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Once the Bubbles Pop, We’re Broke

August 31, 2018

Once the Bubbles Pop, We’re Broke

I hate to break it to you, but the everything bubble isn’t permanent.
OK, I get it–the Bull Market in stocks is permanent. Bulls will be chortling in 2030 that skeptics have been wrong for 22 years–an entire generation. Bonds will also be higher, thanks to negative interest rates, and housing will still be climbing higher, too. Household net worth will be measured in the gazillions.
Here’s the Fed’s measure of current household net worth: a cool $100 trillion, about 750% of disposable personal income (DPI):
Household net worth has soared $30 trillion in the past decade of permanent monetary and fiscal stimulus. No wonder everyone is saying Universal Basic Income (UBI)– $1,000 a month for every adult, no questions asked–is affordable, along with Medicare For All (never mind that Medicare is far more expensive than the healthcare provided by other advanced nations due to rampant profiteering, fraud and paperwork costs–we can afford it!)
And we get to keep the Endless Wars ™, trillion-dollar white elephant F-35 program, and all the other goodies–we can afford it all because we’re rich!
We’re only rich until the bubbles pop, which they will. All speculative bubbles deflate, even those that are presumed permanent, And when the current everything bubble pops, net worth–and all the taxes generated by bubble-era capital gains–vanish.
Take a look at the Federal Reserve’s Household Balance Sheet (June 2018):
$34.6 trillion in non-financial assets
$81.7 trillion in financial assets
$15.6 trillion in total liabilities ($10 trillion of which is home mortgages)
$100 trillion in net worth
So $25 trillion is in real estate. When the housing bubble pops, $10 trillion will go poof. Maybe $12 trillion, but why quibble about a lousy $2 trillion? We’re rich!

…click on the above link to read the rest of the article…

Birinyi’s S&P 3200 Call——Bull From A 30-Year Bull

August 6, 2015

Birinyi’s S&P 3200 Call——Bull From A 30-Year Bull

When stock market guru Laszlo Birinyi told bubblevision today that S&P 3200 would be reached by 2017, his argument was essentially to keep on keeping on:

“What we’re really trying to tell people is stay with it, don’t let the bad news shake you out…There’s no reason we can’t keep on going,” he said.

That got me to thinking about when I first ran into Birinyi at Salomon Brothers way back in 1986. He was then a relatively underpaid numbers cruncher in the equity research department who was adept at making the bull case. Nigh onto 30 years later he has become a rich man crunching the numbers and still making the bull case.

Indeed, I don’t ever recall when he wasn’t making the case to be long equities, and as the chart below shows, you didn’t actually have to crunch the numbers to get there. Just riding the bull from 200 in January 1986 to today’s approximate 2100 on the S&P 500 index computes to a 8.4%CAGR and a 10% annual gain with dividends.
^SPX Chart

^SPX data by YCharts

Even when you take the inflation out of it, this 30-year run is something close to awesome. But, alas, that’s my point. It’s too awesome.

In inflation-adjusted terms, the S&P 500 index rose by 6.2% per annum over the last three decades. That compares to just a 2.2% annual advance for real GDP, meaning that the market has risen nearly 3X faster than national output in real terms.

You don’t have to be a math genius to realize that a few more decades of that kind of huge annual spread, and the stock market capitalization would be several hundred times larger than GDP.

Likewise, you don’t have to be a PhD in quantitative historical research to recognize that the last three decades are utterly unique. If you run the clock backwards by 30 years from the January 1986 starting point, for instance,  you get a totally different picture.

 

…click on the above link to read the rest of the article…

Oil prices: A bear and a bull on the rally

April 17, 2015

Oil prices: A bear and a bull on the rally

The price of oil has been rising for more than a week. What gives?

The price of oil has been heading up for eight trading sessions, raising the hopes of energy companies, investors and the whole province of Alberta. But is this rally the real thing, or is the market misreading the signs? Here are two takes on the oil price rally.

The Bear

Stephen Schork is the editor of the Schork Report (Schork Report)

Stephen Schork is the editor of the Schork Report, an investment newsletter that is dedicated to the energy market. Schork describes the current rally as a classic short squeeze rally. Which can be a bit tricky to explain.

‘All of the fundamental drivers in this market point to even lower oil prices.’
– Stephen Schork, The Schork Report

As the price of oil dropped through the fall and winter, many traders started to short futures contracts, essentially betting that the price will continue to go down. In the past two months, the price of oil has started to rise and some of the traders who were shorting futures contracts had to cover their short positions, by buying futures contracts, which pushes the price up higher. Clear?

“All of the fundamental drivers in this market point to even lower oil prices,” said Schork in an interview.

…click on the above link to read the rest of the article…

 

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