that stocks are the best investment you can make. My conclusion is that the people that say the stock market is
going up are right most of the time but when the people that say the stock market is going down are more right when they
are right.
You all are addicted for money, thats the reason of MMT, it is needed due to your addiction, in the end it will crete
poverty and satisfaction for the bubbles classes...try to free yourself from addiction
If you think a president who has held ZERO press conferences and taken no calls with foreign leaders can fix the stock
market, I'd be better off taking stock advice from Mickey mouse.
He said in this video that a sign of a bubble about to burst is to look for stocks like Tesla and SPACs, and Bitcoin coming
down day after day. One month later this exact thing happened. The writing is on the wall.
The bond yield graph does not take into account the inflation rate. I recall purchasing S&L CDs for 12% back in 1981 but
the inflation rate was 10.5%. If you could find a fixed rate 30 year mortgage the rate was about 18.5%. So the real bond
return was not much different compared to present day.
"I have no confidence and have not had any for over 20 years in price-to-book and PE and price-to-cash flow,
price-to-sales, even, as a measure of true value. a measure of true value is the long-term discounted value of a future
stream of dividends" -Jeremy Gratham
This is great... I'm starting to learn about the current situation.... I lived through 4 booms and busts.. I didn't see the
first one coming because I was young and inexperienced... I was in the land business... I got out at the right time for the
last three busts.. Never waited for the top.... When it starts down its too late... Get out now as he says... Brilliant
guy... Thanx
Greenspan talked of Irrational Exhubberence in Sept 1997 but the market continued to rise till NASDAQ peak in March 2000
and S&P Peak in July 2000. so a few months is way to fast
it really looks like an October crash is coming - looks like it, feels like it, smells like it. People are nearly all
in on the stock and crypto markets, some are taking loans to do it. We are in a frenzy. Even I am all in. I hope I
listen to myself and derisk a bit into cash before the end of the year.
This is pretty revealing interview that systematize know facts about the current bubble. That
does not mean that you can predict when the bubble will deflate and from what level. It might run
for another couple of year or even more. After all stock market is a casino.
The "greatest economy in history" was the USA from the 1950s to about 1975 when its
standard of living was the highest in world history. That was a time when the average man
could afford to buy a nice house and raise a large family on his income alone, and mom stayed
home to manage the family and the home.
One thing I never see addressed by any of the guests here on overvaluation of stock
markets this: aren't markets just pricing in the likelihood of future superinflation? They're
not looking today's earning multiples, they're looking at future earning multiples when
currency is worthless. I feel like most guests are talking out of both sides.
There's both inflation coming and also a crash because of fundamentals. They can't both be
happening at the same time. Either the dollar crashes or the stock market crashes - if both
crash at the same time, then they cancel each other out since share are traded on
dollars.
Another podcast of doom and gloom.. It's informative, truthful, and revealing.. It's also
the same message DS has been delivering for sometime.. Hardly news worthy..
I have respect for Mr Stockman. But he's been very wrong for quite a while. He's been
saying for a long time that the poop is going to hit the fan. Well it will hit the fan. But
nobody knows when.
On today's Wall Street Journal home page, two articles appear side-by-side. One is about how
a heretofore obscure, nearly-valueless cryptocurrency called dogecoin, originally created as a
joke, has soared to the point of being consequential for large sections of the investing
public. And it's not unique:
Last year, stocks with less in the way of fundamentals, and more reliance on telling a
hard-to-disprove story about the future, had a fabulous time.
Profit provides a grounding for a stock, while story stocks can soar on the wings of the
imagination for a long time before being pulled back to earth -- or occasionally confirmed as
true fliers -- by hard business facts.
Dogecoin's combination of get-rich-quick speculators and you-only-live-once Reddit meme
traders is similar to GameStop, which was initially pushed up by a story about a new business
model and then a short squeeze, before nihilistic Redditors took over.
The story stock of the last decade was electric-car maker Tesl a, with the tale being that
there was a gigantic untapped market for self-driving electric cars and clean power that would
eventually both work and be highly profitable.
The danger is that the excess so obvious in dogecoin has spread beyond the story stocks into
mainstream investments, and that when eventually the froth is blown away, the rest of the
market cools suddenly. That would be a bad joke.
The second article notes that something similar is happening in the bond market:
A key measure of the perceived risk in low-rated corporate bonds is hovering around its
lowest level in more than a decade, highlighting investors' mounting confidence in the
economic outlook.
The average extra yield, or spread, investors demand to hold speculative-grade corporate
bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90
percentage points for the first time since 2007, when it set a record of 2.33 percentage
points, according to Bloomberg Barclays data.
Yields on low-rated corporate bonds already hit a record low of 3.89% in February. That
data point is especially important for businesses, because it signals how cheaply they can
borrow when they issue new bonds. Companies including Charter Communications and United
Airlines Holdings have issued a total of $184.5 billion of speculative-grade bonds this year
through Tuesday, the highest over that period on record, according to LCD, a unit of S&P
Global Market Intelligence.
The spread relative to Treasurys, however, is arguably an even better measure of
investors' outlook for the economy, since it shows how much investors feel they need to be
compensated for the risk that companies may default on their debt.
The narrow speculative-grade bond spreads indicate debt investors think that the economic
environment for businesses over the next several years could be better than at any time since
the 2008-2009 financial crisis -- a striking development after many feared a severe,
long-lasting economic downturn just last year.
So at one end of the financial asset spectrum, a crypto originally created as a joke is
generating the most enthusiasm and biggest capital gains, while way over on the corporate debt
part of the spectrum, junk bonds have never been more richly valued (i.e., they've never
yielded less). Each of these asset categories – cryptos and junk – are "story
stocks" of a sort, securities that are perceived to be attractive because the environment is
going to be nothing short of perfect for years to come. Therefore no need to worry about risk
and every incentive to roll the dice for big returns.
Note the all-important sentence from the junk bond article (bold added):
"The average extra yield, or spread, investors demand to hold speculative-grade corporate
bonds over U.S. Treasurys dropped below 3 percentage points this month to as low as 2.90
percentage points for the first time since 2007 "
Here's what happened to junk bond yields (and, inversely, junk bond prices) after 2007:
One last data point: I got a long-overdue haircut yesterday, and instead of the normal
chitchat about our families and upcoming vacations, the stylist and I talked dogecoin, bitcoin,
Robinhood, and GameStop. She (a 20-something Latina) and her husband are having a ball
speculating on things they hadn't heard of six months ago on exchanges that didn't exist in
2019. So far they – like the "investors" in the above Wall Street Journal articles
– are thoroughly enjoying their newfound wealth.
Lordflin 1 day ago (Edited)
There will come a day... should such a day still have prospect amid the coming chaos...
and historians of that day exist such that they are still recording...
That humans will be forced to ask...
What the holy **** were they thinking...!?
Paul Bunyan 1 day ago (Edited)
It happens frequently to humanity. Real estate a decade ago. Dot com bubble. Merger and
Acquisitions in '87. The inflation crash of the early '80s. So when the system buckles and we
get another crash it's just another bubble of hubris that humans know and truly love. For if
we didn't love creating manic bubbles, we wouldn't do it.
Entertaining1 1 day ago
These are NOT sell signals.
They just look like them. We've had 12 years of head fakes.
You will go broke trading on ZH sell signal articles.
HopefulCynical 23 hours ago
You're sort of correct. They ARE sell signals.
But then the Fed sees them too, and buys stonks, propping up the market until the wave of
selling has passed and the bears are all murdered again.
The Fed then dribbles their stonks back out into the next bull leg up.
Rinse, repeat, wipe hands on pants.
XanII 2 hours ago
If one would just know when the music stops. It's been like this for so so long only old
ones recall how it was to trade stocks. Not stonks that always go up.
Kreditanstalt 1 day ago (Edited)
WHEN the bubble does pop they will find it exceedingly difficult to all fit through that
tiny exit door simultaneously.
The somewhat smarter segment among Bitcoin "investors" have already started selling
archipusz 23 hours ago
I don't think it will pop.
I think it will go parabolic until the currency goes kaput and then you sure as heck will
be glad you are not in the currency.
radical-extremist 1 day ago (Edited)
Everything is the South Sea Bubble. Get out before gravity takes hold.
When the cute Latina chick at the hair cutting place is talking crypto...that's God's way
of telling you it's time.
chunga 1 day ago
The stock market is the bellwether of US health.
Entertaining1 1 day ago
The funny thing is that this all happened a century ago.
In the 1920s, the Dow was the only measure of the economy commonly used.
We came up with GNP, later replaced with GDP, because in 1929 we realized the market is
not America.
Don't worry. We'll get there again. See you in a Hooverville.
chunga 1 day ago
Dmitry Orlov has had the best one sentence quote for two years running.
The Unites States can best be described as a singular, highly integrated, systemically
corrupt scheme.
Chen Zhao, Founding Partner and Chief Strategist of Montreal-based Alpine Macro, has been
analyzing global financial markets for more than thirty years. Numerous investors worldwide
know him as the long-serving Chief Strategist of BCA Research.
Today, Zhao is confident about equity markets. He sees the ingredients for a strong recovery
in the global economy, and he believes fears of higher inflation are overblown. He sees the
potential for the Federal Reserve's monetary policy to inflate a new speculative bubble. "This
bubble is going to be a whole lot bigger than the tech bubble of the late nineties, and it will
probably run a whole lot longer than we think", says Zhao in an in-depth conversation with The
Market NZZ.
Mr. Zhao, in February and March, we have witnessed a sharp upward move in long term US bond
yields, temporarily causing a sell-off in the Nasdaq. What do you make of this?
Whenever bond yields rise, you should conceptually decompose this movement into two
stages. One is reflective, meaning the bond market is trying to tell you something about the
underlying economy. Rising bond yields are reflective of stronger economic growth. However, a
market selloff could also move into a phase where bond yields become too high, constraining
economic activity. In my judgement, what we are witnessing right now is purely reflective.
The ISM manufacturing index is at its highest level since 1983, the world economy is in a
strong recovery mode. Higher yields are consistent with the economy getting stronger. Under
these circumstances, I would be more concerned if bond yields did not rise.
Aren't rising inflation expectations also playing a part?
I don't see a clear breakout in inflation expectations. People forget that during the
decade after the global financial crisis, inflation expectations have fallen apart. Markets
became much more concerned about deflation. Inflation breakeven rates currently are between 2
and 2.2%, whereas the average range during the decade before 2009 was more like 2.5 to 3%. So
inflation expectations are simply in the process of being normalized.
Do you see room for a further rise in yields?
Our model says ten year Treasury yields are pretty much at fair value today, at around
1.5%. But we know that if we have a cyclical move in financial markets, nothing stops at fair
value. Markets always undershoot or overshoot. So I could see yields rise towards 2% or even
a bit more. If they approach 2%, we would be active buyers of long term Treasuries.
Don't you see structural inflation building up?
No, not at all. There is a widespread misunderstanding of this issue. Many people look at
the fiscal position of the United States and see a budget deficit of almost 20% of GDP. The
Fed balance sheet has expanded by $7 trillion since the beginning of the pandemic, M2 has
exploded upward. How can this not be inflationary? Well, in my experience, something that is
too obvious is usually wrong.
How so?
What happened is this: For all of 2020, the US government unleashed $3.5 trillion in
various rescue packages, as a result of which the federal government debt rose by $3.6
trillion. At the same time, the household sector's disposable income increased by $3.5
trillion, and household savings shot up by $5.5 trillion. In other words, American households
not only saved up all the transfer payments they received from the government, but they even
saved $2 trillion more from their own income. These rescue programs did absolutely nothing to
generate aggregate final demand or GDP growth. What we have seen was not a fiscal stimulus to
boost aggregate demand, but a transfer payment. This was no different than a one-time tax
cut. We know that people's spending behaviour is determined by their outlook for sustainable
income. If you give them a one-time tax cut, they will save it. This is what the Permanent
Income Hypothesis says and this is what has happened.
... ... ...
Does that also mean you don't see a structural bear market for bonds, where yields would
drift higher over the coming years?
Correct, I don't see the drivers for structurally higher yields. That's why I think that
ten-year Treasury yields above 2% would represent a good buying opportunity.
play_arrow
Leonine 2 minutes ago
M2 has exploded upward. How can this not be inflationary? Well, in my experience,
something that is too obvious is usually wrong.
In a recent note from SocGen's Andrew Lapthorne, the cross-asset strategist summarizes the
ongoing market insanity delightfully, saying that "there is an increasingly large number of
weird and wonderful signs of market excess, from surging crypto currencies started as a joke to
a single New Jersey Deli trading at $100m market cap."
To be sure, it's not just the record liquidity that has pushed the Goldman index of
financial conditions to record easy levels...
... there is also a lot of good news, with the economic narrative improving and vaccination
programs accelerating worldwide, with most now hoping that the worst of the pandemic is behind
us. At the same time, global profit expectations are being revised upwards and earnings growth
is forecast to jump by a third in 2021.
Given this almost euphoric market backdrop, Lapthorne correctly notes that "anything bearish
is met with groans."
But to complete the record, the SocGen strategist adds that even after this profit rebound,
global equities will be trading at over 21x earnings, which is extremely expensive on most
historical measures, and at a stock level, " the distribution of valuations is as extreme as
during the 1999 tech-bubble."
Finally, the amount of global market capitalization that has reported a negative profit
number in the last year and in each of the last three years is higher than at any point during
the past 22 years, and has even surpassed the dot com bubble.
Lapthorne's rhetorical question: " We wonder how the history books will describe 2021."
mailll 6 hours ago (Edited)
Corporate stocks are the new bitcoin. People putting trillions into worthless corporate
assets. Brought to us by free money from the Federal Reserve.
I know one company that had a market cap of about $200 million about 5 years ago. It now
has a market cap of about $2 billion. And as their stocks have been increasing year after
year, their net incomes were becoming more and more in the negative. And in order to finance
their mismanaged company, they have been issuing more stocks. And instead of decreasing the
value of their stocks, their stocks actually doubled. Once again, brought to us by free money
from the Federal Reserve.
But keep in mind, the Fed giveth, and the Fed taketh away. And each time they taketh away
after issuing all of this easy money, they have gained more and more power over our financial
system, and over our government. In fact, the Federal Reserve is now Uncle Sam's new daddy.
And Uncle Sam is loving it. And investors are loving it, many of who don't even realize why
this is happening.
I expect the Fed to taketh it all away sometime in 2022.
istt 3 hours ago
P/E ratio for the NASDAQ are not anywhere close to 1999. But the Buffett Indicator is near
record highs.
(Bloomberg) -- Wall Street banks have long relied on a familiar system to limit the dangers
of trading with big clients: assign sales staff to win deals, and risk controllers to keep them
in check -- even if it sacrifices some profit.At Credit Suisse Group AG, executives had given
the point salesman to Archegos Capital Management on its swaps desk the new responsibility of
instead overseeing risk-taking in the broader prime-brokerage unit, according to people with
knowledge of the matter. This year, Archegos's swap bets spectacularly collapsed, saddling the
bank with a $4.7 billion writedown, and setting it up as the biggest loser to emerge from the
debacle at Bill Hwang's family office.
Parshu Shah -- the salesman who became head of prime-services risk -- hasn't been accused of
any impropriety in previous trades with Archegos. But the bank has faced questions in the wake
of the debacle over whether managers prioritized boosting revenue over managing against
downside. Shah is among a roster of Credit Suisse executives who've been forced to step down
following the blowup, according to an internal memo early this month.
The usually behind-the-scenes functions of risk controls have been thrust into the limelight
after Credit Suisse was left holding the bag on two financial catastrophes in just a few months
-- Hwang's firm and the collapse of Greensill Capital. The Swiss lender's losses have left
investors puzzling over whether it has sufficient checks in place.
In recent years, Credit Suisse Chief Executive Officer Thomas Gottstein and his predecessor
Tidjane Thiam gave the task of resetting risk management and the bank's risk appetite to Lara
Warner, head of risk, who is stepping down as well. She challenged risk managers to stop
thinking only about defending the bank's capital and also look at strategic business
priorities, Bloomberg reported earlier.
While it's not typical for revenue-generating finance employees to switch to risk-oversight
roles, some banks make such shifts.Credit Suisse, the worst-performing major bank stock this
year, is set to disclose first-quarter earnings results on Thursday that are likely to involve
a more-detailed discussion around the Archegos mess. Anna Christensen, a spokeswoman for Credit
Suisse declined to comment for the firm and Shah, or say how long he'd been in the
risk-oversight position.
Shah, who has been with the bank for more than 20 years, was one of the people at the firm
who helped nurture the relationship with Archegos as the fund began growing in size.When Shah
left the swaps desk, his sales role ended and he took over the new oversight position within
the prime-brokerage group. That job included overseeing the risk of several clients, including
Archegos. An existing member of Shah's team was assigned to Hwang's firm for monitoring its
activity on a daily basis, according to a Credit Suisse executive who asked not to be
identified discussing internal matters.
The prime-brokerage risk group was one among several lines of defense set up to shield a
firm of Credit Suisse's size from confronting hefty losses in dealings with any one client. But
the enormity of the bank's exposure coupled with the rapid implosion of Hwang's firm ripped
through the safety net Credit Suisse had set up, leaving management befuddled, the lender's
workforce frustrated and investors furious.
In 2016, under then-CEO Thiam, Credit Suisse underwent a significant restructuring of its
risk functions that led to many people leaving. The risk-control center was shifted to Zurich,
Credit Suisse's headquarters, from New York, where the majority of the bank's
investment-banking and trading activities sit.
Since the restructuring, efforts to cut costs have damped the bank's ability to add talent
and replenish the defense lines, a person familiar with the matter said.
It would be stupid to buy US stocks at those valuations. But it is strange that 401K
investors do not participate, they usually have fixed allocation heavily biased to stocks
providing Wall Street sharks with ample food chain...
Household equity holdings now account for 47% of total assets, according to Citi. That is
the highest level since 1970. Returns were subpar for the next decade.
Microsoft buys speech recognition company Nuance in $16B deal, second biggest since
LinkedIn
Nuance has a strong reputation for its voice recognition technology, and it has been
considered an acquisition target for companies like Apple, Microsoft and more for several
years.
The past year or so has been one of the oddest periods ever for the stock market and
economy, with a rare pandemic shutting down businesses and throwing millions of people out of
work.
At the same time, the federal government stepped up with unprecedented amounts of stimulus
payments, free loans to businesses, eviction moratoriums and other aid -- even a delayed
deadline for filing income-tax returns.
Things are off-the-charts unusual. Yet for novice investors who stuck a toe in the stock
market for the first time over the past year or so, it's all they know.
And it's not just a few people, either. Armed with stimulus checks and motivated by boredom
perhaps, millions of people took the stock market plunge last year -- a whopping 15% of all
current stock investors got their start in 2020, according to a new Schwab survey.
Most must be thinking, "This is easy." Here are some reasons why they should think
twice.
The stock market has climbed steadily for the past 13 months, over which time it has nearly
doubled in value. That's rare in itself. But the really unusual part was the extremely short
duration of the preceding bear market or downward spiral, which lasted just five weeks.
No wonder these first-year investors are more optimistic about near- and long-term results
compared to more seasoned market participants, according to the Schwab survey. The newbies also
tend to be younger -- 35 years old, on average, compared to 48 for people who started investing
prior to 2020. They thus can afford to be more optimistic, as they have more time to make up
losses.
It's true that rising or bull markets always spring from the ashes of bear markets, but
usually those preceding downdrafts are much more prolonged. That's the real challenge of
investing -- dealing with month after month, if not year after year, of falling prices, when
disappointment leads to despair and then desperation. If you blinked, you missed the bearish
phase of 2020. The next downward cycle won't be so kind.
... ... ...
Investing, like gambling, isn't so difficult when you're playing with house money. That was
somewhat the case for millions of Americans who received stimulus payments from Uncle Sam or
possibly souped-up unemployment benefits.
Sure, plenty of people used this cash as financial lifelines, to stay afloat. But others
saved their stimulus checks or put them to use in the stock market.
In other words, some new investors probably don't fully appreciate that investing involves
sacrifice: You forego consumption today in hopes that your money will grow enough over time
that higher spending will be possible years down the road.
Stimulus checks don't arrive every year, though there is one form of free money that you can
tap into on an ongoing basis. These are the matching funds available through workplace
401(k)-style funds that employers ante up to encourage workers to invest.
Even the federal government offers limited retired matching funds to lower-income
workers, through the widely underappreciated Retirement Savers tax credit (details at irs.gov).
It's not a huge sum -- a maximum credit of $1,000 annually to the lowest-income workers -- but
it beats the stimulus money you can count on most years.
Don't assume your buddies are right
There's a lot of psychology to investing, and one tendency is that people seek out
confirming views from friends, family members and colleagues. There's something heartening
about having your investing ideas validated by others. The danger is that these other parties
might have even less knowledge than you.
More than in most years, collaborative investing appears to be on the rise. For example, a
survey by MagnifyMoney, a subsidiary of Lending Tree, found that nearly six in 10 investors age
40 or younger are members of online forums such as Reddit. These can be good ways to learn
about finances, but they also might lead you astray.
"It's great that these communities are introducing a lot of people to investing, which is
one of the best ways to build wealth over a lifetime," said Tendayi Kapfidze, LendingTree's
chief economist, in a statement. "A concern is that some are leading to relatively short-term
trading concentrated in a few stocks with hopes of getting rich quick."
Usually, investors are better off thinking for themselves and tuning out the "noise" or
outside distractions. In part, this is because other people often have different goals,
tolerance for risk or other motivations compared to you. Or, they're just wrong.
... .... ...
And rather than concentrate your money in a handful of stocks, Sandoval recommends spreading
it out through low-cost, diversified mutual funds or exchange-traded funds. The market's strong
performance last year, she noted, was driven by a smattering of large, technology-focused
companies including Facebook, Amazon, Apple, Netflix and Google.
But already, there are signs that the market's leadership is shifting. Besides, pinpointing
future hot stocks isn't easy to do, except in hindsight...
... the financial markets sometimes feel like a house of cards.
...the more existential questions: what's the right level for a stock market that plunged
33% in about two weeks just a year ago? How much of that gain comes down to policy stimulus
and how much is real? How much of the expected economic rebound is already priced in? What
happens if the vaccine promise falls short? What if this is as good as it gets?
Taken together, it leaves people who manage money, their clients, and the companies that
advise them, just as befuddled as Andersen, with almost as many perceived red flags as there
are theories as to what's causing it all.
"The most common observation we get from clients is that markets don't "feel right", and we
absolutely get that," wrote Nicholas Colas, co-founder of DataTrek Research, in a recent note.
"For us, a big piece of this unease comes from the novelty of seeing capital markets go from
distress to euphoria in such a short period of time."
...there's been a rush for young companies to go public, sometimes before they have the full
business model ironed out and sometimes when profits are still far on the horizon. That means
the stock market resembles a casino some days, with people piling in who are unafraid of, or
just not used to, losing money.
...the current moment, full of Redditors
and memes and
SPACs and
electric cars and Zoom meetings to 1999, when the internet was the wild, wild west and
trading had just moved on line.
...still worth considering. It's simultaneously true that for the past 20 years, any time
any tech stock anywhere gets a little pricy, it prompts a lot of pearl-clutching about the
dot-com bust -- and that there are uncanny similarities that do warrant more attention.
Why do periods of disruption so frequently lead to speculation? Why do we let
snake-oil-sounding financiers sell us whatever they're selling us? ...
... the traditional ways of managing risk -- government bonds, for example --
aren't really up to the job the way they might have been a few decades ago, as yields
remain low and the decades-long bull market comes to an end.
The stock market has been breaking records over the last year while the real economy has struggled in the face of the pandemic.
And that discrepancy is starting to make experts a little nervous.
One expert, Suze Orman, would go so far as to say she's now preparing for an inevitable crash.
... ... ...
"I don't like what I see happening in the market right now," Orman said in a video for CNBC. "The economy has been horrible, but
the stock market has been going [up]."
While investing is as easy now as
using
a smartphone app
, Orman is concerned about where we can go from these record highs.
And even with stimulus checks, which are still going out, and the real estate market breaking its own records last year, Orman
worries about what will come with the coronavirus -- especially as new variants continue to pop up.
And given how long the market has been surging, she feels it's just been too long since the last crash to stay this high much
longer. "This reminds me of 2000 all over again," Orman says.
The Buffett Indicator
...
the Buffett Indicator, which is a measurement of the ratio of the
stock market's total value against U.S. economic output, continues to climb to previously unseen levels.
And those in the know are wondering if it's a sign that we're about to see a hard fall.
Even Tesla boss Elon Musk is starting to feel anxious. Musk recently asked investing bigwig Cathie Wood, CEO of Ark Invest, if we
should be expecting a crash.
While Wood initially brushed off any concerns, she did tell Musk she would have her team take a closer look.
HHw to prepare for a rainy day
Freedomz / Shutterstock
Orman has three recommendations for setting up a simple investment strategy to help you successfully navigate any sharp turns in the
market.
1. Buy low
Part of what upsets Orman so much about the furor over meme stocks like GameStop is it goes completely against the average
investor's interests.
"All of you have your heads screwed on backwards," she says. "All you want is for these markets to go up and up and up. What good is
that going to do you?"
She points out that, the only extra money most people have goes toward
investing
for retirement
in their 401(k) or IRA.
Because you probably don't plan to touch that money for decades, the best long-term strategy is to buy low. That way, your dollar
will go much further now, leaving plenty of room for growth over the next 20, 30 or 40 years.
... ... ...
First, prepare for the worst and hope for the best. Since the onset of the pandemic, Orman now recommends everyone have an emergency
fund that can cover their expenses for a full year.
"... How much of my retirement portfolio do I really want to gamble on a high-risk, low-profit company that is already valued at over 1,000 times its most recent earnings, plus seven times the peak earnings of its entire industry, and which is controlled and run by a volatile, drug-taking eccentric? ..."
"... You've got nearly five times as much of your retirement portfolio invested in Tesla than you do in the entire U.S. home-building industry. ..."
How much of my retirement portfolio do I really want to gamble on a high-risk,
low-profit company that is already valued at over 1,000 times its most recent earnings, plus
seven times the peak earnings of its entire industry, and which is controlled and run by a
volatile, drug-taking eccentric?
Right now if you hold an S&P 500 or similar stock market index fund you've got more
money invested in Tesla than you do in, say, Ralph Lauren (RL) Molson Coors (TAP) Gap (GPS)
Hasbro (HAS) American Airlines (AAL) United Airlines (UAL) Delta Air Lines (DAL) Campbell Soup
(CPB) Domino's Pizza (DPZ) Hershey (HSY) Wynn Resorts (WYNN) Kellogg (K) General Mills (GIS)
Darden Restaurants (DRI) Clorox (CLX) and many others.
You've got nearly five times as much of your retirement portfolio invested in Tesla than
you do in the entire U.S. home-building industry.
The professional poker player finally points out some of the insane moves observed in
pennystocks in Q1, focusing on a tiny deli owner in rural NJ:
Strange things happen to all kinds of stocks. Last year, on one day in June, the stocks of
about a dozen bankrupt companies roughly doubled on enormous volume. Recently, the Wall
Street Journal reported a boom in penny stocks.
Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New
Jersey. The deli had $21,772 in sales in 2019 and only $13,976 in 2020, as it was closed due
to COVID from March to September. HWIN reached a market cap of $113 million on February 8.
The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be
the wrestling coach of the high school next door to the deli. The pastrami must be amazing.
Small investors who get sucked into these situations are likely to be harmed eventually, yet
the regulators – who are supposed to be protecting investors – appear to be
neither present nor curious.
We don't find it at all surprising that Einhorn's conclusion from his capital markets
observations over the past quarter is identical to ours, when we discussed the insane stock
moves that dominated much of January and February:
"From a traditional perspective, the market is fractured and possibly in the process of
breaking completely."
"Having a large amount of leverage is like driving a
car with a dagger on the steering wheel
pointed at your heart. If you do that, you will be a better driver. There will be fewer
accidents but when they happen, they will be fatal ." Warren Buffett
Our trade deficit rose 4.8% February, as both our exports and imports decreased, but the
value of our exports fell by almost three times as much as the value of our imports did .the
Commerce Department
report on our international trade in goods and services for February indicated that our
seasonally adjusted goods and services trade deficit rose by $3.3 billion to $71.1 billion in
February, from a January deficit that was revised down to $67.8 billion from the $68.2 billion
deficit reported a month ago in rounded figures, the value of our February exports fell by $5.0
billion to $187.3 billion on $4.8 billion decrease to $131.1 billion in our exports of goods
and a $0.2 billion decrease to $56.1 billion in our exports of services, while our imports fell
$1.7 billion to $258.3 billion as a $2.0 billion decrease to $219.1 billion in our imports of
goods was partially offset by a $0.3 billion increase to $39.2 billion in our imports of
services . export
prices averaged 1.6% higher in February , which means our real exports fell more month over
month than the nominal decrease by that percentage, while import prices rose 1.3%, meaning that
the contraction in real imports was greater than the nominal decrease reported here by that
percentage
Hedge fund managed reinvent old tricks on a regular basis. Regulators simply can't catch up and are not willing to catch up as
they are captured by big bonds.
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Cathy Chan and Steven Arons
Tue, April 13, 2021, 11:36 AM
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(Bloomberg) -- The collapse of Archegos Capital Management LP, an investment firm that few even on Wall Street had heard of
until it imploded last month, is changing a lucrative, decades-old part of global banking.
Nomura Holdings Inc. and Credit Suisse Group AG, the two lenders hit hardest, have started to curb financing in the
business with hedge funds and family offices. European regulators are looking at risks banks are taking when lending to
such clients, while in the U.S., authorities started a preliminary probe into the debacle.
Together, steps taken from Washington to Zurich and Tokyo could portend some of the biggest changes since the financial
crisis to a cornerstone of global banking known as prime brokerage. Typically housed in the equities units of large
investment banks, these businesses lend cash and securities to the funds and execute their trades, and the relationships
can be vital for investment banks.
But the collapse of Archegos, the family office of former hedge fund trader Bill Hwang, has underscored the risks banks are
taking with these clients, even when their loans are secured by collateral. Credit Suisse has been the worst-hit so far,
taking a $4.7 billion writedown in the first quarter.
The lender, one of the biggest prime brokers among European banks, is now weighing significant cuts to its prime brokerage
arm in coming months, people familiar with the plan have said.
It has already been calling clients to change margin requirements in swap agreements -- the derivatives Hwang used for his
bets -- so they match the more restrictive terms of other prime-brokerage contracts, people with direct knowledge of the
matter said. Specifically, the bank is shifting from static margining to dynamic margining, which may force clients to post
more collateral and could reduce the profitability of some trades.
Nomura, which is facing an estimated $2 billion from the Archegos fiasco, followed suit, with restrictions including
tightening leverage for some clients who were previously granted exceptions to margin financing limits, Bloomberg reported
on Tuesday. A representative for the Tokyo-based firm declined to comment.
Hwang's family office built positions in at least nine stocks that were big enough to rank him among the largest holders,
fueled by bank leverage that would have been unusual even for a hedge fund. Archegos was able to place outsize wagers using
derivatives and, as a private firm, avoid the disclosures required of most investors. Almost invisibly, he accumulated a
portfolio that some people familiar with his accounts estimate at as much as $100 billion.
While Hwang's financiers had clues about what Archegos was doing and the trades they had financed, they couldn't see that
he was taking parallel positions at multiple firms, piling more leverage onto the same few stocks, according to people
familiar with the matter.
In the U.S., regulators are already privately dropping hints of new rules to come. Securities and Exchange Commission
officials have signaled to banks that they intend to make trading disclosures from hedge funds a higher priority, while
also finding ways to address risk and leverage.
"Hopefully this will cause the prime brokerages of regulated banking organizations (and their supervisors) to re-assess
their relationships with highly leveraged hedge funds," Sheila Bair, a former chairman of the Federal Deposit Insurance
Corp., wrote on Twitter.
In Europe, the top banking regulator has asked some of the bloc's largest banks for additional information on their
exposure to hedge funds, people familiar with the matter said. While the checks by the European Central Bank on lenders
such as Deutsche Bank AG and BNP Paribas SA are standard practice after such a disruptive event, they underscore
regulators' concern, even as most euro-region banks skirted big losses.
"There is a need to scrutinize the reasons why the banks enabled the fund to leverage up to such an extent," ECB executive
board member Isabel Schnabel said in an interview with Der Spiegel last week. "It is a warning signal that there are
considerable systemic risks that need to be better regulated."
The big news continues to be a bifurcation between the currently unfolding Boom, fueled by
the fire hose of monetary and fiscal stimulus, and the fallout in the long leading forecast
based on the increase in interest rates as a result.
Likbez , April 13, 2021 1:50 pm
Basing your investment decisions on indicators derived from the past is like driving
the car using only rear-view mirror :-). I forgot to whom this quote belongs (buffet?)
but there is some truth to that.
Add to this that government stats are distorted (we can debate how much), especially
unemployment stats (U3 vs. U6 vs. reality). That same is true about inflation. Both are
highly politically charged metrics and as such is subject to political pressures both in
methodology and actual stats collection.
When 10 years treasures yield goes down from 1.7%, when stock market goes up and
inflation is up too, that suggests rising level of fear.
Lemming (aka 401K speculators) are pushed from bonds into riskier assets. We saw
this development before.
It is quite probable that stock market will be lifted further while economy as a whole
deteriorates. Then what?
Nothing will revive business that were closed during pandemic. Situation with the
commercial real estate now is very interesting indeed.
The problem in the US economy are systemic and they can't be patched with stimulus.
Financial oligarchy needs to be tamed. Regulations needs to be restored. And some most
obnoxious players jailed or eliminated by other means. Or, at least, the revolving door
needs to be closed for GS and company. As Jesse put it
"THE BANKS MUST BE RESTRAINED, AND THE FINANCIAL SYSTEM REFORMED, WITH BALANCE
RESTORED TO THE ECONOMY, BEFORE THERE CAN BE ANY SUSTAINABLE RECOVERY."
I think leverage in cryptocurrencies is higher then in other sectors, as this is the most
reckless speculators market by definition, so the collapse is quite possible
Our call of the day from Bank of America narrows down where investors see the most risk
these days. Fingers are pointing at the world's most popular cryptocurrency.
'The ratio has certain limitations in telling you what you need to
know'
Who wouldn't love to replicate the investing success achieved by billionaire Warren Buffett?
This is why investors are drawn to stories about the "Buffett Indicator."
For those catching up, the Buffett Indicator is the value of a country's publicly traded
stocks divided by its gross national product (and
different people have different ways of
accounting for those
inputs ). This ratio first became associated with Buffett in a 2001
interview with Fortune's Carol Loomis where the investor characterized the ratio as
"probably the best single measure of where valuations stand at any given moment."
At the time he noted, the ratio was very high in the late 1990's, portending the dot-com
bubble which eventually burst.
At the 2017 Berkshire Hathaway ( BRK-A , BRK-B ) annual shareholders meeting,
Buffett fielded a question about the Buffett indicator as well as
Robert Shiller's legendary CAPE ratio . He had this to say: "Every number has some degree
of meaning. It means more sometimes than others...And both of the things that you mentioned get
bandied around a lot. It's not that they're unimportant They can be very important. Sometimes
they can be almost totally unimportant. It's just not quite as simple as having one or two
formulas and then saying the market is undervalued or overvalued ." (Emphasis ours.)
Sometimes it is prudent to stop investing for a while.. And what the author calls savers and investors should properly be called speculators. Petty speculators that serve as the feed for Wall Street sharks.
,,,valuations have never been so stretched at the beginning of an economic cycle. Savers need to plan for lower future returns.
S&P Composite 1500, cyclically adjusted price/earnings ratio
Source:
Prof. Robert Shiller
Note:
Economic troughs are defined by the National Bureau of Economic Research:
.
times
MONTHS
SINCE TROUGH
GDP
trough
1990-2001
2001-07
2007-20
2020-Now
-30
0
30
60
90
120
0
5
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10:05 am ET
The S&P Composite 1500 is trading at a CAPE of 37. That is more than twice the historical average, though still less than the
dot-com bubble peak of 44. It reached 33 before the 1929 crash.
Historical data show that negative returns can happen at almost any level of valuation, but that overall there is still an inverse
correlation between CAPE and future 10-year equity returns. Usually, stocks progressively cheapen after economic growth reaches a
peak. Once they hit a bottom, they slowly become expensive again. In the 2009-2020 cycle, for example, CAPE started at 16 and ended
at 31.
Economic data have been phenomenal lately, lifting the U.S. stock market to new highs as
investors celebrate an end in sight to the global nightmare of the past year.
And so it's an awkward time to be a killjoy, even if just hypothetically.
The fiercest debate among market participants this year has revolved around inflation --
will it or won't...
...Part of the runup in stock prices over the past year is due to the rebound in earnings we will see over the next few quarters.
However, now that interest rates, oil prices and the dollar index have each been rising for some time, earnings growth will almost
certainly peak and rollover next year, falling back into negative territory.
As the stock
market discounts fundamentals roughly 18 months into the future, according to Stan Druckenmiller, this bearish reversal in
fundamentals could begin to affect stock prices relatively soon.
Longer-term there is a very real risk to record-high corporate profit margins.
Over
the past decade, corporations have benefitted at the expense of labor to an unprecedented degree. This is already leading to
serious, "political problems," of the sort
predicted
by Warren Buffett
20 years ago. The current administration appears to view rectifying this situation as its primary mandate and
will, apparently, go about fulfilling it by, among other things,
raising corporate income
taxes and boosting a jobs market already showing signs of overheating.
Finally, as
Mehul
Daya
has demonstrated, history shows that rising interest rates regularly act as a bearish catalyst for both markets and the
economy. To the extent that low interest rates and easy money have encouraged and incentivized the unprecedented amount of leverage
supporting risk assets today,
the reversal in rates, which is already more
dramatic than anything we have seen in decades, threatens to reveal just how fragile markets and the economy have now become.
For the rest of the chart book and a more detailed discussion of these issues, check out the
interview, scheduled to be released tomorrow, at
MacroVoices.com
.
That seems to be the mood music at the White House; and the IMF; and the World Bank; and the
Fed, and in fact most central banks. All of them are busy building back better-ly. Ambitious
global tax plans are on the table to wipe tax havens off them; US spending plans are being
pushed; and Treasury Secretary Yellen is talking about "labor vs. capital": perhaps she will
soon add "M > C > MP > C+ > M+" to underline how the economy actually works, which
none of the neoclassical models at the Treasury or the Fed do?
Regardless, US yields are heading lower, the US dollar is heading down, and US stocks are
heading up, in a continuation of their own long-running impossible dream . Let me tell you a
tall tale: perhaps just one man is ultimately responsible for that right now - US Democrat
Senator Joe Manchin. He appears on what some might see as an anti -quixotic quest that may stop
the White House from tilting at any windmills (or solar panels or broader
"infrastructure").
Senator Manchin yesterday reaffirmed via a Washington Post op-ed that he will not back
proposed changes to the Senate filibuster rule (" I have said it before and will say it again
to remove any shred of doubt: There is no circumstance in which I will vote to eliminate or
weaken the filibuste r") or support " shortcutting the legislative process through budget
reconciliation ." Both of those statements, if not negotiating positions, will prove to be
giants obstructing the path of President Biden's domestic agenda. It doesn't mean nothing will
get done – but it means nothing like what some people were recently thinking was going to
get done now will.
If so, as stocks and bonds ebulliently suggest, there is still a white knight to save us,
however : those plodding Sancho Panzas turned would-be dashing Dons, our central banks . It is
they who will continue to chase their own impossible dream of saving the world via yield curve
manipulation and junk asset purchases without lancing price-discovery and capitalism at the
same time. On a related note, Fed Chair Powell spoke yesterday against a backdrop of
supply-chain stresses that mean
Americans can't get ketchup to go with their fries , and explained he isn't worried about
inflation, but infections. As I keep repeating, this stance is only logically consistent if one
really *is* thinking about labour vs. capital: but Fed policy cannot deal with that populist
'red' issue any more than it can with a popular red condiment. It's all fiscal and
political-economy, which seems a dream too far at the moment.
Some might think it remarkable that the fate of the US economy, and hence the world economy,
can really turn on the actions of just one man. Welcome to the absurdity of real life. As
Cervantes noted: "When life itself seems lunatic, who knows where madness lies? Perhaps to be
too practical is madness. To surrender dreams -- this may be madness. Too much sanity may be
madness -- and maddest of all: to see life as it is, and not as it should be!" At least Manchin
was elected. By contrast, who elected central banks? (On which, what happens if the US, or
anywhere, elects an administration which wants to move away from a green economy when their
"independent" central bank has pledged to support the transition towards one? Has anyone
thought about that, or are we all too busy singing from the same hymn sheet to suppose it could
ever happen?)
Interesting combination: Rise of fear in bond market along with rising recklessness in
stoack markets
10-year U.S. Treasury note fall as low as 1.628% for a second straight day as it continues
to back away from a 14-month high of 1.776% hit in late March.
...
The recent pullback in yields has helped high growth names such as those in the technology
sector, the best performing sector on the day, while megacap stocks such as Apple , Microsoft
and Amazon were the biggest boosts to the S&P 500.
The gains have also sent the tech-heavy Nasdaq to a seven-week high and within 2% of its
February 12 record closing high.
The Russell 1000 growth index, which consists of tech-related stocks, gained 1.05%, while
its value counterpart , comprising mostly financials and energy names, slipped 0.11%.
B Bill Hestir SUBSCRIBER 1 day ago Stocks Soar As Bank Aid Ends Fear of Money
Panic
By W. A. Lyon in the New York Herald Tribune on March 28, 1929
The stock market strode out from under the shadow of a panic in call money that so lately
threatened, but was revived in all its old strength yesterday.
Assured that the New York banks were ready with their boundless resources to prevent a
money crisis, the public and the professional trader set out to repair the damage done to
prices on Monday and the major part of Tuesday.
Stocks in the aggregate, though bucking a 15 per cent rate for loans, enjoyed the
greatest advance they have known in a single day in the last two years. Not even the surging
bull markets of the memorable year 1928 saw such a day of heavy buying. Like
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P Peter Hayes SUBSCRIBER 1 day ago This totally looks like 1929 all over again. Maybe we'll
even see "Bidenvilles" popping up at some future date.
[Apr 08, 2021] Financial crises get triggered about every 10 years -- Archegos might be right on time by Paul Brandus Paul Brandus Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Financial crises are never quite the same. During the late 1980s, nearly a third of the nation's savings and loan associations failed, ending with a taxpayer bailout -- in 2021 terms -- of about $265 billion. In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- In 1997-1998, financial crises in Asia and Russia led to the near meltdown of the largest hedge fund in the U.S. -- Long-Term Capital Management (LTCM). Its reach and operating practices were such that Federal Reserve Chairman Alan Greenspan said that when LTCM failed, "he had never seen anything in his lifetime that compared to the terror" he felt. LTCM was deemed "too big to fail," and he engineered a bailout by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data.
Here's the potential danger. Family offices generally aren't regulated. The 1940 Investment Advisers Act says firms with
15 clients or fewer don't have to register with the Securities and Exchange Commission. What this means is that trillions
of dollars are in play and no one can really say who's running the money, what it's invested in, how much leverage is being
used, and what kind of counterparty risk may exist. (Counterparty risk is the probability that one party involved in a
financial transaction could default on a contractual obligation to someone else.)
The problem is that only about a third of that, or $10 billion, was its own money. We now know that Archegos worked with
some of the biggest names on Wall Street, including Credit Suisse Group AG
CS,
+0.74%
,
UBS Group AG
UBS,
-0.18%
,
Goldman Sachs Group Inc.
GS,
+1.41%
,
Morgan Stanley
MS,
+1.47%
,
Deutsche Bank AG
DB,
-0.88%
and Nomura Holdings Inc.
NMR,
-1.30%
.
But since family offices are largely allowed to operate unregulated, who's to say how much money is really involved here
and what the extent of market risk is? My colleague Mark DeCambre reported last week that Archegos' true exposures to bad
trades could actually
be closer to $100 billion
.
Danger of counterparty risk
This is where counterparty risk comes in. As Archegos' bets went south, the above banks -- looking at losses of their own
-- hit the firm with margin calls. Deutsche quickly dumped about $4 billion in holdings, while Goldman and Morgan Stanley
are also said to have unwound their positions, perhaps limiting their downside.
So is this a financial crisis? It doesn't appear to be. Even so, the Securities and Exchange Commission has opened a
preliminary investigation into Archegos and its founder, Bill Hwang.
One peer, Tom Lee, the research chief of Fundstrat Global Advisors, calls Hwang one of the "top 10 of the best
investment minds" he knows.
But federal regulators may have a lesser opinion. In 2012, Hwang's former hedge fund, Tiger Asia Management, pleaded
guilty and paid more than $60 million in penalties after it was accused of trading on illegal tips about Chinese banks. The
SEC banned Hwang from managing money on behalf of clients -- essentially booting him from the hedge fund industry. So Hwang
opened Archegos, and again, family offices aren't generally aren't regulated.
Yellen on the case
This issue is on Treasury Secretary Janet Yellen's radar. She said last week that greater oversight of these private
corners of the financial industry is needed. The Financial Stability Oversight Council (FSOC), which she oversees, has
revived a task force to help agencies better "share data, identify risks and work to strengthen our financial system."
Most financial crises end up with American taxpayers getting stuck with the tab. Gains belong to the risk-takers. But
losses -- they belong to us.
To paraphrase Abe Lincoln, family offices -- a multi-trillion dollar industry largely
allowed to operate in the shadows in a global financial system that is more intertwined than ever -- are of the
super-wealthy, by the super-wealthy and for the super-wealthy. And no one else.
The Archegos collapse may or may not be the beginning of yet another financial crisis. But who's to say what thousands
of other family offices are doing with their trillions, and whether similar problems could blow up?
In 2007, I was at a conference
where Paul McCulley, who was with PIMCO at the time, was discussing the idea of a "Minsky Moment." At that time, this idea
fell on "deaf ears" as the markets, and economy, were in full swing.
However, it wasn't too long
before the 2008 "Financial Crisis" brought the "Minsky Moment" thesis to the forefront. What was revealed, of course, was
the dangers of profligacy which resulted in the triggering of a wave of margin calls, a massive selloff in assets to cover
debts, and higher default rates.
Economist Hyman Minsky argued
that the economic cycle is driven more by surges in the banking system, and in the supply of credit than by the
relationship which is traditionally thought more important, between companies and workers in the labor market.
In other words, during periods
of bullish speculation, if they last long enough, the excesses generated by reckless, speculative, activity will eventually
lead to a crisis. Of course, the longer the speculation occurs, the more severe the crisis will be.
Hyman Minsky argued there is
an inherent instability in financial markets. He postulated that an abnormally long bullish economic growth cycle would
spur an asymmetric rise in market speculation which would eventually result in market instability and collapse. A "Minsky
Moment" crisis follows a prolonged period of bullish speculation which is also associated with high amounts of debt taken
on by both retail and institutional investors.
One way to look at "leverage,"
as it relates to the financial markets, is through "margin debt," and in particular, the level of "free cash" investors
have to deploy. In periods of "high speculation," investors are likely to be levered (borrow money) to invest, which leaves
them with "negative" cash balances.
While margin balances did
decline in 2018, as the markets fell due to the Federal Reserve hiking rates and reducing their balance sheet, it is
notable that current levels of "leverage" are still excessively higher than they were either in 1999, or 2007.
This is also seen by looking
at the S&P 500 versus the growth rate of margin debt.
The mainstream analysis
dismisses margin debt under the assumption that it is the reflection of "bullish attitudes" in the market. Leverage fuels
the market rise. In the early stages of an advance, this is correct. However, in the later stages of an advance, when
bullish optimism and speculative behaviors are at the peaks, leverage has a "dark side" to it. As
I
discussed previously:
"At some point, a reversion
process will take hold. It is when
investor
'psychology
'
collides with 'leverage and the problems associated with market liquidity. It will be the equivalent of striking a
match, lighting a stick of dynamite, and throwing it into a tanker full of gasoline."
That moment is the "Minsky
Moment."
As noted, these reversion of
"bullish excess" are not a new thing. In the book, "
The
Cost of Capitalism,
" Robert Barbera's discussed previous periods in history:
The last five major global
cyclical events were the early 1990s recession -- largely occasioned by the U.S. Savings & Loan crisis, the collapse of
Japan Inc. after the stock market crash of 1990, the Asian crisis of the mid-1990s, the fabulous technology boom/bust
cycle at the turn of the millennium and the unprecedented rise and then collapse for U.S. residential real estate in
2007-2008.
All five episodes delivered
recessions, either global or regional. In no case was there as significant prior acceleration of wages and general
prices. In each case, an investment boom and an associated asset market ran to improbably heights and then collapsed.
From 1945 to 1985 there was no recession caused by the instability of investment prompted by financial speculation -- and
since 1985 there has been no recession that has not been caused by these factors.
Read that last sentence again.
Interestingly, it was
post-1970 the Federal Reserve became active in trying to control interest rates and inflation through monetary policy.
"In the U.S., the Federal Reserve has
been the catalyst behind every preceding financial event since they became 'active,' monetarily policy-wise, in the late
70's. As shown in the chart below, when the Fed has lifted the short-term lending rates to a level higher than the
2-year rate, bad 'stuff' has historically followed."
As noted above, "Minsky
Moment" crises occur because investors, engaging in excessively aggressive speculation, take on additional credit risk
during prosperous times, or bull markets. The longer a bull market lasts, the more investors borrow to try and capitalize
on market moves.
However, it hasn't just been
investors tapping into debt to capitalize on the bull market advance, but corporations have gorged on debt for unproductive
spending, dividend issuance, and share buybacks. As I
noted
in last week's MacroView
:
"Since the economy is driven by
consumption, and theoretically, companies should be taking on debt for productive purposes to meet rising demand,
analyzing corporate debt relative to underlying economic growth gives us a view on leverage levels."
"The problem with debt, of course, is
it is leverage that has to be serviced by underlying cash flows of the business. While asset prices have surged to
historic highs, corporate profits for the entirety of U.S. business have remained flat since 2014. Such doesn't suggest
the addition of leverage is being done to 'grow' profits, but rather to 'sustain' them."
Over the last decade, the
Federal Reserve's ongoing liquidity interventions, zero interest-rates, and maintaining extremely "accommodative" policies,
has led to substantial increases in speculative investment. Such was driven by the belief that if "something breaks," the
Fed will be there to fix to it.
Despite a decade long economic
expansion, record stock market prices, and record low unemployment, the Fed continues to support financial speculation
through ongoing interventions.
John Authers recently penned
an excellent piece on this issue
for
Bloomberg:
"Why does liquidity look quite so
bullish? As ever, we can thank central banks and particularly the Federal Reserve. Twelve months ago, the U.S. central
bank intended to restrict liquidity steadily by shrinking the assets on its balance sheet on "auto-pilot." That changed,
though. It reversed course and then cut rates three times. And most importantly, it started to build its balance sheet
again in an attempt to shore up the repo market -- which banks use to access short-term finance -- when it suddenly froze
up in September. In terms of the increase in U.S. liquidity over 12 months, by CrossBorder's measures, this was the
biggest liquidity boost ever:"
While John believes we are
early in the global liquidity cycle, I personally am not so sure given the magnitude of the increase Central Bank balance
sheets over the last decade.
Currently, global Central Bank
balance sheets have grown from roughly $5 Trillion in 2007, to $21 Trillion currently. In other words, Central Bank balance
sheets are equivalent to the size of the entire U.S. economy.
In 2007, the global stock
market capitalization was $65 Trillion. In 2019, the global stock market capitalization hit $85 Trillion, which was an
increase of $20 Trillion, or roughly equivalent to the expansion of the Central Bank balance sheets.
In the U.S., there has been a
clear correlation between the Fed's balance sheet expansions, and speculative risk-taking in the financial markets.
Is Another Minsky Moment Looming?
The International Monetary
Fund (IMF) has been issuing global warnings of high debt levels and slowing global economic growth, which has the potential
to result in Minsky Moment crises around the globe.
While this has not come to
fruition yet, the warning signs are there. Globally, there is roughly $15 Trillion in negative-yielding debt with asset
prices fundamentally detached for corporate profitability, and excessive valuations on multiple levels.
"How else can one explain that the
risky U.S. leveraged loan market has increased to more than $1.3 trillion and that the size of today's global leveraged
loan market is some two and a half times the size of the U.S. subprime market in 2008? Or how else can one explain that
in 2017 Argentina was able to place a 100-year bond? Or that European high yield borrowers can place their debt at
negative interest rates? Or that as dysfunctional and heavily indebted government as that of Italy can borrow at a lower
interest rate than that of the United States? Or that the government of Greece can borrow at negative interest rates?
These are all clear
indications that speculative excess is present in the markets currently.
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However, there is one other
prime ingredient needed to complete the environment for a "Minsky Moment" to occur.
That ingredient is
complacency.
Yet despite the clearest signs that
global credit has been grossly misallocated and that global credit risk has been seriously mispriced, both markets and
policymakers seem to be remarkably sanguine. It would seem that the furthest thing from their minds is that once again
we could experience a Minsky moment involving a violent repricing of risky assets that could cause real strains in the
financial markets."
Desmond is correct. Currently,
despite record asset prices, leverage, debt, combined with slowing economic growth, the level of complacency is
extraordinarily high. Given that no one currently believes another "credit-related crisis" can occur is what is needed to
allow one to happen.
Professor Minsky taught that
markets have short memories, and that they repeatedly delude themselves into believing that this time will be different.
Sadly, judging by today's market exuberance in the face of mounting economic and political risks, once again, Minsky is
likely to be proved correct.
At this point in the cycle,
the next "Minsky Moment" is inevitable.
All that is missing is the
catalyst to start the ball rolling.
Talk about Minsky moment started in 2017 and as of 2021 the bubble did not burst. Warning
from Keynes to short sellers: Market can stay irrational longer then you can stay solvent.
The mere mention of a "Minsky moment" -- a sudden crash of markets
and economies that are hooked on debt -- is enough to send shudders through policy makers. The
theory stems from the work of Hyman Minsky, a U.S. economist who specialized in how excessive
borrowing fuels financial instability. Record debt levels around the world, coupled with
sky-high financial market valuations, have kept Minsky's theory prominent, drawing warnings
from the International
Monetary Fund and others. Before taking over the U.S. Federal Reserve, Janet Yellen
described his work as "
required reading ." 1. What makes a Minsky moment?
The term refers to the end stage of a prolonged period of economic prosperity that has
encouraged investors to take on excessive risk, to the point where lending exceeds what
borrowers can pay off. At that point, Minsky wrote, there's an increase in "speculative and
Ponzi finance." When a destabilizing event as simple as an increase in interest rates occurs,
investors are forced to sell assets to raise money to repay loans. That in turn sends markets
into a spiral amid a demand for cash. There have been attempts to distinguish between a Minsky
moment and a Minsky process that leads up to it. To continue reading
C
C Cook SUBSCRIBER 1 day ago The unanswered question is not if there are a lot of other
Archegos, no doubt there are. But what are the big banks going to do? When one bank gets burned
and execs fired, other bank execs and investors get nervous. Maybe unwind similar investor
deals. Maybe quickly.
There is never just one rat in the basement...
K Kevin H SUBSCRIBER 1 day ago The argument we hear as every bubble inflates is that "this
time is different". Perhaps the reason each bubble deflates is different, but irrational
investor psychology seems to be the driving force behind each lap on the rollercoaster.
Admittedly, the search for yield of any kind has forced many investors to stay more heavily
in the market than they might otherwise consider doing. While risk free (or close to risk free)
returns are usually at least somewhat uninspiring, they're virtually non-existent right
now.
So, the search for any type of yield could be fueling the market's fire for at least a while
longer. Even with that said, the wildly speculative behavior I'm seeing lately does make me a
bit nervous.
It reminds me of the dot com era, and the housing bubble... both were times when people
repeatedly reassured each other with the thought that "it's different, this time".
J James Webb SUBSCRIBER 1 day ago John, an old market saying I'm sure you're familiar with,
"the market can stay irrational longer than you can stay solvent."
Plus identifying market tops are far more difficult than identifying market bottoms. March
2020 was EASY!
A crash will come. This year? Next year? 5 years from now? 20 years from now?
I've gone through four crashes in my life. 1987, 2001, 2008, 2020. 1974 was also during my
life but way before I even knew what the stock market was.
The 1987 and 2020 were very short lived, deep and scary, but were over very quickly. 2001
and 2008 were scary and felt never ending.
Pick an allocation, rebalance and live life. When a crash comes, BUY!
B BA Byron SUBSCRIBER 1 day ago @ LANCE
Because most people see an insane increases in the market as a wonderful thing, rather than
a worrisome trend. They congratulate themselves for buying high in a bull market and they never
learn from their mistakes - because they refuse to admit they made any. It is always those
greedy "others" who did this to them.
It goes like this:
Bull market = " Buy! I'm a genius! "
Bear market = " Sell! Bad luck! "
Rinse wash repeat.
"Investors should remember that excitement and expenses are their enemies. And if they
insist on trying to time their participation in equities, they should try to be fearful when
others are greedy and greedy when others are fearful. " - Warren Buffett
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C Charles Bromley SUBSCRIBER 16 hours ago The old joke: There are two steps that can be
taken to be absolutely sure of making $1M on Wall Street. First Step......start with $2M......
R Richard Hightower SUBSCRIBER 23 hours ago At some point the revelation will be clear, in
all probability after the fact, that the trade Archegos had on, in one variant or the other, is
the same trade that is on in every corner of the markets, and on a global basis. The "trade" is
simple and works like magic to its practitioners, some of whom are quite unwitting.
The underlying is an asset class steadily rising in price devoid of valuation consideration
, levered by leverage upon leverage, and contingent upon low and lower rates - financing rates,
carrying costs, discount rate assumptions, and market derived interest rates. If rates are low
and lower, bravo. If rates rise, the trade unwinds.
The unwind has already started, slowly at first and then spectacularly.
It will truly be a Minsky Moment, with a Dornbusch footnote. Look it up.
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A Anin Nathan SUBSCRIBER 1 day ago The derivatives, options, swaps, margin investing are
effective instruments to skim the cream and leave the traditional investors to sit on the foam.
You may hate to hear that, but that is how the system works. Like thumb_up 8 Reply
reply Share link Report flag
J John Goldin SUBSCRIBER 1 day ago Interesting how everyone frets about "unsophisticated"
individual investors distorting the market, while so called "sophisticated" investors are the
ones with much higher leverage. Individuals levering up is a risky personal choice.
Multi-billion dollar hedge funds levering up 10x (or more) is a systemic risk.
"... That was up 49% from one year earlier, the fastest annual increase since 2007, during the frothy period before the 2008 financial crisis. Before that, the last time investor borrowings had grown so rapidly was during the dot-com bubble in 1999. ..."
"... Significant increases in value without corresponding increases in earnings is the sign of a bubble. The entire S&P 500 has been significantly overvalued for several years now. The cyclically adjusted PE ratio is several times it's historical mean. Historically markets have ALWAYS reverted back to the mean. ..."
As of late February, investors had borrowed a record $814 billion against their portfolios,
according to data from the Financial Industry Regulatory Authority, Wall Street's
self-regulatory arm. That was up 49% from one year earlier, the fastest annual increase
since 2007, during the frothy period before the 2008 financial crisis. Before that, the last
time investor borrowings had grown so rapidly was during the dot-com bubble in 1999.
... some analysts say
run-ups in margin debt contribute to bubbles, and they fear that today's levels of
borrowing will hurt investors if the market has a downturn.
... Leverage combined with internet hype can be dangerous, the Commodity Futures Trading
Commission said in a notice to investors Tuesday.
...It is unclear how many other investment firms have obtained Archegos-style levels of
leverage. Little disclosure is required in the market for total return swaps, which Wall Street
banks privately tailor for clients.
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P Peter Hayes SUBSCRIBER 8 hours ago (Edited) In the year prior to CoVid the S&P grew
21%, from 2,775 to 3,380, meaning it already factored in robust future growth. It plummeted to
2,305 in March 2020, and has since rebounded to 4,080. Are we saying the economy is 20% better
than it was right before CoVid? Are we kidding ourselves? While things in general are much
better than they were last summer, there are still huge segments of the economy which have been
utterly devastated by the shutdowns, i.e. commercial real estate, tourism, hospitality and
restaurant industries, and countless mom-and-pop businesses. The hot housing market masks the
huge number of mortgages which have been forbeared since April 2020, and will continue so to
the end of this year. There's going to be a day of reckoning for all this, probably sooner than
later. The S&P should probably be in the range of 3,000 right now, not 4,000, meaning it's
at least 33% overvalued. Like thumb_up 1 Reply reply Share
link Report flag
K Kim Jady SUBSCRIBER 9 hours ago Remember the Duke brothers in Trading Places? "Margin
call gentlemen." ike thumb_up 3 Reply reply Share link
Report flag
B Bill Payne SUBSCRIBER 10 hours ago Only one thing gives a stock any value; the underlying
company's ability to generate an income stream into the future. If the price/earnings ratio
increases significantly it means that the stock is increasing in value for some reason other
than earnings. There is no valid reason for the stock price to increase other than through
increased earnings. Significant increases in value without corresponding increases in
earnings is the sign of a bubble. The entire S&P 500 has been significantly overvalued for
several years now. The cyclically adjusted PE ratio is several times it's historical mean.
Historically markets have ALWAYS reverted back to the mean. Even though the Fed has kept
the market artificially propped up there will be a massive correction coming at some time
probably followed by a recession. Historically it has always worked this way. We had better
watch out. It's not only limited to one sector of the market like it was in 1999 or 2008. It's
the entire market.
A ANDREW BLENCOWE SUBSCRIBER 12 hours ago 1927 returns
Benjamin Strong cut the Fed's discount rate 0.5% in 1927
So -- it would appear -- the world is currently two years away from its 1929
Like thumb_up Reply reply Share link Report
flag
K Kamalesh Banerjee SUBSCRIBER 17 hours ago (Edited) The total market capitalization of the
US stock market now is about $41 trillion (that is trillion with a t). Total margin debt of $
814 billion is not a large percentage of the total market cap (under 2%). Thus it is misleading
to say that margin debt is fueling the bull market. Yes, some investors (individuals and hedge
funds) may be over leveraged but the market as a whole is not. Some pockets of the market are
frothy but the market as a whole is not. This is not the roaring 1920s. - yet! Like
thumb_up 2 Reply reply Share link Report
flag
P Paul Smith SUBSCRIBER 9 hours ago (Edited) Interesting! Curious what it was prior to
great depression and great recession, and if similar why was margin blamed, to a great extent,
for great depression? EDIT a quick read indicates in 1928 margin of 2 to 1 was allowed, and
many margin calls wiped people out resulting in a spiralling downward of share prices. So seems
that margin issue perhaps causes an outsize amount of market risk despite it's low overall
percent. Like thumb_up Reply reply Share link Report
flag MARK JURECKI SUBSCRIBER 8 hours ago That's an astute observation. The
potential damage of widespread margin calls is the destruction of the 'buy side' of stock
transactions.
The Great Depression was sometimes described as a failure of the Demand Side. Deflation
causing potential investors to hold onto cash and wait for a better deal. Quashing the market.
R Richard Hightower SUBSCRIBER 23 hours ago At some point the revelation will be clear, in
all probability after the fact, that the trade Archegos had on, in one variant or the other, is
the same trade that is on in every corner of the markets, and on a global basis. The "trade" is
simple and works like magic to its practitioners, some of whom are quite unwitting. The
underlying is an asset class steadily rising in price devoid of valuation consideration ,
levered by leverage upon leverage, and contingent upon low and lower rates - financing rates,
carrying costs, discount rate assumptions, and market derived interest rates. If rates are low
and lower, bravo. If rates rise, the trade unwinds.
The unwind has already started, slowly at first and then spectacularly.
It will truly be a Minsky Moment, with a Dornbusch footnote. Look it up. Like
thumb_up Reply reply Share link Report flag
P PJ L SUBSCRIBER 1 day ago Stocks are up and everyone is buying on margin to get in on the
unprecedented bull market, more millionaires are being created than ever in the entirety of
history.
in the fanatical exuberance disconnected to reality, Every company begins overproducing
goods to fill a demand because look how high the market is! We're in an economic boom, everyone
is going to buy OUR stuff. Make more!
Credit is so cheap, you're missing out if you don't lever up and get in on all this sweet
action...
Sound familiar? Oh wait that's what led to the crash of 1929 and the great depression
thereafter...
As Meme Stock Mania Fizzles, Wall Street Sees 'Big Reckoning'
by
Bailey
Lipschultz
,
4/6/21
The day-trading Reddit crowd turned the first quarter of 2021 into one of the wildest periods of stock market mania in
modern history. Books -- plural -- will undoubtedly be dedicated to the topic in years to come.
But after these small-time speculators banded together to drive up dozens of obscure stocks by hundreds or even thousands
of
percent
--
and in the process burned a few hedge-fund barons betting on declines -- the movement appears to be petering out. An index
that tracks 37 of the most popular meme stocks -- 37 of the 50 that Robinhood Markets banned clients from trading during
the height of the frenzy -- is essentially unchanged over the past two months after soaring nearly 150% in January.
Talk to Wall Street veterans and they'll tell you that this flat-lining is the beginning of what will be an inexorable move
downward in these stocks.
It's not so much about the poor fundamentals of the companies. At least not in the short term. The day-trading zealots have
shown a surprising ability to ignore those facts. It's more that as the pandemic slowly winds down and the economy starts
to open up, many of them will leave their homes and start going back into offices and out to restaurants and embarking on
trips near and far. And as they do, they may stop obsessing about their Robinhood accounts.
Their collective sway on the meme-stock universe, in other words, will wane.
"People are going to be doing other things," said Matt Maley, chief market strategist at Miller Tabak + Co. There will be a
"big reckoning" at some point, he said. "There's no question in my mind."
Of course, the Wall Street set has, broadly speaking, misread the Reddit crowd for weeks earlier this quarter, and it's
possible their analysis is wrong again now. Preliminary data, though, suggests they're right.
Recent reports suggest vaccinated Americans are planning long-awaited vacations with searches for "
Google
flights
" reaching a peak popularity score of 100 this week, according to a Google Trends tracker. The opposite is being
seen for terms like "
stock
trading
" and "
investing
"
which have plunged, Google Trends shows.
"The stimulus check impact on retail trading is waning," said Edward Moya, senior market analyst at Oanda. "Many Americans
are looking to go big on attending sporting events, traveling across the country, vacationing, visiting family and friends,
and revamping wardrobes before going out to restaurants, pubs and returning to the office."
Gamestop Juggernaut
Video-game retailer GameStop Corp. became the poster child for retail traders looking to rage against the hedge fund elite.
However, the stock's
2,460%
roller coaster
alongside other favorites touted on Reddit's WallStreetBets thread caused as much pain as it did joy.
The stock's more than 900% surge this year has drawn a wary eye from the Wall Street analysts that follow it. The average
12-month price target implies the stock will lose more than three-quarters of its value from current levels. Only Jefferies
holds a price target near Thursday's $191.45 close and that call came with the warning that shares are "subject to
volatility beyond fundamentals."
But any sense of GameStop trading on fundamentals has been ignored since it first captivated Wall Street and Reddit users
in the back half of January. Bulls are more than happy to tout their bets on forums as a move to stick it to short sellers
as they buy into a company rebirth delivered by activist investor Ryan Cohen.
Given AMC Entertainment Holdings Inc.'s position as a movie theater many Americans went to at some point, it's not a
complete surprise as to why Reddit users rushed to the company's aide. #SaveAMC trended on Twitter and amateur investors
appeared more than happy to fight against Wall Street's skeptics despite most movie theaters being closed due to the
ongoing pandemic.
The chain's latest rally came amid plans to continue reopening cinemas, however, Wall Street is skeptical. None of the nine
analysts tracking the company rate it a buy and the average price target implies the stock will lose 63% of its value in
the coming year.
Retail euphoria leaked over to a broader range of securities from cult-favorites like Bitcoin, Tesla Inc., and the ARK
Innovation ETF to smaller companies like the clothing retailer Express Inc. Chinese tech company The9 Limited is among the
group's best performers this year with an 860% surge.
Sign me up to receive email newsletters from
Advisor
Perspectives
The company's rally has been fueled by recent moves to ride the Bitcoin wave alongside peers like Future FinTech Group Inc.
and Ault Global Holdings Inc.
Zomedica Corp., a small-cap animal health company, has become a cult favorite among retail investors chasing stocks with
low share prices. The Ann Arbor, Michigan-based company started the year worth less than a quarter, but had soared as high
as $2.91.
Trading volume of the company has accelerated this year with an average of 174 million shares changing hands per session,
more than four times the average over the course of 2020. A mention from Tiger King's Carole Baskin helped it go viral in
mid-January.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com
.
The good news is that you can obtain the historical perspective missing from Billion
Dollar Loser with a reading list that is every bit as much fun . Start with
The Smartest Guys in the Room by Bethany McLean and Peter Elkind, the story of the
Enron con. Then travel back into the Roaring Twenties with Frederick Lewis Allen's description
of Samuel Insull's electrical utility empire in The Lords of Creation , then finish up with Edward Chancellor's nonpareil Devil Take the Hindmost , which describes Neumann's most remote business ancestors,
John Blunt of the South Sea Company and the nineteenth century English railway titan, George
Hudson. Finally, for sheer moral turpitude, nothing beats John Carreyrou's exposition of the
Elizabeth Holmes/Theranos disaster, Bad Blood.
Not only will you be entertained, but the WeWork, Enron, Insull, Hudson, Blunt, and Holmes
narratives will alert you to the signs of impending catastrophe: lofty rhetoric, millennial
predictions, and public adulation that almost inevitably give rise to overweening hubris. With
luck you'll be able to immunize your portfolios against the siren song of the never-ending
parade of entrepreneurial heroes served up by your colleagues, your clients, and a breathless
financial press.
Elon Musk and TSLA, anyone?
William J. Bernstein is a neurologist, co-founder of Efficient Frontier Advisors, an
investment management firm, and has written several titles on finance and economic history. He
has contributed to the peer-reviewed finance literature and has written for several national
publications, including Money Magazine and The Wall Street Journal. He has produced several
finance titles, and four volumes of history, The Birth of Plenty, A Splendid Exchange, Masters
of the Word, and The Delusions of Crowds about, respectively, the economic growth inflection of
the early 19th century, the history of world trade, the effects of access to technology on
human relations and politics, and financial and religious mass manias. He was also the 2017
winner of the James R. Vertin Award from CFA Institute.
We all know
that the economy moves in cycles; boom is followed by bust is followed by boom seemingly forever. A question we'd all like the
answer to is: "Where are we now in the cycle?" Economist Hyman Minsky's "financial instability hypothesis" helps answer this
question.
Classical Economics Assumes the Market is Fundamentally Stable
An assumption
underlying classical economic theory is that the economy is fundamentally stable and seeks equilibrium. The theory holds that
as excesses occur, rational market actors see the excesses and act to make money or avoid losing it, and thereby move the
economy back toward equilibrium.
According to
this theory, bubbles and crashes are caused by external shocks to the economy such as disease, wars, and technological
discoveries. While external shocks, such as the OPEC oil embargo of the 1970s or the current pandemic, certainly have
significant economic effects, they don't adequately explain the sequence of booms and busts that we have seen. The dotcom bust
of 2000 and the financial crisis of 2008 weren't caused by external shocks; they illustrate that the economy is not
fundamentally stable.
Minsky Proposed that the Market is Fundamentally Unstable
Hyman Minsky
was an economist at Washington University in St. Louis from 1965 to 1990. He proposed a theory he labeled the financial
instability hypothesis, which holds that the economy creates its own bubbles and crashes. The gist of his theory is that
stable economies sow the seeds of their own destruction because stability, seeming safe, encourages people to take risks. That
risk-taking creates financial instability that eventually results in panic and crisis.
Unfortunately,
during his lifetime, neither Minsky nor his hypothesis was taken seriously. He died in 1996, before the dotcom bubble and the
Great Recession, both of which gave credence to his ideas. His theory is now accepted as a primary explanation for the
boom-and-bust cycles in the economy.
The financial
instability hypothesis is rooted in swings between excessive risk-taking and the panic that follows when the risk-taking
overheats and the economy collapses. Increased risk in the economy can be seen in the terms on which debt is incurred. Minsky
hypothesized three stages of lending he dubbed hedge, speculative, and Ponzi.
During the
hedge stage, lenders and borrowers are cautious because of the losses they incurred in the prior recession. Borrowers are wary
of leverage, and lenders make loans in modest amounts with stringent credit requirements. During this stage, the amount of
debt in the system is reasonable.
In the
following speculative stage, market participants become more confident of a recovery. Borrowers take on greater amounts of
debt, and the economy begins to boom. Lenders grant credit based on ever-lower standards, assuming that asset prices will
continue to rise. During this stage, borrowers can cover the interest on the loans, but become less able to repay the
principal.
By the final
Ponzi stage, lenders and borrowers have forgotten the lessons of the prior crisis. Everyone is sure that asset prices will
continue to rise, and debt is granted with repayments based on that assumption. The economy becomes over-leveraged; debt and
risk-taking have created a financial house of cards.
Finally, a
"Minsky Moment" -- as the Paul McCulley of PIMCO dubbed it -- occurs. Market insiders take profits, everyone panics, and a crash
ensues before the cycle starts over.
The key insight
of Minsky's model is that stability itself is destabilizing (see figure below) because during times of economic stability,
healthy investments lead to speculative euphoria, increasing financial leverage, and over-extending debt, eventually resulting
in a Minsky Moment, which leads to a recession or even a financial crisis.
Minsky's Cycle of the Economy
IMAGE
SOURCE: THE ST. LOUIS TRUST COMPANY
Paradoxically, Minsky's hypothesis teaches us that the time of greatest investment risk is when everything seems good, and
investing is actually least risky when, as Baron Rothschild once put it, there is "blood in the streets."
How Minsky Can Help Us Be Better Investors
Minsky's
financial instability hypothesis is an essential mental model for us to have in our toolkit. Each cycle has its own
characteristics and length. Euphoria and panic can both last longer than we might expect. And outside shocks such as a
pandemic or geopolitical events can have big effects as well. So, we can't predict with precision when the economy will
transition from one part of the cycle to the next.
But knowing
roughly where we are in the cycle can inform good strategies for investors and business owners. As the economy and markets
move from boom to euphoria, it's essential to have a healthy margin of safety in the form of cash and high-quality bonds.
Smart businesses will increase their cash to shore up liquidity and resist the temptation to take on more debt. Then when the
profit-taking and panic occur, they can redeploy their safety margin into bargain-priced risk assets.
The most
important lesson to take from Minsky's hypothesis is not to get caught up in the fear that comes with the panicky part of the
cycle, or the greed that accompanies the euphoria. While it's not possible to accurately time the tops and bottoms of the
market, knowing roughly where we are in the cycle may help you stick with your investment strategy and avoid following the
herd at full speed into a bust.
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Twitter
or
LinkedIn
.
Check
out
my
website
.
John Jennings
I am the chief strategist and president at
The
St. Louis Trust Company
, a multi-family office and boutique trust company that serves wealthy families across the
U.S.
Roubini said that a climb above 2% for the benchmark 10-year Treasury note
TMUBMUSD10Y,
1.628%
,
which
is used to set rates from everything from mortgages to auto loans, could foster further investor blowups.
Rising yields have propelled investors to sell more speculative wagers because higher yields imply that borrowing costs are also
climbing for investors, making such speculative wagers less economically attractive.
Known as "Dr. Doom" in some circles for his bearish predictions, Roubini has been persistently downbeat on his outlook for markets
and the economy since the pandemic took hold in earnest in the U.S. last year. Last year, he said that the V-shaped bounce "is
becoming a U, and the U could become a W if we don't find a vaccine and don't have enough stimulus."
Like thumb_up 10 Reply reply Share link Report
flag
S Sandeep Jain SUBSCRIBER 1 day ago This article is missing the whale in the stock markets.
Individuals borrowing Billions on margins is insignificant compared to corporations borrowing
in the Trillions. US corporate debt now exceeds $22 Trillion. A significant portion of this
debt is used to buy back stock.
C C Cook SUBSCRIBER 17 hours ago ....inside players can use cheap money from the Fed to
lever up 10, 20 times as Archegos did. Where is the SEC? Where are the banking regulators? Are
those investors/speculators that much smarter than all the Ivy lawyers working in the
government?
The Hedges have paid off the DNC to keep the government at bay and the tax preferences safe.
Look who funded Hillary and Biden campaigns.
One week ago, in our initial take on the biggest hedge fund collapse since LTCM, we explained that - in our view - the
catalyst for the failure of the Archegos hedge fund, which had as much as 10x leverage allowing it to hold some $100BN in
positions, was Morgan Stanley and Goldman breaking ranks with their fellow prime brokers, and sparking the biggest margin call
since Lehman and AIG.
Turns out we were right.
In the most detailed account yet of what happened in the fateful 24 hours between March 25 and 26, when many -
but
not all
- of Archegos' big prime brokers starting dumping blocks of Bill Hwang's margined stock,
CNBC's
Hugh Son
writes that "the night before the Archegos Capital story burst into public view late last month, the fund's
biggest prime broker quietly unloaded some of its risky positions to hedge funds, people with knowledge of the trades told
CNBC."
That prime broker was Morgan Stanley and to avoid what could have been up to $10 billion in losses, the bank sold about $5
billion in shares from Archegos' holdings in media and Chinese tech names to a small group of hedge funds late Thursday, March
25, roughly around the time a last ditch negotiation between prime brokers including Credit Suisse failed to reach a
compromise to avoid a firesale.
Morgan Stanley's scramble to "be first" is a previously unreported detail that shows the extraordinary steps some banks took
to protect themselves from incurring losses from a client's meltdown. The moves, Son reports, benefited Morgan Stanley, while
banks that were slow to react such as Credit Suisse and Nomura have seen billions in losses and widespread C-Suite layoffs.
Credit Suisse said Tuesday that it took a $4.7 billion hit after unwinding losing Archegos positions; the firm also cut its
dividend and halted share buybacks.
It was also not previously known that
Morgan Stanley had the blessing of Archegos
itself to shop around its stock late Thursday.
The bank offered the shares at a discount, telling the hedge funds
that they were part of a margin call that could prevent the collapse of an unnamed client.
Alas, all those hedge funds that bought Archegos holdings late on Thursday are now deep underwater on their positions. That's
because Morgan Stanley had information it didn't share with the stock buyers: as CNBC details, the basket of shares it was
selling, comprised of eight or so names including Baidu and Tencent Music,
was merely
the opening salvo of an unprecedented wave of tens of billions of dollars in sales by Morgan Stanley and other investment
banks starting the very next day.
And now, it is Morgan Stanley's other clients - those who bought the Archegos positions when approched by the mega broker -
that are furious at the bank for having been betrayed and not receiving that crucial context, according to one of the people
familiar with the trades. The hedge funds learned later in press reports that Hwang and his prime brokers convened Thursday
night to attempt an orderly unwind of his positions, a task which we reported last week proved to be impossible especially
once word of the conclave got out.
That means that at least some bankers at Morgan Stanley knew the extent of the selling that was likely and that Hwang's firm
was unlikely to be saved, CNBC's sources claim. And, as we explained one week ago in "
Goldman
And Morgan Stanley Broke Ranks
", it was that knowledge that helped Morgan Stanley and rival Goldman Sachs avoid losses
because the firms quickly disposed of shares tied to Archegos.
Morgan Stanley had another reason why it had to be
first,
smartest or cheat:
it was the biggest holder of the top ten stocks traded by Archegos at the end of 2020 with
about $18 billion in positions overall, its prime broker going crazy in how much leverage it allowed Hwang to put on via Total
Return Swaps. Credit Suisse was the second most exposed with about $10 billion, these sources noted. According to CNBC,
that
means that Morgan Stanley could've faced roughly $10 billion in losses had it not acted quickly.
"I think it was an '
oh shit
' moment where
Morgan was looking at potentially $10 billion in losses on their book alone, and they had to move risk fast,"
the
person with knowledge said. Meanwhile, for those who missed it, this is
how
Credit Suisse lost $4.7 billion
.
And while Goldman's sale of $10.5 billion in Archegos-related stock on Friday, March 26 was widely reported after the bank
blasted emails to a broad list of clients, Morgan Stanley's move the night before went unreported until now because the bank
dealt with fewer than a half-dozen hedge funds, allowing the transactions to remain hidden.
Needless to say, all those hegde funds would like nothing more than inflicting major pain on James Godman's bank, although in
retrospect, their losses are their own fault: the clients which comprise a subgenre of hedge funds dubbed "equity capital
markets strategies," don't have views on the merits of individual stocks.
Instead,
they'll purchase blocks of stock from big prime brokers like Morgan Stanley and others when the discount is deep enough,
usually to unwind the trades over time.
Alas, that deep discount would prove to get much more deep in coming days.
After Morgan Stanley and Goldman sold the first blocks of shares with the consent of Archegos, the floodgates opened. Prime
brokers including Morgan Stanley and Credit Suisse then exercised their rights under default, seizing the firm's collateral
and launching a full blown firesale on Friday as CNBC details:
In a wild session for stocks on that Friday in late March came another twist: Some of the hedge fund investors who had
participated in the Thursday sales also bought more stock from Goldman, which came later to market at prices that were 5%
to 20% below the Morgan Stanley sales.
While these positions were deeply underwater
that day, several names including Baidu and Tencent rebounded, allowing hedge funds to unload positions for a profit.
"It was a gigantic clusterf--- of five different banks trying to unwind billions of
dollars at risk at the same time, not talking to each other, trading at wherever prices were advantageous to themselves,"
one
industry source said.
While Morgan Stanley exited most Archegos positions by Friday, March 26 it had one last holding: 45 million shares of
ViacomCBS, which it shopped to clients on Sunday. The bank's delayed disposal of Viacom shares has sparked questions and
speculation that it held onto the stock because it wanted a secondary offering run by Morgan Stanley the week before to close.
A clusterfuck indeed.
Yet in a repeat Wall Street irony, while many funds are furious at Morgan Stanley they will get over it quick: as CNBC
concludes, despite leaving some of its hedge fund clients feeling less-than-thrilled, Morgan Stanley isn't likely to lose them
over the Archegos episode because the funds want access to shares of hot IPOs that Morgan Stanley, as the top banker to the
U.S. tech industry, can dole out.
In other words, half Boiler Room, half Margin Call.... which is a good excuse as any for us to end with one of the best Wall
Street movie clips in the past decade, one which in 2011 predicted with uncanny accuracy everything that would happen to
Archegos and its prime brokers...
delta0ne
16 hours ago
(Edited)
if
this isn't the most obvious case for Insider Trading to avoid big losses than I don't know what Insider
trading is.
The
difference is some boys are allowed to do it, while the rest aren't.
sabaj49
15 hours ago
all those hedge funds that bought Archegos
holdings late on Thursday are now deep underwater on their positions.
isn't that called insider trading and ripe for lawsuits against the MORGAN STANLEY
should be as they WITHHELD VITAL INFORMATION
hey it's not that big risk - we just need to raise more CASH FOR COLLATERAL
of course we didn't mention other 10 banksters needing to unload same
Paul Bunyan
10 hours ago
Sold
$10B of bad investments hours before the margin call. If that's not an inside track I don't know what is.
Not sure what you do for a living yuri, but it ain't trading.
overbet
13 hours ago
Inside
information has nothing to do with order flow knowledge.
Paul Bunyan
10 hours ago
(Edited)
remove
link
Bro
you think MS figured out what hours before a margin call? Order flow knowledge? Do you think the
traders are rain man? They aren't. They are coked out frat boys trying to get any advantage they can,
and Wall Street leaks like a sieve.
Simple1
13 hours ago
The
bankers are the law, they run the government, the markets and print your money.
2+2 ≠ 5
10 hours ago
Morgan
Stanley did a classic pump n' dump with the hedge fund monies!
JR Wirth
14 hours ago
Morgan
Stanley was smart. The fine will be about 500m, the settlements will be about $ 2 Billion. They saved 7.5
billion that night.
BorisTheBlade
7 hours ago
remove
link
I
wouldn't be surprised if they came up with a similar back-of-the-envelope guesstimate hours prior at the
board meeting.
The Ordinal Numbers
PREMIUM
15 hours ago
And
people wonder why we clap when we hear of bankers jumping from buildings.....
Chipper609
15 hours ago
Much
like a bank run....if there is a line....you're too late.
Stackers
16 hours ago
remove
link
"
They
dont lose money. They dont care if everyone else does, but they dont lose money
"
~Will
Emmerson
jamesblazen62
15 hours ago
A
gigantic cluster**** that sent the market to all-time highs.
Overpowered By Funk
15 hours ago
Serious Alice in Wonderland **** going on these days.
pashley1411
14 hours ago
(Edited)
When
facing 11 digit losses; lawyers are cheap, politicians cheaper.
gunner1867
15 hours ago
(Edited)
Why
would those clients continue to do business with Morgan Stanley. MS had to know it was the beginning of the
selling and not a "clean up" situation. They decided that reputation was less important than money.
beaker
15 hours ago
Hence
the truth in the term, "No honor amongst thieves."
GRDguy
9 hours ago
Sociopathic financiers will gang up when it benefits them, but rip each others' face off when need be. Easy
to do when there's no empath nor conscience. Just be first. The movie Margin Call is classic.
mjl975
12 hours ago
Dear
lord..how can you risk $10 billion on any one customer..let alone one with the history of Hwang/Archegos
spanish inquisition
15 hours ago
remove
link
This was a controlled demolition
.
I am guessing they figured out the scam and that it was going to collapse. All that is left is to create an
official narrative.
It
was also not previously known that
Morgan
Stanley had the blessing of Archegos itself to shop around its stock late Thursday.
anti-bolshevik
15 hours ago
It
was also not previously known that
Morgan
Stanley had the blessing of Archegos itself to shop around its stock late Thursday.
Wait a
minute, and this is the salient point here:
Was
Archegos the Stock Owner or were these Security-based Swaps (SBS) / Total Return Swaps (TRS) with Morgan
Stanley as the Counterparty? Morgan also granted leverage to Archegos??
x_Maurizio
15 hours ago
And
therefore the SP500 soared 130 pts...
tobagocat
4 hours ago
Cracks
are beginning to appear in this fraud we call a financial system. Counterfeiting and rigging are losing
their effect. Illusion soon to turn into reality...look out below
Long
story short, Banks and risk managers learned nothing from the financial crisis ....
Meanwhile the SEC is monitoring reddit and Congress was calling diamond hands to testify cuz wrong folks
made money. House of cards.
Just_Sayin_To_Save_Ya
13 hours ago
(Edited)
SEC is
happily and conviniently turning blind eyes to whole Archegos saga. Archegos was actually created and
sponsored by MS & other criminal banks, is quite obvious. The Archegos entiry is to trade off books and off
market in a black box. Now if you think, FED is doing the same thro these banks and playing in this
markets.
The
problem is, no body can invoke margin call on FED. Not main street, not wall street not precious metals or
commodities or bonds or $. They all are in together to squeeze out little guys and make them work for that
retirement dream :) LOL.
Sound of the Suburbs
5 hours ago
Why is it so easy for bankers to
make lots of money?
Henry
Simons and Irving Fisher supported the Chicago Plan to take away the bankers ability to create money.
"Simons envisioned banks that would have a choice
of two types of holdings: long-term bonds and cash. Simultaneously, they would hold increased reserves, up
to 100%. Simons saw this as beneficial in that its ultimate consequences would be the prevention of
"bank-financed inflation of securities and real estate" through the leveraged creation of secondary forms of
money."
Existing financial assets, e.g.
real estate, stocks and other financial assets, are traded and bank credit is used to fund the transfers.
This inflates the price.
You
end up with a ponzi scheme of inflated asset prices that will collapse and feed back into the financial
system.
At the end of the 1920s, the US
was a ponzi scheme of inflated asset prices.
The
use of neoclassical economics and the belief in free markets, made them think that inflated asset prices
represented real wealth accumulation.
1929 –
Wakey, wakey time
Why did it cause the US
financial system to collapse in 1929?
Bankers get to create money out of nothing, through bank loans, and get to charge interest on it.
Bankers do need to ensure the vast majority of that money gets paid back, and this is where they get into
serious trouble.
Banking requires prudent lending.
If
someone can't repay a loan, they need to repossess that asset and sell it to recoup that money. If they use
bank loans to inflate asset prices they get into a world of trouble when those asset prices collapse.
As the
real estate and stock market collapsed the banks became insolvent as their assets didn't cover their
liabilities.
They
could no longer repossess and sell those assets to cover the outstanding loans and they do need to get most
of the money they lend out back again to balance their books.
The
banks become insolvent and collapsed, along with the US economy.
When banks have been lending to
inflate asset prices the financial system is in a precarious state and can easily collapse.
What was the ponzi scheme of
inflated asset prices that collapsed in Japan in 1991?
Japanese real estate.
They
avoided a Great Depression by saving the banks.
They
killed growth for the next 30 years by leaving the debt in place.
What was the ponzi scheme of
inflated asset prices that collapsed in 2008?
"It's nearly $14 trillion pyramid of super
leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed
throughout the world"
All the Presidents Bankers, Nomi Prins.
They
avoided a Great Depression by saving the banks.
They
left Western economies struggling by leaving the debt in place, just like Japan.
It's
not as bad as Japan as we didn't let asset prices crash in the West, but it is this problem has made our
economies so sluggish since 2008.
The last lamb to the slaughter,
India
They
had created a ponzi scheme of inflated asset prices in real estate, but it collapsed.
The
movie Margin Call is first and foremost the story of what happened in 2008 when investment banks unloaded on
their unsuspecting clients Mortgage Backed Securities they knew had become worthless.
ToSoft4Truth
13 hours ago
The
Big Short (2015) - Brownfield Fund and Scion Capital unload short positions [HD 1080p]
And the CEO who once called for the US to raise taxes on the rich and adopt more explicitly socialist policies to expand access to
higher education, housing and child care, praised the federal government's response to the economic crisis caused by the COVID
pandemic. Consumers who are now flush with savings will help drive an economic boom,
Dimon
wrote in his 34K-word missive.
"I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE, a new potential
infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the US economy will likely boom," Dimon
said.
"This boom could easily run into 2023 because all the spending could extend well into
2023."
"Ascertaining the quality of the government's spending will take years, Dimon said, but he has little doubt that "spent wisely,
it will create more economic opportunity for everyone," he said.
Although equity valuations are already "quite high", Dimon aid a multi-year boom may help to
justify current levels, because markets are pricing in economic growth and excess savings that may soon be poured into the market.
Dimon, who built the biggest and most profitable bank in the US, warned shareholders in his industry that disruption by big tech had
finally arrived, as shadow lenders have gained ground, having the benefit of being unconstrained by strict capital requirements that
have forced big banks to hold more capital in reserve.
"Banks have enormous competitive threats - from virtually every angle,"
Dimon
said.
"Fintech and Big Tech are here big time!"
Echoing Jerome Powell and other senior Fed officials, Dimon offered an oblique reference to "froth and speculation" in the market,
but didn't point to any specific areas he saw as threats. He also offered some thoughts on yields and the inflation outlook that,
unlike comments from Jerome Powell, raised the possibility that the rise in inflation might be more than "transitory."
"Conversely, in this boom scenario it's hard to justify the price of US debt (most people
consider the 10-year bond as the key reference point for US debt),"
Dimon said.
"This is because of two factors: first, the huge supply of debt that needs to be absorbed, and second, the not-unreasonable
possibility that an increase in inflation will not be just temporary."
"We need to properly invest, on an ongoing basis, in modernizing infrastructure,"
Dimon
wrote.
"Virtually everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from highways, ports and
water systems to airport modernization and other projects. One study examined the effect of poor infrastructure on efficiency
(for example, poorly constructed highways, congested airports with antiquated air traffic control systems, aging electrical grids
and old water pipes) and concluded this could all be costing us hundreds of billions of dollars per year."
However, while Dimon said he's bullish about the future of the US, some challenges remain, including our increasingly polarized
society. In closing, he wrote: "While I have a deep and abiding faith in the United States of America and its extraordinary
resiliency and capabilities, we do not have a divine right to success. Our challenges are significant, and we should not assume they
will take care of themselves. Let us all do what we can to strengthen our exceptional union."
jamesblazen62
10 hours ago
remove
link
Dimon knows
massive deficit spending can't and won't continue forever. The short-term earnings benefit is more than offset by
the long-term damage to the nation's balance sheet.
He doesn't
care. Cheerlead the cocaine high and leave the consequences to somebody else.
same2u
10 hours ago
Stock market is the food stamps program and UBI for the rich....
And they had it better than ever before over the past 40 years...
Working is for fools...
Brazillionaire
28 minutes ago
Our leaders should be selected from an acceptable pool of globalist elite, that's all. Hard to understand
why the proles would see the need to question that. Seems easy enough to understand. <s>
GreatUncle
32 minutes ago
He does say it eloquently ...
Although
equity valuations are already "quite high"
Just means more 0's added to the number keep 'em coming now where is my stimmy check because I want to see
the more 0's added to that too.
Then he says populism on the left or right should not be allowed to drive policy ... in other words left and
right ...
"you ain't getting what you want so screw you."
Lordflin
10 hours ago
How
these demonic creatures can talk about an economic boom on one hand, and continuing lock downs of the
economy with the other is a marvel...
They
really believe they control the narrative with their media and their celebrity...
Sadly,
in some parts of the country they still do...
In
others the anger is building to an explosive level...
gatorengineer
10 hours ago
I
don't see any anger just sorrow and misery here in pa
Rise Of The Machines
9 hours ago
Take
the FED away and show me the boom!
yogibear
9 hours ago
Dimon
is a bankster/crook, why believe anything he says?
artless
1 hour ago
Well as much as I despise Dimon as a criminal he is the smartest bankster out there and he does tend to
get some things correct like the idea that there will be a boom and it will last until 2023 or so. That
is very likely. Of course the comedown from that high will probably be extraordinarily horrible but...as
the say hedge accordingly.
No
way they will let the thing crash just too soon. Gotta cement the new regime and make the sheeple think
all is going well and that THIS time the folks in charge REALLY care about them and are working in there
interests. There is still a ton of wealth to be extracted from the country-trillions of dollars yet and
these parasites are not going to end their program just yet and miss out on that. I mean, what's M1 these
days again? We are in full fledged LaLa land.
You
have to read all of it and parse out the stuff that indicates his and the rest of the bankster crowd's
intentions then work off that.
But
otherwise, yes, Jamie Dimon should be strung up from the street posts.
FiscalBatman
1 hour ago
Of course the economy will "expand" through 2023. They did everlasting damage with the lockdowns. It
has nowhere to go but up, for now. Until it implodes.
Peak Finance
2 hours ago
remove
link
Didn't
even read his non-sense
remember this guy would literally be a dour-faced walmart greeter if not for the bailouts
this
"master of the universe" has no clothes and clay feet
OldNewB
1 hour ago
Give a
man a gun and he can rob a bank.
Give a
man a bank and he can rob the world.
MommickedDingbatter
1 hour ago
Fed
member bank( JPM for one) gets money for next to nil at a key stroke, loans out said money to XYZ small
bank. As an asset, now loans out said money to hedge fund FUD. As another asset, lends again to 3rd world
country in a derivative contract. Meanwhile, flipping it over in an overnight swap. How this hasn't exploded
is beyond comprehension.
LJC
9 hours ago
"And
then finally, when there's nothing left, when you
can't
borrow
another buck from the bank or buy another case of booze, you bust the joint out. You
light
a
match"
Goodfellas
Bdubs
9 hours ago
I'm
with you... at least in feudal societies, the landed aristocracy has skin in the game, will saddle up and
lead their regiment into the fray.
Dimon
and ilk have an air of vulture.
efrustrated
2 hours ago
Dear
Mr. Dimon,
You
are the living embodiment of everything that has gone wrong with the American economy.
Yours,
The
rest of the world.
Drink Feck Arse Girls @ edifice
1 hour ago
"
China's
leaders believe America is in decline..."
China's leaders might be correct.
2banana
10 hours ago
remove
link
So the
$1 Trillion in obama "shovel ready jobs" was a sham? Who knew?
"We
need to properly invest, on an ongoing basis, in modernizing infrastructure," Dimon wrote. "Virtually
everyone agrees that we have done a woefully inadequate job investing in our infrastructure – from
highways, ports and water systems to airport modernization and other projects.
Be of Good Cheer
10 hours ago
Who is
the "everyone"? Who decided that our infrastructure needed more money? This sounds like COVID rationalizing
all over again. I think our roads and bridges are fine enough, at least the ones I travel. Stop spending.
Buzz-Kill
9 hours ago
Infrastructure Con Job: Only 10% of Bidens stimulus will go into this category.
The
other 90% goes into Green New Deal & Reparations Projects.
But, don't tell anyone the truth about the new scam.
Globalistsaretrash
53 minutes ago
remove
link
America is in decline due to people like Dimon
.
PGR88
1 hour ago
Dimon
says that America's oligarchs and politicians are to blame for intense polarization - with no sense of irony
whatsoever.
MontCar
PREMIUM
1 hour ago
While
the music's playing ya gotta get up n dance. When it stops, turn out the lights.
yerfej
2 hours ago
A
society cannot succeed when it doesn't enforce the rules on half the people because of some level of wealth
or cult affiliation. People who visit the US are astonished at the number of brain dead idioyts wandering
around, they should be in zoo's. Although its as bad in France. When society hands out unlimited free
shyyyit with nothing asked in return it gets the quality of fhreaks the US now produces.
Zeus123
9 hours ago
Is
this Jamie Dude HIGH?
ChromeRobot
9 hours ago
High on himself. He'll do whatever is necessary to make money for his sleazeball bank.
toady
1 hour ago
"We need to properly invest, on
an ongoing basis, in modernizing infrastructure,"
Dimon wrote.
The
first thing that needs to happen is the definition of "infrastructure"... Dimon goes on and on about planes,
trains, and automobiles, while Bribe'm's "infrastructure" bill plows trillions into his cronies pockets,
then throws 10 or 20 billion at "racist highways".
se48s2t8sn
1 hour ago
Jamie
Dimon doesn't understand how hated he is.
t0mmyBerg
1 hour ago
Dimon
supports the same policies that have killed America. Trading with China ==> the hollowing out of the
economy, massive financialization of the economy ==> unproductive debt, skewing of law favoring big
business over small
ThomasJefferson69
2 hours ago
States
"excess savings" and then "
30%
of Americans don't have enough savings
to deal with unexpected expenses that total as little as $400"
This dumbass can't remember the lies he starts with.
onemorething
2 hours ago
(Edited)
JPMorgan's Dimon Admits "
Something
Has Gone Terribly Wrong
" In America...
some people stole something
John
Pierpont Morgan has been dead for 108 years but he still keeps ******* us over.
Jamie
Dimon saying
Something Has Gone Terribly Wrong,
is
like Captain Renault decrying gambling in Casablanca.
(((here are your winnings, sir)))
Francis Uwood
2 hours ago
How
about a wealth tax on people like Dimon and Bezos. They are all for increasing taxes but their wealth is
not based on their salaries. How about a wealth tax on their assets.
JoePesci
2 hours ago
(Edited)
****
yeah, I'm thinking 95% on everything above $1Billion dollars. Nobody is worth more than that. You get a
billion dollars you can use your time to do things other than accumulate wealth, which at that point you
will only continue to do so at the destruction of everyone else.
ChromeRobot
9 hours ago
remove
link
Jamie
D comes on tv and smiles I reach back to make sure I still have my wallet. It's a reflex.
Machido
32 minutes ago
(Edited)
35 K
words. Another 'Das Kapital'
These
guys manipulated markets to get where they are, Now they are all invoking socialism/communism so they can
take charge of looting whats left.
shepnkc
PREMIUM
1 hour ago
remove
link
Always trying to pump the markets....probably hasn't gotten all his shorts in place yet....
Evil-Edward-Hyde
2 hours ago
Dimon
says somethings wrong in the USA
I
don't think the Mega Banks like Chase Bank had anything to do with that 😂
Look
in the Mirror Mr Dimon .
radical-extremist
2 hours ago
Jamie
Dimon has as much authority to weigh in on the Socio-political issues of our time as does the CEO of Coke or
Delta Airlines or MLB. Stay in your lane banker boy.
Verrick
2 hours ago
Although equity valuations
are already "quite high", Dimon aid a multi-year boom may help to justify current levels, because markets
are pricing in economic growth and excess savings that may soon be poured into the market.
"Quite
high" phhh. You sir, are quite high
mickeydouglas
2 hours ago
Jamie
Dimon was the butt boy of Sandy Weill, the man who destroyed the US economy so he could acquire Citigroup.
Herdee
5 hours ago
(Edited)
remove
link
This
guy is nothing but a f * c king crook and a gangster. They just paid a fine of a BILLION dollars for
manipulating the Gold Market. And they even give time for this shyster to even speak?
jamesblazen62
10 hours ago
remove
link
Dimon
is in greed's grasp and he can't escape. He's had 2 brushes with death (cancer and emergency heart
surgery). You'd think a billionaire with more money than he can ever need or want has something better to
do in his life than conniving for more money and playing big corporate games of manipulation and deceit.
Evil-Edward-Hyde
50 minutes ago
J P
Morgan is a crime Syndicate.
They
constantly Break the Laws.
No
Problem for Them,
They
Just Pay The Fines.
Their
secret is they make much much more money on the scam did they have to pay in fines.
FiscalBatman
1 hour ago
remove
link
It's
amazing how out of touch these guys are. They just don't get it. Dimon will be swaying back and forth with
the rest of them at this rate
newworldorder
1 hour ago
(Edited)
The US
Political class is not investing Govt funds, to bolster America and Americans, - the are however investing
in WOKEISM, EQUITY AND DIVERSITY, based on skill color, gender and sexual orientation.
Truce
1 hour ago
remove
link
Rich
man tells nation: if you all work together really well you can make me richer.
Tomdelay
1 hour ago
'And, I've been a big supporter of all the radical Lefties in the Dem party. My tribe contributes 50% of
the annual budget of the DNC & me & my banking Zionists at the Fed have been steadily undermining the USA
for over 100 years. So if you believe a word of the BS I just laid on you, then you haven't been paying
attention and deserve the servitude or death that awaits you.'
Rubicon727
2 hours ago
The
monster problem in the US is: people like Dimon, and all the other ultra-rich-multi-billionaires who have
absolute power. THEY ARE THE PROBLEM and have been since the early 1990s.
Leroy Whitby
2 hours ago
(Edited)
Biden's infrastructure plan is a tax hike plus
USD
180bln for research and development (ONE HUNDRED EIGHTY BILLION fluffy accounting Bull$#!+)
USD
85bln for public transit (probably Bull$#!+)
USD
80bln for Amtrak and freight rail (Bull$#!+ and Berkshire Hathaway)
USD
174bln to encourage EVs via tax credits and other incentives to companies that make EV batteries in the
US instead of China (ONE HUNDRED SEVENTY FOUR BILLION pretend to compete with China while taking their
bribes Bull$#!+)
USD
100bln for broadband (tech sector Bull$#!+)
USD
300bln to promote advanced manufacturing (THREE HUNDRED BILLION Elon Musk type with a dash of hypocrisy
Bull$#!+)
USD
400bln spending on in-home care (FOUR HUNDRED BILLION socialist wet fantasy level Bull$#!+)
USD
46bln in fed procurement programs for government agencies to buy fleets of EVs (environmental crazy type
Bull$#!+)
USD
35bln in R&D programs for cutting-edge, new technologies (Elon Musk squared level Bull$#!+)
USD
50bln in dedicated investments to improve infrastructure resilience (probably Bull$#!+)
USD
16bln program intended to help fossil fuel workers transition to new work (Bull$#!+ from the government
teat)
USD
10bln for a new "Civilian Climate Corps." (stinking piles of utter Bull$#!+)
Anything left for roads and bridges and airports after the ONE TRILLION spent on home care, EV's, and
research?
Bay of Pigs
9 hours ago
Legs
Dimon has always been a serial liar.
He's
incapable of being honest.
One Moment Please
9 hours ago
My
neighbors and I are not experiencing any of this 'economic boom' he speaks of.
Maybe
we abide in some mysterious economic dead zone?
Mr..Lucky
10 hours ago
"Stock
prices have reached what looks like a permanently high plateau," Yale economist Irving Fisher.
"... Lasser said that equates to approximately 59 square feet of shopping center space per U.S. household, less than 62 square feet in 2010. That number is expected to plunge by 2026 as online shopping dominates. ..."
"... UBS estimates 9% of all retail stores will shutter operations by 2026, or about 80,000 retail stores. ..."
"... The bankster crash took tons of auto dealerships with it too. Very little is rising to replace any of it, unless it can be tied to an overpriced underdelivering data-mined subscription. ..."
The retail apocalypse has been well documented for readers (see:
here &
here &
here ) over the years as tens of thousands of brick and mortar stores nationwide have shuttered their doors. The problem today
- is that millions of jobs lost during the pandemic are never coming back - in a consumer-based economy - this sets up for even more
store closures.
UBS analyst Michael Lasser told clients this week that a whopping 80,000 retail stores are estimated to close in the next five
years as the virus pandemic has deeply scarred the economy and resulted in a permanent shift in how consumers shop, that is, online
.
"An enduring legacy of the pandemic is that online penetration rose sharply ," wrote Lasser.
"We expect that it will continue to increase, which will drive further rationalization of retail stores , especially as some
of the unique support measures from the government subside," he said.
UBS found at the end of 2020, there were 115,000 shopping malls, compared with 112,000 in 2010 and 90,000 in 2000.
Lasser said that equates to approximately 59 square feet of shopping center space per U.S. household, less than 62 square feet
in 2010. That number is expected to plunge by 2026 as online shopping dominates.
UBS estimates 9% of all retail stores will shutter operations by 2026, or about 80,000 retail stores.
Lasser assumes during this period that e-commerce sales will jump to 27% of total retail sales by then, up from 18% today.
UBS said many retail stores have been on life support following cheap government loans and a supercharged consumer via
stimulus checks . The short-term artificial boost will be short-lived, which will lead to even more store closures.
Many of the closures will be retailers who sell clothing and accessories. UBS believes 21,000 closures from this industry will
be by 2026. Office supplies and sporting goods businesses are other retailers that will be hit hard.
The good news is that auto parts, home improvement, and grocery retailing will be less susceptible to the retail apocalypse.
However, there is more bad news. The labor market recovery is not robust. The economy is still short 8 million jobs and 19 million
people are collecting some form of unemployment insurance . This is a large swath of the population who have fallen into financial
hardships and are increasingly unlikely to return to their jobs (and thus, absent UBI, in a vicious cycle can no longer spend like
pre-COVID times). play_arrow
RKDS 38 minutes ago (Edited)
Not surprising. The feeling I've been getting more and more is that civilization is receding. My town had a KMart for most,
if not all, of my life. After the Jamesway next town over closed, decades ago, it was the only general merchandise store for 20
miles in either direction. Now it's gone. Schools, grocery stores, power plants, gas stations, you name it, it's closing.
So many stores I used to shop in are gone, general and specialty. The toy stores are all gone. Best Buy is the last (lousy)
electronics retailer standing.
Books, forget about it, may as well go to the library. Art/craft stores are mostly gone except
I guess Michaels which was always the weakest selection.
Want to rent a movie? Too bad. Almost as hard to go watch a movie with
so many theatres having gone under even before the plandemic. Put together a computer or buy software? You're joking, right?
When
that WSB bubble bursts, GameStop will be a dead man walking.
Sears and JCP locations sit idle everywhere. Not even sure where
I'd buy shoes/sneakers if I had to go to a store. The bankster crash took tons of auto dealerships with it too. Very little is
rising to replace any of it, unless it can be tied to an overpriced underdelivering data-mined subscription.
I used to have to order specialty items online. Now it's like everything is online or bust. Even Target and Walmart don't bother
to stock their shelves most of the time. Then we've got that clown of a postmaster general going "herp derp I's gon' raise da'
prices cuz I's don't gots no udder ideas!1" Everything in this country is engineered to maximize problems for working people.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying
by systematic strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth
peaks over the next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Nothing has been able to shake the new bull market in recent weeks -- not a still elevated 10-year Treasury yield or
threats of higher taxes on the wealthy and corporations by the Biden administration.
But the one thing that has powered the S&P 500 beyond a record 4,000 -- data that indicates a strong post COVID-19
economic
recovery is rapidly building -- may turn out to ruin the rally. And it could play out within three months, warns widely followed
Deutsche Bank Chief Strategist Binky Chadha.
"Very near term, we expect equities to continue to be well supported by the acceleration in macro growth, and see buying by systematic
strategies and buybacks driving a grind higher. But we expect a significant consolidation (-6% to -10%) as growth peaks over the
next three months," Chadha wrote in a new research note on Tuesday.
Chadha calls out peaking ISM data -- which has been coming in hot of late -- as the potential trigger point for a steep market
pullback.
"Our house economics forecast implies a flattening out of the ISMs at elevated levels beginning in Q2 (64) and continuing into
Q3 (63). There are a number of considerations though that suggest the monthly ISMs peak more sharply over the next three months and
slow in keeping with the historical inverted-V shaped pattern. We look for discretionary investor equity positioning to be pared
with a peak in the ISMs and do not expect retail to buy the dip. We then see equities rallying back as our baseline remains for strong
growth but only a gradual and modest rise in inflation," explains Chadha.
Thus far, investors are hardly positioned for any sizable spring/early summer swoon in stocks -- with good reason as the economic
data has been impressive.
The
U.S. economy created 916,000 jobs in March , the Bureau of Labor Statistics reported last week. That crushed Wall Street estimates
for a 660,000 increase. The gain has some economic forecasters telling
Yahoo Finance Live the economy could be on the verge of creating a million jobs a month very soon.
Meanwhile, data from
IHS Markit
and the
Institute for Supply Management on activity in the services sector on Monday blew the doors off analyst estimates as the ISM's
activity index surged to a record high, as Yahoo Finance's Myles Udland wrote in the
Morning Brief
newsletter. IHS Markit's reading was the best in seven years, noted Udland.
And last but not least,
corporate profit estimates for the first quarter have continued to trend noticeably higher amid the acceleration in economic
data.
But if economic data moderates as Chadha expects, the stock market could lose a key catalyst. That's not lost by Chadha's peers
on Wall Street.
"Our view coming into 2021 was that earnings will drive markets higher and valuations will take a backseat, and actually be flat
to down for the year. But the good news is actually starting to get priced in here, and we think it's going to become more challenging
for investors and trickier," said Saira Malik, global equities chief investment officer and global portfolio manager at Nuveen...
House prices are seriously insane. Even my kind of crappy little place went up $85k on
zillow in the last two months!
The only people I see buying are people from out of state (mostly Calif, NY and
Oregon---unfortunately) and local government employees who never missed a paycheck during this
entire ****show.
The people selling are private sector economic losers who are down sizing. Even the Family
Doc down the street is selling his business is so slow because people are afraid to sit in an
office+insurance reimbursements are down.
The entire USA economy is now more topsy turvey then ever in my life time.
The International Monetary Fund upgraded its global economic growth forecast for the second
time in three months, while warning about widening inequality and a divergence between advanced
and lesser-developed economies.
The global economy will expand 6% this year, up from the 5.5% pace estimated in January, the
IMF said in its World Economic Outlook published on Tuesday. That would be the most in four
decades of data, coming after a 3.3% contraction last year that was the worst peacetime decline
since the Great Depression.
[Apr 05, 2021] Financial crises get triggered about every 10 years -- Archegos might be right on time by 14 major U.S. financial institutions. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. Exactly a decade later, too much leverage by some of those very institutions, and the bursting of a U.S. real estate bubble, led to the near collapse of the U.S. financial system. Once again, big banks were deemed too big to fail and taxpayers came to the rescue. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. The trend? Every 10 years or so, and they all look different. Are we in the early stages of a new crisis now, with the blowup at the family office Archegos Capital Management LP? A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data. A family office, for the uninitiated, is a private wealth management vehicle for the ultra-wealthy. Here's what I mean by ultra-wealthy: Consulting firm EY estimates there are some 10,000 family offices globally, but manage, says a separate estimate by market research firm Campden Research, nearly $6 trillion. That $6 trillion is likely far higher now given that it's based on 2019 data.
Here's the potential danger. Family offices generally aren't regulated. The 1940 Investment Advisers Act says firms with 15
clients or fewer don't have to register with the Securities and Exchange Commission. What this means is that trillions of dollars
are in play and no one can really say who's running the money, what it's invested in, how much leverage is being used, and what
kind of counterparty risk may exist. (Counterparty risk is the probability that one party involved in a financial transaction
could default on a contractual obligation to someone else.)
The problem is that only about a third of that, or $10 billion, was its own money. We now know that Archegos worked with some
of the biggest names on Wall Street, including Credit Suisse Group AG
CS,
+1.59%
,
UBS Group AG
UBS,
+1.01%
,
Goldman Sachs Group Inc.
GS,
-1.25%
,
Morgan Stanley
MS,
-0.28%
,
Deutsche Bank AG
DB,
+0.74%
and Nomura Holdings Inc.
NMR,
+1.87%
.
But since family offices are largely allowed to operate unregulated, who's to say how much money is really involved here and
what the extent of market risk is? My colleague Mark DeCambre reported last week that Archegos' true exposures to bad trades
could actually
be closer to $100 billion
.
Danger of counterparty risk
This is where counterparty risk comes in. As Archegos' bets went south, the above banks -- looking at losses of their own -- hit
the firm with margin calls. Deutsche quickly dumped about $4 billion in holdings, while Goldman and Morgan Stanley are also said
to have unwound their positions, perhaps limiting their downside.
So is this a financial crisis? It doesn't appear to be. Even so, the Securities and Exchange Commission has opened a
preliminary investigation into Archegos and its founder, Bill Hwang.
One peer, Tom Lee, the research chief of Fundstrat Global Advisors, calls Hwang one of the "top 10 of the best investment
minds" he knows.
But federal regulators may have a lesser opinion. In 2012, Hwang's former hedge fund, Tiger Asia Management, pleaded guilty
and paid more than $60 million in penalties after it was accused of trading on illegal tips about Chinese banks. The SEC banned
Hwang from managing money on behalf of clients -- essentially booting him from the hedge fund industry. So Hwang opened Archegos,
and again, family offices aren't generally aren't regulated.
Yellen on the case
This issue is on Treasury Secretary Janet Yellen's radar. She said last week that greater oversight of these private corners
of the financial industry is needed. The Financial Stability Oversight Council (FSOC), which she oversees, has revived a task
force to help agencies better "share data, identify risks and work to strengthen our financial system."
Most financial crises end up with American taxpayers getting stuck with the tab. Gains belong to the risk-takers. But losses --
they belong to us. To paraphrase Abe Lincoln, family offices -- a multi-trillion dollar industry largely allowed to operate in the
shadows in a global financial system that is more intertwined than ever -- are of the super-wealthy, by the super-wealthy and for
the super-wealthy. And no one else.
The Archegos collapse may or may not be the beginning of yet another financial crisis. But who's to say what thousands of
other family offices are doing with their trillions, and whether similar problems could blow up?
M Michael OFarrell SUBSCRIBER 3 hours ago Biden, or whoever is actually in charge, is
giving this country away. It will the younger generation that will pay the price. Like
thumb_up 6 Reply reply Share link Report
flag
M Mark A. Rosasco SUBSCRIBER 3 hours ago "A whole generation with a new explanation" ,
history definitely rhymes.
According to John Kenneth Galbraith, financial memory is usually about 20 years, then
lessons need to be re-leaned the hard way, either with financial euphoria or I would say with
tax polices that promote economic growth.
J John Augsbury SUBSCRIBER 4 hours ago It is regrettable that Biden has done less than
nothing to bring the country together. Biden has allowed Nancy Pelosi and Chuck Schumer to set
their own agendas and leadership seems to come from back rooms. Main Stream Media provide
nothing but a cheer leading section or cover for the illegal immigration crisis. Like
thumb_up Reply reply Share link Report flag
S Sharif Ahmed SUBSCRIBER 4 hours ago "he doesn't have a mandate .... no, he doesn't have a
mandate... no mandate....no..," the conservative muttered as he stared blankly at the asylum
walls.
Another 'no mandate' article from the people who continue to disregard a 7 million vote
thrashing. We'll be forced to read these for years to come I guess.
Like thumb_up 3 Reply reply Share link Report
flag Andrew Colin SUBSCRIBER 4 hours ago When they decided to count those *7
million at 4am is when things get sticky Sharif.
Sadly these fringe ideas this joke of a president is pushing will never be mainstream, no
matter how many times the media tells us that they are.
D Daniel Altorfer SUBSCRIBER 3 hours ago Biden has been a life long salaried public tax
absorber for 50 years with nothing to show for it. Maybe your vote is the real comedy here.
Like thumb_up 12 Reply reply Share link Report
flag John Briscoe SUBSCRIBER 4 hours ago This whole piece is an admission
that Republicans have lost any credibility with US Citizens aged less than 60 years. Like
thumb_up 7 Reply reply Share link Report
flag
D Daniel Whitworth SUBSCRIBER 4 hours ago I am under 60 years old and am now a Republican;
formerly a Democrat. I challenge your assessment.
Like thumb_up 19 Reply reply Share link Report
flag Andrew Colin SUBSCRIBER 4 hours ago Former Dem, under 40, now a Repub,
will never vote Dem again after the handling of COVID-19 and the woke mob.
In fairness I don't typically side with Facebook and corporate America on fringe ideas, but
rather actual progressive ideas.
You couldnt be more wrong in your assessment. The Dem party is a collection of underemployed
social media addicts that are typically obese and unhappy... if we want to be accurate. Like
thumb_up Reply reply Share link Report flag
C C F ETTER SUBSCRIBER 4 hours ago
The Bolsheviks, a tiny but ferociously focused minority, proceeded in this way in 1917.
Those who don't know their history are doomed to repeat it. Like thumb_up
14 Reply reply Share link Report flag
J JOHN OWEN SUBSCRIBER 4 hours ago The Bolsheviks led to the rise of Stalin. Like
thumb_up 13 Reply reply Share link Report
flag
M Mary Rhee SUBSCRIBER 5 hours ago I just finished reading "I chose Freedom," by Victor
Kravchenko, published in 1946. He writes about his eventual repudiation of the Communist system
and his escape to the west. Like so many young idealists, he was an ardent believer in the
teachings of Lenin, Marx, and Stalin--until he saw the evils of collectivization and the
subsequent starvation of the peasants, the lying of the press, and the State's justification of
brutality and often murder for "the higher good." In our country today, some of these same
tactics are being implemented. True, they are being implemented on a lesser scale than Victor
Kravchenko experienced, but the seeds of totalitarianism are being groomed, fostered, and even
praised by today's extreme Left. We need to stop this brainwashing. Granted, the extreme Right
has its flaws, too, but they don't control the press, universities, or Silicon Valley. Both
parties need to dump their extremists so that we can get our country back. Like thumb_up
3 Reply reply Share link Report flag
C C F ETTER SUBSCRIBER 4 hours ago It wasn't stolen. It was manipulated. Manipulated by the
press, by social media, the FDA, the FBI and our intelligence 'professionals' of the past and
present and Covid was the blessing bequeathed upon the Democratic Party by the Chinese
communists.
S Susan Lynch-Smith SUBSCRIBER 4 hours ago Also, news media with their selective coverings,
especially with Hunter Biden and Biden himself, of whom is an idiot. But wait, we the people
are the idiots as it is a runaway train now with you do not speak out unless it is for the
administration and the left-wing ideologies.
David Zeiler's
post
("How
We Know Stock Market Crash Is Coming") was one of several crash predictions in the first quarter of 2021. And yet, the first day of
the second quarter ended with the S&P 500 breaking through 4,000 to close at an all-time high of 4,019.87. Rounding up, that's four
thousand twenty reasons to ignore
permabears
.
It's one thing to hedge against downside risk - we've been big advocates of that (more on that below) - but betting on a collapse
because you're negative about politics or the government is a recipe for losing money.
There were certainly reasons to be cautious at the end of last year - there always are. But if you bet against the market and the
dollar and bet on gold then, you've taken L's on all three since.
The Markets Versus The Real World
Markets impact the real world and vice-versa. George Soros spends lots of words explaining this under his theory of "
reflexivity
",
but it's easier to explain with a couple of examples. The real world impacting the market is an easy one: Russia invaded Finland in
1939, and Finish bonds tanked. But markets impact the real world too. A recent example was the WallStreetBets crowd bidding up the
price of AMC shares. That enabled AMC to float a secondary offering, raising money to keep the theater chain in business. Thanks to
a bunch of Robinhood traders, movie theaters stayed open in the real world.
Although markets and the real world impact each other to some extent, markets are not the real world. A lot of negative things that
happen in the real world have no impact on the market, and vice-versa. For example, we've written recently about the
anarcho-tyranny
in
America's cities, and how depraved teens
murdered
an
immigrant working a sub-minimum wage in our capital. Terrible stuff, but it has no impact on the stock market, and another new high
in the S&P 500 won't impact it either.
Japan As Another Example
Japan offers another example of the distinction between markets and the real world. In February, the Nikkei 225, Japan's main stock
index, crossed above the 30,000 level for
the
first time
since 1990. For thirty years, Japanese stocks went nowhere, but that doesn't mean Japan went nowhere. They kept
improving their enviable country. Compare, for instance, their bullet train network in 1990...
To their network in 2020.
Lost in translation
10 hours ago
Stop
investing; instead, cash out, go Galt.
Stop
supporting a system that hates you and wants you dead.
Orlov
warned us ...
philipat
5 hours ago
I
really like Orlov, he makes some very smart observations. One of his most brilliant I thought was to point
out that "
A large part of the US economy depends on selling over-priced services to ourselves, which
ultimately doesn't amount to much
". How very true..
philipat
13 hours ago
2020 GAAP Earnings have a forward P/E of 40X. That's unprecedented and absurd, especially since there is no
recovery and the economy will collapse after the "stimulus" ends.
Agreed
about Silver, especially now FINALLY more people have understoof what a scam the paper PM derivatives
"markets" are and are buying physical. It's collapsing at the edges, with the Perth Mint leading the way in
exposed fraud!!
Automatic Choke
PREMIUM
8 hours ago
(Edited)
ok.
an interesting read, though, is "This Time Its Different". a very thorough evaluation of all financial
crises since the stone age. they ask the question, "is it possible to borrow your way out of a debt
crisis?" spoiler: "no".
your
argument says that the fed must keep spiking the punchbowl harder and harder to keep the party going. i
don't disagree. i only claim that there is a limit, and all of history agrees.
(edit)
by the way...how old are you? i was around when people were buying home mortgages at 18%, and it wasn't
pretty.
philipat
5 hours ago
(Edited)
I
think the Fed has nothing left. All it can do is jawbone and QE (Or QE in the slightly different form of YCC).
And it will until it collpases or there is the reset - whichever comes first. The economy started turnong
down in 4Q2018 and became noticeable in Sept 2019 with the Repo events. Well before Covid, which is just the
excuse and cover for many things. So if Covid goes away, as soon as the "stimulus" ends, the economy will
turn down again.
I'm
old enough to remember that too. But luckily never had a mortgage. Moved around the world with MNCs and had
accommodation paid for until I designed and built my own place in the tropics and by then was able
to pay cash.
Abuse of "Family office" was the only invention of Bill Hwang. and he was not the first to
exploit this loophole to accumulate unsustainable level of leverage.
One of them walks for hours through New York's Central Park listening to recordings of the
Bible and embraces a new, 21st-century vision of an age-old ideal: that of a modern Christian
capitalist, a financial speculator for Christ, who seeks to make money in God's name and then
use it to further the faith. A generous benefactor to a range of unglamorous, mostly
conservative Christian causes, this Hwang eschews the trappings of extravagant wealth, rides
the bus, flies commercial and lives in what is, by billionaire standards, humble surroundings
in suburban New Jersey.
That same Bill Hwang, it turns out, is also a backer of one of Wall Street's hottest hands
of late, Cathie Wood of Ark Investments. Like Hwang, Wood is known to hold Bible study meetings
and figures into what some refer to as the "faith in finance" movement.
And here, at last, is where the Bill Hwangs collide. The fortune he amassed under the noses
of major banks and financial regulators was far bigger and riskier than almost anyone might
have thought possible -- and these riches were pulled together with head-snapping speed. In
fact, it was perhaps one of the greatest accumulations of private wealth in the history of
modern finance.
And Hwang lost it all even faster.
... ... ...
But before the next success, Tiger Asia ran into more trouble -- this time, trouble big
enough to bring Hwang's days as a hedge fund manager to an end.
When Tiger Asia pleaded guilty to wire fraud in 2012, the SEC said the firm used inside
information to trade in shares of two Chinese banks. Hwang and his firm ended up paying $60
million to settle the criminal and civil charges. The SEC banned him from managing outside
money and Hong Kong authorities prohibited him from trading there for four years (the ban ended
in 2018).
Shut out of hedge funds, Hwang opened Archegos, a family office. The firm, which recently
employed some 50 people, initially occupied space in the Renzo Piano-designed headquarters of
the New York Times. Today it's based further uptown, by Columbus Circle, sharing its address
with the Grace & Mercy Foundation.
"My journey really began when I was having a lot of problems in our business about five or
six years ago," Hwang said in a 2017 video. "And I knew one thing, that this was a situation
where money and connections couldn't really help. But somehow I was reminded I had to go to the
words of the God."
That belief helped Hwang rebuild his financial empire at dizzying speed as banks loaned him
billions of dollars to ratchet up his bets that unraveled spectacularly as the financial firms
panicked. What ensued was one of the greatest margin calls of all time, pushing his giant
portfolio into liquidation. Some of the banks may end up with combined losses of as much as $10
billion, according to analysts at JPMorgan Chase & Co.
... ... ...
Doug Birdsall, honorary co-chairman of the Lausanne Movement, a global group that seeks to
mobilize evangelical leaders, said Hwang always likes to think big. When he met with him to
discuss a new 30-story building in New York for the American Bible Society, Hwang said, "Why
build 30 stories? Build it 66 stories high. There are 66 books in the bible."
Before so much went so wrong so fast, Archegos appeared to be ramping up. A year ago, Hwang
petitioned the SEC to let him work or run a broker-dealer; the SEC agreed.
It's impossible to say where Bill Hwang, the hard-charging financial speculator, ends, and
Bill Hwang, the Christian evangelist and philanthropist, begins. People who know him say the
one is inseparable from the other. Despite brushes with regulators, staggering trading losses
and the question swirling around his market dealings, they say Hwang often speaks of bridging
God and mammon, of bringing Christian teaching to the money-centric world of Wall Street.
By 2024 world output will still be 3% lower than was projected before the pandemic, with
countries reliant on tourism and services suffering the most, according to the IMF.
... "The Biden stimulus is a two edged sword," said former IMF chief economist Maury
Obstfeld, who is a now senior fellow at the Peterson Institute for International Economics in
Washington. Rising U.S. long-term interest rates "tighten global financial conditions.
"It is a dimension as vast as space and as timeless as infinity. It is the middle ground
between light and shadow, between science (reality) and superstition (bubbles), and it lies between the pit of man's fears
and the summit of his knowledge (fundamentals). This is the dimension of (economic) imagination. It is an area which we
call The Twilight Zone."
-
Rod Serling, introduction to the TV series, 1959 [our comments in ( )]
Our economy has entered the twilight zone. Today, economic leaders base policies on a hoped-for
utopia
with
bubbles called 'growing markets' and greed termed 'good valuations'. The
twilight zone
economy
is a place where fundamentals have disappeared. It is a utopian world of no moral hazard for business, financial
or economic mistakes. In the last year, the Federal Reserve has injected over $4.1T into the banking, hedge fund, Wall Street
complex of the financial elite. Vast injections of dollars have sent stock valuations to record highs. Yet, the
pandemic-driven economy is real for 19M Americans out of work, others who lost 540,000 loved ones, and millions carrying
housing debt due to missed rent and house payments.
Policymakers Disconnected From the Real Economy
Yet, policymakers continue to become further disconnected from the real economy where people work and spend. These leaders
imagine an economy of full employment forever, risk assets continually rising in price (not value) with virtually no market
corrections. It is an economic wonderland for corporations to use low-cost debt to finance infinite profits and stock
buybacks. Wall Street is only too pleased to hype this corporate financial engineering. Goldman Sachs forecasts a GDP surge
to 8% in the 4th quarter of this year due to the $1.9T American Rescue Bill. Bond king Bill Gross predicts interest rates
surge to 3 – 4 % by year end.
Does all this monetary and fiscal stimulus result in a
healthy solid economy or the most catastrophic inflationary bubble in modern times
? Our post identifies the dimensions of
the Twilight Zone Economy.
Astronomical Public Debt Drags Growth
The country is drowning in low-interest debt. But, this liquidity 'soma' drug is putting investors to sleep, thinking
everything will be ok. Now, public debt is at levels not seen since WWII and projected to go to 200% of GDP by 2051.
Source: CBO, The Daily Shot – 3/15/21
During WWII, debt supported production capacity for building weapons, planes, and infrastructure to support the war effort.
When the war was over, the US was the only major economy intact, leading to a high growth productive economy. The investment
in productive industries increased the standard of living for most Americans.
Sources: Blackrock, IMF, OECD, The Daily Shot – 3/15/21
Are the present monetary debt and fiscal stimulus programs of relief payments resulting in productive investment? This chart,
by Lance Roberts, shows how increasing public debt has resulted in a continuing decline in real economic growth.
Source: RIA, Lance Roberts, 3/17/21
Public debt not used for solid investments in infrastructure, basic research for innovation, or productivity has resulted in
an ever-growing debt level to achieve a continuing decline in economic growth. This cycle of low-cost ballooning debt to
finance debt service and transfer payments will likely result in economic stagnation or worse.
Negative Yielding Debt Triggers Speculation
Sovereign negative-yielding debt reached a record high of $17.8T last month. Thus, a massive level of worldwide debt is not
repaying the entire principal to debt holders. Correlated to soaring negative-yielding debt is the meteoric rise of trader
speculation in Bitcoin and other cryptocurrencies.
Sources: Daily Feather, Bloomberg – 3/22/21
Such parabolic moves in debt and speculative digital currencies like Bitcoin are candidates for a significant reversion in
value at some date in the near future.
Equity Markets Are In An Alternate Reality
Why is a firm like Tesla valued at the same level as the next six largest car companies or the oil industry's total market
capitalization? Isn't Tesla's valuation in the economic twilight zone? Analysts value Tesla at $1M per vehicle produced versus
GM at $5000 per vehicle. While VW is building six battery factories in the EU, and vows by 2025 to produce over 1.2M EVs in
2022, matching Tesla's total output. VW has now taken over the dominant market share in Europe and is opening EV plants in
Asia and North America.
There are 15 major car manufacturers, including GM, Ford, Toyota, Honda, Nissan, BMW, Mercedes, investing billions into EV
production plants and battery facilities. Tesla may have a first-mover advantage in the EV market, but it may wind up like
Yahoo, losing out to Google in the internet search sector. The following chart shows S&P valuations at Dotcom Crash levels in
2000.
The following chart shows the record valuation of stocks as a percentage of GDP back to 1952!
Sources: Charles Schwab, Bloomberg – 12/31/20
Traders are using ever-increasing levels of margin to buy stocks. Corporate executives with record levels of cash are
resuming stock buybacks as the Dow and S&P continue to set new record highs. Yet, corporate sales and economic fundamentals
don't support this extreme valuation case.
This chart from Real Investment Advisors notes the divergence of stock valuations growing to 164% versus corporate sales
growth of 42% and GDP growth at 22% since 2007.
Source: Real Investment Advisors – 3/20/21
Investors, executives, and the Federal Reserve are addicted to low-interest rates. And just like physical addiction, the time
will come when the zero-interest economic drug won't work anymore, and withdrawal sets in spiraling into a market crash.
Bubbles Bubbles Everywhere
Another sign of an alternative reality is bubbles in non-financial markets. For example, Christie's just sold a digital work
of art by an artist known as Beepie for $69.3M with a non-fungible (exchangeable) token (NFT) when the bidding started at just
$100. NFT collectible prices have sky rocked, providing the buyer with ownership rights indicating their purchase is
authentic. Beepi knows he's riding a soaring market, observing, 'Absolutely it's a bubble, to be honest."
An NFT buyer purchased 351 Top NBA Shot videos for $5,000 last January in the video clip market. Based on social media
chatter, Momentranks.com values the videos at $67,000 today. Sneaker reselling has soared as the collectible marketplace,
StockX, announced that Nike Dunks sold for $33,400 two months ago. StockX disclosed that a Tom Brady rookie trading card sold
for a record $1.3M in January. Even innocuous things like Twitter CEO Jack Dorsey's first tweet sold for $2.9M. Venture
capitalists Marc Andreessen and Ben Horowitz note what motivates mania buyers at a collectible forum:
Andreessen:
"A big part of the entire
point of life is aesthetics. The way that we live and the design of things around us and artistic creativity."
Horowitz:
"It's a feeling. You're buying
a feeling. And what's that worth?"
Writer Ben Carlson notes in his analysis of bubble markets that:
"We're
emotional. We lead with our feelings. We're superstitious."
Superstition is a characteristic of the Twilight Zone Economy.
Core City Life Is Changed Forever
Many think life will go back to the way things were in February 2020. We disagree. Life has changed forever in America. The
lack of commuters changes core city life where they are the heartbeat of neighborhoods surrounded by office towers. Millions
of small businesses and restaurants dependent on commuter patronage are scrambling to survive. When they had the opportunity,
millions of workers worked from home and found they could perform successfully remotely. Hundreds of thousands of workers
left cities to move to another less costly city or region. Some analysts think 99% of commuters will come back to city
offices.
Yet, surveys show that from 20 – 25 % of professionals in dense city centers like New York and San Francisco want to work from
home at least 3 – 4 days a week or work from home full time. Based on remote worker management experience companies are
restructuring their reporting hierarchy. Global corporations to startups are moving to a distributed worker organization,
further flattening the reporting structure for improved performance and business agility.
The lack of office workers leaves 20% of offices in core cities vacant, putting banks and commercial office space landlords at
risk for billions of dollars in lease income. Plus, small businesses in these core cities have lost 50- 60% of their sales.
Business owners hold billions of dollars in lease debt which must be paid off even after 80% of commuters return. Innovative
new small businesses and restaurants will emerge to support these commuters. Plus, new attractions and business models will
bring back visitors crucial for the leisure and hospitality sectors.
Millions of Workers Are Long Term Unemployed
About 19M workers collect continuing unemployment, of which 39.5% have been unemployed over 27 weeks. These permanently
unemployed workers will have a difficult time finding their next job. While Indeed reports that job openings are up 3.7 %
from January 2020, millions of workers are still unemployed. Many of these workers do not have the job skills to be hired for
many new manufacturing and services jobs. Bank of America completed an analysis of unemployment pre – COVID to the trajectory
of employment post COVID showing a lingering decline in the labor force.
Sources: Bank of America, CBO, Zerohedge, Real Investment Advisors – 2/12/21
The BofA analysis shows a permanent loss of employment in labor force size in Phase 3 of the recovery. The reality of the
economy that workers and consumers will likely live in is an economy of debt dragging economic growth with poor job prospects.
Job prospects for millions of workers will be limited by their lack of marketable skills. A major workforce segment faces a
long financial recovery time from either the loss of their business or job. Lack of consumer spending by the permanently
unemployed will slow the recovery.
Corporate Executives Join In the Party
In the 1950s, CEO pay to average worker pay was 50 times. Today, CEO pay is 350 times average worker pay, with Wall Street
applauding stock buybacks totaling 1.4T in 2019. While buybacks fell to $450B in 2020, Bloomberg forecasts stock buybacks to
resume $150B per quarter in 2021. Stock buybacks create overvalued markets. Ned Davis Research estimates the SPX as overvalued
by at least 20% due to stock buybacks distorting prices in 2019. A company gooses prices by using cash to purchase shares in
the open market, thereby reducing the stock pool for public investors. If demand stays the same, prices go up.
Yet, the company has not increased in substantive value. Many executives used low-cost debt to make stock purchases that
saddle the company with major debt obligations. Executives must refinance these debt obligation or pay them off in the near
future. In January 2020, corporate debt hit a 30-year record 49% of GDP, while interest rates were low. Fitch forecasts a
jump in corporate loan defaults in 2021 to 8 – 9% from a 2020 default range of 5 – 6%.
Sources: Fitch Ratings, Vuk Vukovic – 9/22/20
A significant default storm looms in the coming years as interest rates rise.
Another cash flow squeeze is developing in profit margins. Prices paid for goods and services are increasing at a rate far
faster than corporations can raise end customer prices in the following chart.
Sources: Mizuho Securities, The Federal Reserve Bank of Philadelphia, The Daily Shot –
3/19/21
Note the gap between prices paid and prices received in 2009 just before the 2009 fall. A similar cash flow squeeze seems to
be strengthening.
Policy Makers Are Missing Solid Economic Landmarks
To pilot a ship along a coast and into a safe harbor, a captain needs recognizable landmarks and beacons.
Our
policy – captains are in a twilight zone fog.
Many key economic indicators do not actually measure what policymakers tell
us they do. Stock earnings per share reports are financially manipulated by stock buybacks misleading investors as to the
actual earnings per share compared to pre-buybacks. The Fed holds interest rates artificially low with the resulting
liquidity injections distorting debt markets. Unemployment rates are not accurate when the Bureau of Labor Statistics shows a
rate of 6.7%. But, according to state unemployment reports, 19M workers are on continuing unemployment. Thus, the unemployment
rate is more like 12.6%.
The Fed's inflation consumer price index figures exclude 'volatile energy and food prices, which are expenses consumers
experience every day. Since the federal government in 1999 changed to a 'consumer lifestyle buying pattern' approach rather
than a standard price comparison, inflation has consistently been under-reported. In 1998 the Bureau of Labor Statistics
shifted to an 'owner equivalent rental cost' for homeownership. Using the Case-Shiller Home Price Index since 2019 shows the
BLS OER-based approach understates CPI dramatically at 1.0% vs. the Case-Shiller model at 2.5%.
Industry Research On The Real Economy Is More Accurate
Chapwood Investments publishes a biannual index including 50 cities comparing consumer goods and services prices on 500
consumer items. Their analysis showed the top ten cities in the US with an average inflation rate of 10% in the second half of
2020. A marketing industry research firm compared price changes for 220 often purchased consumer products at Target and
Walmart comparing 2018 to 2019 prices on average, the increase was 5 – 6% for both stores. Corporate marketing executives
must have accurate information to make reasonable sales forecasts and plans for investment. Our policy leaders can learn from
their example.
The Way Out of the Twilight Zone
To leave the Twilight Zone grip requires policymakers to recognize financial and real
economy fundamentals. They need to drop the no economic pain utopia model.
Policymakers need to get real with their
statistics and tracking systems to base their policy initiatives on the real economy. Analysts need to use fundamentals for
stock market and financial valuations. The Fed should stop rescuing failing hedge funds, zombie companies and end the
addiction to low-cost debt. Washington can start paying for new spending programs with increased focused taxes, ending
government waste and lower spending. The focus needs to be on a monetary and fiscal set of policies sustaining
entrepreneurship, hard work, and allowing the economic consequences of business failure to run their course.
To avoid the inevitable market crash, these programs need to be phased in over several
years to allow for investors, executives, and consumers to make adjustments to their portfolios.
It
is as if economic leaders have sent investors up an infinite 'wall of price' like a free solo climber, with no safety rope
leaving them to the inevitable fate of fundamental economic gravity
.
takeaction
3 hours ago
(Edited)
I stopped right
here...
" who lost 540,000 loved ones "
People die
every day...and it is NOT from the scamdemic...
In regards to
this economy...with Biden being propped up, the printing will not stop...
So watch asset
prices continue to explode. Don't short anything right now.
There will be a
time to short...but IMO not now..you will get crushed.
mrktwtch2
PREMIUM
3 hours ago
remove
link
I live
in a small suburb north of Chicago in the county of mchery il we r 12 miles south of the Wisconsin
border..my wife paid 139k for her town home in 2002 it went down to 78k during the crash but now its worth
195..since the joggers burned the cities down everyone is trying to move out of the city..strange times
indeed
USAllDay
3 hours ago
The
stupidity is just getting started. Yield curve control, price fixing, never ending eviction and foreclosure
moratorium extensions, constant stimulus for fat alcoholic/meth addicted "single mothers". The collapse will
be beautiful. Nothing this dirty should exist.
SMC
27 minutes ago
The
thing we can do is enjoy every day to the fullest and not help them peddle their idiocy and fear.
If we
are right, they are destroying themselves.
Mathematics, Physics and Chemistry may be "*-ist" but they combined with staying in shape, focus and
dedication are key to our survival.
There's a saying that bull markets climb a wall of worry.
Investors are always looking for something to go wrong when things are going right. With
stocks at or near all-time highs, investors have begun to fret over higher interest rates and
their potentially negative impact on economic growth, coming inflation and what higher rates
portend for stock-market valuations.
Higher rates, however, probably won't kill the bull market. Corporate management teams might
do that all on their own. New stock sales by companies already flush with cash is sending a
coded message to investors that things might be as good as they get.
Interest rates are always a concern for the market and the overall economy. Higher interest
rates make everything more expensive including home mortgages and car payments. It also makes
it harder to start and grow businesses.
For the market, higher interest rates tend to depress price-to-earnings multiples. The
reason is, essentially, math. If investors can make more interest on their bonds, they demand
more return from stocks. Higher returns tomorrow means paying less for stocks today.
Here's the thing. Inflation isn't running wild. The yield on the 10-year Treasury bond is
about 1.7%, up from recent lows, but lower than where yields finished 2019. That isn't a high
enough rate to choke off economic growth. At 3% and higher, the oxygen intake could start to
get cut off.
Inflation expectations aren't out of line with history either. Inflation expectations can be
measured by the difference in traditional government bonds yields and the yield on government
inflation protected securities. Essentially, the face value of an inflation protected bond goes
up by the consumer price index. The difference in yield between the traditional bond and the
inflation protected bond is the level of inflation required to make an investor the same return
on both.
Today, the 10-year yield is at roughly 1.7%. The 10-year inflation protected yield is
negative 0.7%. So inflation has to average about 2.4% for both bond holders to get the same
return.
Investors should watch out for inflation, but they should be more concerned with recent
stock sales by companies flush with cash.
While a robust domestic recovery is great news for corporate profits, it might not be for
stock prices if bond yields keep climbing -- especially technology stocks, which have proven to
be especially sensitive to yields recently. Back in December when vaccine and stimulus plans
were known, economists thought that the 10 year note's yield would be 1.08% in June. It
jumped to 1.72% on Friday in response to the jobs report. Some forecasters see it topping
2% this year for the first time since the summer of 2019.
Bloomberg News recently published an article,
Amazon
Fights Union Drive With Fact-Free Bombast
, discussing Amazon's alleged use of misinformation to prevent employees from
unionizing. In the same manner Kailash recused itself from having a "bull" or "bear" thesis on Bitcoin, we will recuse ourselves
from any discussion of unions. What we would like to draw our readers' attention to however is the method by which Amazon pays
many senior executives.
In the Bloomberg article it noted that the former head of Amazon's
logistics business was awarded stock compensation worth $160 million dollars.
In the wake of the scandals that occurred during the financially profligate dot.com bubble, rule FAS123 was passed requiring stock
compensation be expensed in a company's income statement. In papers written both in the professional and academic worlds, Kailash
has used Amazon as an example of how cash flow accounting contradicts the intent of FAS123. The Kailash note found
here
showed
how Amazon's well explained and GAAP compliant use of lease and stock comp accounting could potentially cause confusion among
analysts. Kailash's academic expert on stock compensation put his work,
Stock
Compensation Expense, Cash Flows and Inflated Valuations
through peer review. His work made it painfully clear that this GAAP
compliant accounting method diminished the information value of traditional calculations of free cash flows.
Authored by Vassilis Karamanis, FX and rates strategist who writes for Bloomberg
Albert Einstein is widely credited as saying that
insanity is doing the same thing over and
over again and expecting a different result.
The phrase keeps coming to my mind as I read story after story on the Archegos
Capital Management saga and look at a series of charts on the euro. At first, the two might seem unrelated, but they both hold
relevant lessons about market complacency.
The story reads as expected -- or feared: The firm, little known outside finance circles, had amassed tens of billions of dollars in
stocks bets, much of it using opaque derivatives and borrowed funds, including some giant bets on a small group of equities. And
then it all went awry.
The acronym LTCM doesn't mean much, it seems, to some market participants. Common sense either. Maybe Margin Call, J.C. Chandor's
2011 movie, should be trending in streaming services, serving as a healthy reminder.
Those of us who still remember the spectacular collapse of the U.S. hedge fund Long-Term
Capital Management in the late 1990s though are probably asking ourselves how this happened again.
Was it a regulatory issue, a market inherently at fault or just human nature? Will the story simply be forgotten again, especially
given the few signs of lasting damage on markets? Or maybe we are all grown ups now and can move on quietly and in peace instead of
obsessing over every set back. At least until the next tail risk comes knocking on our door, that is.
So what does the euro have to do with any of this?
It's not that there is a secret correlation with stocks that unveiled itself amid the Archegos turmoil. But I'd argue that there's a
link.
And it's that some investors or managers are losing sight of reality and sustainable
value-at-risk levels.
The common currency hit its lowest level in nearly five months today. Fair enough, right? The yield on 10-year U.S. notes reached
its highest level since January 2020 Tuesday, and is now just a whisker away from halving its decline since 2018, so it makes sense
for the dollar to keep applying pressure on euro bulls.
Darth Vader
5 hours ago
I think it's
unfair to mix Albert Einstein up with these grubby little thieves.
The game is
rigged and they're picking winners and losers. Best not to play their game.
Misesmissesme
5 hours ago
I
think these fit better:
Only two things are infinite,
the universe and human stupidity, and I'm not sure about the former. A Einstein
The difference between genius
and stupidity is that genius has its limits. A Einstein
OrazioGentile
5 hours ago
Still
waiting for a movie on the collapse of Bear Stearns or Lehmann- fact I'm sure will be loads more
entertaining than fiction!
Former regulators and financial-reform advocates say one rule change, in particular,
could have prevented the debacle : requiring greater disclosures of the bets that investors
such as Archegos place on companies using swaps.
This is first of all about the corruption of SEC. all this hacking of financil system in not new. So the failure to
prevent it is the failure of regulation.
One of World's Greatest Hidden Fortunes Is Wiped Out in Days
More content below
More content below
VIACA
+4.87%
GSX
+4.75%
Katherine Burton and Tom Maloney
Tue, March 30, 2021, 8:29 AM
More content below
More content below
VIACA
+4.87%
GSX
+4.75%
(Bloomberg) --
From his perch high above Midtown Manhattan, just across from Carnegie Hall, Bill Hwang was quietly building
one of the world's greatest fortunes.
Even on Wall Street, few ever noticed him -- until suddenly, everyone did.
Hwang and his private investment firm, Archegos Capital Management, are now at the center of one of the
biggest margin calls of all time -- a multibillion-dollar fiasco involving secretive market bets that were
dangerously leveraged and unwound in a blink.
Hwang's most recent ascent can be pieced together from stocks dumped by banks in recent days -- ViacomCBS
Inc., Discovery Inc. GSX Techedu Inc., Baidu Inc. -- all of which had soared this year, sometimes
confounding traders who couldn't fathom why.
One part of Hwang's portfolio, which has been traded in blocks since Friday by Goldman Sachs Group Inc.,
Morgan Stanley and Wells Fargo & Co., was worth almost $40 billion last week. Bankers reckon that Archegos's
net capital -- essentially Hwang's wealth -- had reached north of $10 billion. And as disposals keep
emerging, estimates of his firm's total positions keep climbing: tens of billions, $50 billion, even more
than $100 billion.
It evaporated in mere days.
"I've never seen anything like this -- how quiet it was, how concentrated, and how fast it disappeared,"
said Mike Novogratz, a career macro investor and former partner at Goldman Sachs who's been trading since
1994. "This has to be one of the single greatest losses of personal wealth in history."
Late Monday in New York, Archegos broke days of silence on the episode.
"This is a challenging time for the family office of Archegos Capital Management, our partners and
employees," Karen Kessler, a spokesperson for the firm, said in an emailed statement. "All plans are being
discussed as Mr. Hwang and the team determine the best path forward."
The cascade of trading losses has reverberated from New York to Zurich to Tokyo and beyond, and leaves
myriad unanswered questions, including the big one: How could someone take such big risks, facilitated by so
many banks, under the noses of regulators the world over?
part of the answer is that Hwang set up as a family office with limited oversight and then employed financial derivatives to
amass big stakes in companies without ever having to disclose them. Another part is that global banks embraced him as a lucrative
customer, despite a record of insider trading and attempted market manipulation that drove him out of the hedge fund business a
decade ago.
A disciple of hedge-fund legend Julian Robertson, Sung Kook "Bill" Hwang shuttered Tiger Asia Management and Tiger Asia Partners
after settling an SEC civil lawsuit in 2012 accusing them of insider trading and manipulating Chinese banks stocks. Hwang and the
firms paid $44 million, and he agreed to be barred from the investment advisory industry.
He soon opened Archegos -- Greek for "one who leads the way" -- and structured it as a family office.
Family offices that exclusively manage one fortune are generally exempt from registering as investment advisers with the U.S.
Securities and Exchange Commission. So they don't have to disclose their owners, executives or how much they manage -- rules
designed to protect outsiders who invest in a fund. That approach makes sense for small family offices, but if they swell to the
size of a hedge fund whale they can still pose risks, this time to outsiders in the broader market.
"This does raise questions about the regulation of family offices once again," said Tyler Gellasch, a former SEC aide who now
runs the Healthy Markets trade group. "The question is if it's just friends and family why do we care? The answer is that they
can have significant market impacts, and the SEC's regulatory regime even after Dodd-Frank doesn't clearly reflect that."
Valuable Customer
Archegos established trading partnerships with firms including Nomura Holdings Inc., Morgan Stanley, Deutsche Bank AG and Credit
Suisse Group AG. For a time after the SEC case, Goldman refused to do business with him on compliance grounds, but relented as
rivals profited by meeting his needs.
The full picture of his holdings is still emerging, and it's not clear what positions derailed, or what hedges he had set up.
One reason is that Hwang never filed a 13F report of his holdings, which every investment manager holding more than $100 million
in U.S. equities must fill out at the end of each quarter. That's because he appears to have structured his trades using total
return swaps, essentially putting the positions on the banks' balance sheets. Swaps also enable investors to add a lot of
leverage to a portfolio.
Morgan Stanley and Goldman Sachs, for instance, are listed as the largest holders of GSX Techedu, a Chinese online tutoring
company that's been repeatedly targeted by short sellers. Banks may own shares for a variety of reasons that include hedging swap
exposures from trades with their customers.
'Unhappy Investors'
Goldman increased its position 54% in January, according to regulatory filings. Overall, banks reported holding at least 68% of
GSX's outstanding shares, according to a Bloomberg analysis of filings. Banks held at least 40% of IQIYI Inc, a Chinese video
entertainment company, and 29% of ViacomCBS -- all of which Archegos had bet on big.
"I'm sure there are a number of really unhappy investors who have bought those names over the last couple of weeks," and now
regret it, Doug Cifu, chief executive officer of electronic-trading firm Virtu Financial Inc., said Monday in an interview on
Bloomberg TV.
He predicted regulators will examine whether "there should be more transparency and disclosure by a family
office."
Without the need to market his fund to external investors, Hwang's strategies and performance remained secret from the outside
world. Even as his fortune swelled, the 50-something kept a low profile. Despite once working for Robertson's Tiger Management,
he wasn't well-known on Wall Street or in New York social circles.
Hwang is a trustee of the Fuller Theology Seminary, and co-founder of the Grace and Mercy Foundation, whose mission is to serve
the poor and oppressed. The foundation had assets approaching $500 million at the end of 2018, according to its latest filing.
"It's not all about the money, you know," he said in a rare interview with a Fuller Institute executive in 2018, in which he
spoke about his calling as an investor and his Christian faith. "It's about the long term, and God certainly has a long-term
view."
... ... ...
"You have to wonder who else is out there with one of these invisible fortunes," said Novogratz. "The psychology of all that
leverage with no risk management, it's almost nihilism."
Unlike the devastating London Whale debacle in 2012, which was
all
JPMorgan
eventually drawn and quartered quite theatrically before Congress (and was a clear explanation of how banks used Fed reserves
to manipulate markets, something most market participants had no idea was possible), this time JPMorgan was nowhere to be
found in the aftermath of the historic margin call that destroyed hedge fund Archegos. Which is may explain why JPMorgan bank
analyst Kian Abouhossein admits he is quite "
puzzled"
by
the recent fallout from the Archegos implosion (or maybe JPM simply was not a Prime Broker of the notorious Tiger cub), which
however does not prevent him from trying to calculate the capital at risk from the Archegos collapse.
In a note published this morning, Kian writes after Nomura yesterday confirmed (at least) a $2Nn potential claim and fellow
Japanese bank Mitsubishi UFJ Securities Holdings announcing today of another potential $300MM loss - which as the JPM
strategist admits "
for a likely non-material PB player is surprising to us"
–
JPMorgan now
expects losses well beyond normal
unwinding scenario for the industry
: and explains that it now sees "the losses as very material in relation to
lending exposure for a business that is mark-to-market and holds liquid collateral" and makes Nomura's indication of
potentially losing $2bn and press speculation of CSG $3-4bn losses "as not an unlikely outcome" according to the JPM
strategist.
So why is JPM surprised?
Because as Abouhossein writes,
"
in normal
circumstances... we would have suspected industry losses of $2.5-5bn. We now suspect losses in the range of $5-10bn
."
In
other words,
JPM has doubled its max loss estimate to as much as $10BN, a number which
could yet rise.
To get there, JPM estimates that
Archegos was highly leveraged at 5-8x (i.e. $50-80bn
of exposure for $10bn of equity
) - using Total Return Swaps and
Certificates
for Difference
to lever up so massively as we discussed yesterday - and it was this use of equity-swaps tha "tincreased
the inability of PBs to see the concentration risk in holdings within the hedge fund in question."
Even so, Kian admits that he remains "
puzzled why Credit Suisse (CSG) and Nomura have
been unable to unwind all their positions at this point – as we would expect to get an announcement as soon as this is the
case, on the scale of potential losses (especially in the case of CSG which hasn't provided numerical impact)"
although
we have gotten some headlines suggesting the total loss could be as big as $7 billion.
That said the JPM analyst expects full disclosure by the end of the week at the latest from CSG and would keep an eye on
credit agencies statements as well. And in the harshest slam of JPM's competitors, Kian says he suspects
"potentially
poor risk mgmt being an issue here considering i) late unwinding, and ii) possibly significant more leverage than for GS/MS
similar exposures."
Alternatively, one could argue that it was Goldman and Morgan Stanley who rushed to break ranks with the syndicate of Prime
Brokers and started dumping blocks of Archegos shares for one reason or another on Friday morning as we detailed yesterday,
which meant that while they suffered the least losses, those banks - like CS, Nomura and Wells - which were slow to start
selling, would end up with the largest losses (for more see "
How
Goldman And Morgan Stanley Broke Ranks And Triggered The Biggest Margin Call Since Lehman
").
In terms of actual loss estimates with an empahsis on Credit Suisse which so far appears to
be the hardest hit, here is a breakdown from JPMorgan of what is known:
In terms of capital at risk, based on press articles,
Credit Suisse seems to have
bigger issues than Nomura assuming press speculation of $3-4bn are correct and Grensill could potentially lead to additional
litigation cost of $1-3bn.
In the case of Nomura, JPM has reduced the share buyback for FY2020 from ¥75 billion to
¥10 billion; if the press speculation losses are correct,
it would expect CS at a
minimum will have to cancel its share buyback for 2021, preserving the dividend and we assume no buyback for the next 2 years
assuming Basel 4 implementation as of Jan 2023.
Assuming no RWA growth vs. YE2020 levels, JPM calculates that
CS
can absorb a max. one-time pre-tax hit of c$4.5b
n
(CHF 4.2bn) for Archegos which post-tax is 116bps of CET1
capital offset by 32bps of Retained earnings (1Q Net Income less 1Q dividend accrual of CHF 0.2bn and share buyback of CHF
0.3bn completed YTD) and still reach 12% by end of 1Q 21 which is seen as an acceptable level for S/Hs under Basel 3 – with
further hits to come (see below). The minimum CET1 requirement is 10% and every additional $1bn pre-tax hit is 26bps of CET1
capital based on YE2020 RWAs and
hence "any hits beyond $5bn pre-tax from Archegos will
call into question the capital position in our view", JPM warns.
Separately, Bloomberg adds that March's blowups may - in addition to wiping out more than a year of profits for the bank and
threaten its stock buyback plans - also add add to the reputational hit from the other missteps by bank CEO Thomas Gottstein.
With the shares posting the only decline among Europe's major banks in 2021 and a new chairman starting next month, Chief
Executive Officer Thomas Gottstein is facing questions over whether he and risk chief Lara Warner have a handle on the bank's
exposures.
"Risk control at every level in this bank must be examined and changes made where there are deficiencies," David Herro, chief
investment officer at Harris Associates, one of the biggest investors in the bank, said in an email. "But I state the
obvious?"
As Bloomberg further notes, the hits from Archegos and Greensill have spoiled a plan by Gottstein to start the year with a
clean slate.
The CEO late last year wrote down the value of the bank's stake in hedge fund York Capital and took a hit related to a
long-standing legal case into residential mortgage-backed securities, dealing the bank its first quarterly loss in three
years. The crises have more than overshadowed its best start to the year in a decade.
"While all four events appear idiosyncratic in nature, it inevitably has led investors to
question the strategic decision making at CS and the risk culture of the firm,"
Andrew Coombs, a Citi bank analyst wrote
Tuesday.
While Credit Suisse has not quantified the full damage yet, and has merely said that it faces "highly significant" losses tied
to Archegos, Berenberg analysts pegged the hit at 3 billion Swiss francs, on top of 500 million francs from the Greensill
issues.
* * *
Finally, JPM tries to answer a key question for many investors,
namely what has
happened with holdings (as speculated in the press ) of Archegos Capital?
As Kian writes, the share price of Arhcegos Capital linked stocks fell by -39% on avg. since the beginning of last week.
According to press reports (Bloomberg), Archegos Capital was forced to sell large shareholdings in eight online and
entertainment companies (
GSX Techedu, ViacomCBS, Discovery, iQIYI, Tencent Music,
Vipshop, Baidu, Farfetch)
to cover potential losses after some positions moved against the fund. Once Archegos
Captial failed to meet its margin commitments, the sell-off intensified further as banks started offloading via sizeable block
trades the holdings posted by the fund as collateral, prompting more declines.
Based on the latest publicly available disclosure the banks with the largest exposure to the mentioned companies were Morgan
Stanley, Credit Suisse, Goldman Sachs, Nomura and to a lesser extent UBS and DB (more details below). On Friday alone, both
ViacomCBS and Discovery saw their largest ever daily decline, with each falling by more than -27%. Traded volumes for the
eight companies peaked on Friday with daily volumes being on avg. more than 13x the 90 days moving average. The sell-off
continued on Monday 29th with the aforementioned stocks falling further -6% on average.
Based on latest available public filings, JPM calculates that the banks which had the largest holdings in the eight Archegos
Capital-linked stocks mentioned by the press were
Morgan Stanley, Credit Suisse,
Goldman Sachs and Nomura.
Morgan Stanley exposure was relatively broad based with 5%+ holdings in all but one
companies and with 10%+ stake in both GSX Techedu and iQIYI. Credit Suisse exposure was also broad based with holdings in all
but one companies and with the largest exposure being its 9% stake in Discovery. Goldman Sachs exposure was mainly
concentrated in GSX Techedu (22% stake), while Nomura had exposure in all but one companies and a relatively large holding of
7% in GSX Techedu. Other banks such as Bank of America, Citi, UBS, Deutsche and Barclays also had holdings above 2% in some
the mentioned companies (mainly GSX Techedu and Discovery).
Finally, courtesy of JPM, here is a summary of all the latest publicly available information disclosing what exposure each
bank may have had - and still has - to Archegos:
play_arrow
Calculus99
4 hours ago
(Edited)
If you
listen to the corporate ******** from ALL of these firms, they'll all say the same crap -
"We employ the some of the smartest guys in finance
as well as run cutting edge risk management systems so as to protect our shareholders and (cliche) stake
holders."
Then
something like this happens, ie you let a degen gambler margin up xfold in a highly charged and volatile
market betting on some of the riskiest go-go stocks.
Any
old non-smartest guy with a $10 Casio calculator could have predicted the massive risks they were taking and
the probable fallout.
Smartest guys?
Cutting edge risk management?
Their
words aren't even worth a penny...
bonsai_king
3 hours ago
Thats
just what they post online.
In the
real world, its all backroom deals, tit for tat, exchange of favors kind of BS.
Do you
actually think anyone involved lost their personal fortunes?
101 years and counting
3 hours ago
if
you're running JPM or GS, etc....why wouldnt you leverage everything to the top? if you go boom, Jerome
will save you. afterall, if you dont save us, the "World will end".
john milton
3 hours ago
This
is it in banking, sometimes you win big time and got your big bonuses, sometimes you lose big time and
taxpayers pay your bonuses.
ssgredux
4 hours ago
Wait
till JPM hears about JPM's exposure to derivatives...
I love
the OCC Quarterly. You have to go all the way to the back, to see the good stuff. GS is leveraged, waaay
beyond everybody else!
Kefeer
3 hours ago
remove
link
Banking crisis, artificial chip
shortages, artificial price manipulation of oil
, artificial wuhan-flu war, with artificial experimental
injections, artificial everything - even the clouds above.
What is the plan with all these
working together and add the artificial dementia installed President and you have the recipe for something
huge???
....
So
glad these casinos have Gubmnt subsidized, FDIC insurance.
Great Iota
59 minutes ago
(Edited)
Save
this post ...
The
"Damage" from the Archegos collapse will be a nano piss drop in a rain compared to the damage from the
upcoming cryptocurrency collapse.
Bitcoin alone could cause quadrillion USD damage when you count the worthless underlining asset plus the
100X derivatives. I'm surprised that governments and its citizens have embraced this worthless asset. 1000
Years from know we will be teaching about the "Bitcoin Blowup".
What
can cause Bitcoin to go worthless? Lots!
1 - No
real need (only purpose is its a Ponzi Scheme designed to increase in value).
2 - Unrecoverable (lost your account, password, or remote drive? your SOL)
3 - Uninsurable (no one can return your Bitcoin to you)
4 - Open to program hacks
5 - Not backed by anything
6 - Needs electricity and internet.
7 - Can never be a useful currency
You
people have all gone mad!
stop_the_fraud
43 minutes ago
Saved
and archived.
Great Iota
30 minutes ago
I'm
hoping that the only reason the global leaders are allowing Bitcoin is so it can mop up the trillions of
paper being added to the system to save the system without creating inflation. At the end of the day, it
gives avenue for abusive money printing without inflating a real asset that people need.
Can
you imagine if all the money flowing into crypto was going into housing or food? Look at the stock market
bubble caused by all the low interest money flowing into it.
This madness will end when the fed tightens or the global economy collapse (one will happen for sure).
Cheap Chinese Crap
5 minutes ago
remove
link
You're
crazy. There's nothing wrong with treating an IOU from some anonymous guy on the Internet as a cash
substitute.
Lef-ty
PREMIUM
2 hours ago
Just
another reason to make the banks smaller. How about no derivatives trading other than a hedge book.
Synthetic positions should be part of 5% disclosure rule. The fact that no one knew what was happening is
just another warning signal.
lay_arrow
highwaytoserfdom
3 hours ago
(Edited)
Bring in Kenny Griffin and Bernake from Citadel to front run the whole market...
ROFLMAO While at it bring in Peter Griffin, and Lois; Meg, Chris, and
Stewie and Brian. heck bring in all Quahog, Rhode Island.. Wait a second
Gina M. Raimondo Secretary of Commerce jeez did not think it could get much
worse that Wilber but one of the granny culling governors (oh yea those machines
flipped votes) ..medical murder scam plan demonic reset....
LMAO--------> Look MAO CIA globalony..
Bill of Rights
3 hours ago
The same JPM thats dumping Commercial and Residential Real Estate at a massive clip,
that JPM?
Ozarkian
3 hours ago
10x Leverage caused the 1929 crash. History repeats.
RevIdahoSpud3
1 hour ago
I have just lived through the 2nd Major Coup in my lifetime as a U S Born citizezn.
The first for me was JFK's assassination by government insiders. The Second was the
2020 election with the lunatic Biden
installed
(not
elected) as president of the U S Corporation. Before that may have been the
establishing of the Fed Reserve in 1913 but I wasn't alive yet. Others may have been
WWI, WWII, Viet Nam...and how many others such as 911 and the Patriot Act.
I mention because we are supposed to read news of the banking industry, trade
agreements, border breaches and hundreds of other topics that are supposed to be
events of the day? Spontaneous and not preplanned as if these events have any
relevance to a freeman's life.
Since the Trump coup, there is nothing really noteworthy that the deep state cycles
as news. It's all smoke and mirrors. Perhaps it is to the 'players', the top 1% who
battle each other for world domain in a global chess game who actually care as they
seem to be the ones with something at stake. Their vast fortunes and their need for
more.
At the bottom of the totem it's all irrelevant. This level is just survival of the
fittest. News, fake news, and irrelevant news has no impact on reality.
And yet, how many people dwell/devote their lives and time to being abreast of
Meghan and Harry, Congress, Goldman Sachs, Tesla, Climate cooling/heating, racism,
discrimination, womyns rights... . Such as waste!
denker
2 hours ago
RWA growth ► Risk Weighted Average Growth
CET1 ► Common Equity Tier 1
CSG ► Credit Suisse Group
$300MM ► $300 million
$2Nn ► fark knows?
PB player ► Primary Broker player?
GS/MS
► Goldman
Sachs and Morgan Stanley
S/Hs under Basel 3 ► Share Holders under Basel 3
Cheap Chinese Crap
4 minutes ago
That's 2 nanu-nanus. Mork's account got hacked.
ponchoramic
2 hours ago
Daily Reminder; The financialization of everything sucked the life out of real
capitalism and everything you see right now is a product of that life sucking
parisitical scheme.
King of Ruperts Land
2 hours ago
(Edited)
Don't worry, be happy.
Secret Weapon
3 hours ago
Greedy parasites getting their balls kicked in. Very fun to watch.
scoop2020
3 hours ago
I would imagine all the big losers are putting their numbers out there so they can
take them to the bankruptcy courts and claim GS and MS had privilege(by selling
before the news came out) and try and claw back there benefits. Never brag about
dodging a bullet. It only pisses off the people who didn't dodge the bullet.
NuYawkFrankie
4 hours ago
(Edited)
It's this kind of reckless gambling suggests that we leaned nothing from the
Long Term Capital
Management fiasco
zob2020
4 hours ago
Time to ban asset management and speculation for the same company?
archipusz
4 hours ago
The gov't will take care of it.
They wouldn't take care of robinhood's traders buying gme, but they'll take care of
this to make sure hedge funds can keep trading. Y'see, hedge funds are important.
ted41776
4 hours ago
once they were deemed institutions too big to fail and too big to jail they
became the government
there is nothing they won't get away with now
naro
1 hour ago
There has never been so much margin debt in the history of America, because interest
rates are so low that it seems like almost free money, and that is exactly what led
to the Market collapse on 1929
Nuxx
PREMIUM
3 hours ago
If this had everything to make a LTCM or Lehmann 2.0, how convenient that a ship got
stuck in the mud last week and had everybody and their mother looking towards Egypt
whilst Goldman Sachs and Morgan Stanley unloaded their cargo in the meantime.
tunetopper
3 hours ago
What is the limitation of Friends and Family on Family Offices?
Why did Soros, Cohen, Tudor Jones, Druckenmuller, and Hwang all get an exemption out
of Dodd-frank in 2019.
Omphalos of Delphi
3 hours ago
Don't worry. The Federal Reserve is bailing out the pedophiles while you schmucks
get stuck with the bag-o-crap. Here are some stocks rallying hard on the face of
700.000 a week unemployment claims
Olaf Myfrenzargay
4 hours ago
Total return swaps should be banned outright.
jack-of-all-trades
29 minutes ago
remove
link
Just to add to JPM analyst's comments. It's all pure speculation but...
Other Archegos' equity swaps were most likely linked to the Viacom swaps via
standard legal arrangements (cross default-like). E.g. if Archegos' were to fail on
its obligations to the counterparty on one swap, the counterparty gets the right to
terminate other outstanding swaps with Archegos and sell its underlying hedges in
the open market. This is done firstly to eliminate/reduce counterparty's risk
exposure to Archegos and, secondly, offset any losses the counterparty would
incur on Viacom with [hopefully] gains on other swaps outstanding or, if no gains,
reduce its hedge unwind losses.
Any PB service provider to Archegos knew with 100% certainty early last week that
Archegos would not have a penny left to settle any arising swap liquidation
losses/claims to it the moment Archegos failed to meet its ViacomCBS margin call(s).
MS and GS PB desks knew that, as the US houses, their ECM desks were best positioned
to find buyers for ViacomCBS compared to CS/UBS, not to mention DB and Japanese
houses that have no real ability in most of those names. Coincidentally, it's wrong
to refer to the group of these banks as a "syndicate".
It's likely that many of these PB desks knew other and coordinated things on regular
basis but there certainly wasn't any legal arrangement/obligation among these banks
to coordinate liquidation of any of their Archegos swap hedges. Their
decision-making was straight-forward -- GS/MS, with the best chance to get out
unscathed (lower Archegos exposure, better ECM teams) -- didn't dither and headed
for the exit ASAP. For CS (and perhaps UBS/DB), it was more complicated -- not as
well-placed to find buyers for ViacomCBS stock yet with [much] larger exposures,
they probably tried to coordinate the fire sale but quickly realised that they would
not be the first out the door and ultimately got stuck in the doorframe. For the
Japanese houses, the situation was worse -- without their own ECM teams, they
depended on other banks to place large CBSViacom blocks -- a mission impossible
under the circumstances.
With regards to the huge size of these losses... everyone must be stunned:
The market has been
bullish up until now, despite the recent rollover of top speculative names like
TSLA and other techs and yield rises in longer dated Treasuries -- the mood is
nothing like 2007-08;
Granted, the stock
trading volumes since the GFC time in 2008 have been massively diluted with the
high-speed/algorithmic trading, short-gamma [index] ETFs hedging, etc, etc --
these trading flows are not "real", so to speak. But everyone's market risk
people must have known (or reasonably guessed) how to tweak their risk models for
the above.... Guess they were wrong!!!
It's safe to assume that the terms of every single one of the PB (and not PB) equity
swaps/CFDs/"whatevers" out there will be scrutinised, re-assessed, and renegotiated
when and if possible.
The silver lining to this cloud is that it happened while the sun is still shining,
relatively speaking.
...
Elevated valuations is probably the biggest source of consternation for investors.
... Barclays sees limited upside in the near term. The firm has a 4,000 year-end target for
the S&P, which suggests less than a 1% gain from Friday's close.
Market will definitely collapse sooner or later. But nobody knows when. Especially taking into account FED Plunge protection team activities. If is stupid and irresponsible to talk about June crash...
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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