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Every Bubble Is In Search Of A Pin

December 8, 2018

Every Bubble Is In Search Of A Pin

The ‘Everything Bubble’ has popped

Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.

The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.

It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.

History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters.  It doesn’t, because ’cause’ of a bubble’s bursting can be anything.  It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.

Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterparty, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system.

Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.

How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s?  No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3rd1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:

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

Not Just Fangs: Manias and Echo Bubbles Abound

August 5, 2018

Not Just Fangs: Manias and Echo Bubbles Abound

It’s not just the FANGs investors should be worried about. A Tweet and an article explain.

✔

“With the FANG stocks faltering lately investors are starting to become concerned about their impact on the broader market. And there is certainly something to this.”https://app.hedgeye.com/insights/69386-it-s-more-than-just-fang-stocks-investors-should-be-worried-about?type=guest-contributors …

It’s More Than Just FANG Stocks Investors Should Be Worried About

What investors really should be worried about then is the possibility that the reappraisal of the FANG stocks is representative of a much wider reappraisal that began back in February.

app.hedgeye.com

Echo Bubbles Abound

Pater Tenebrarum at Acting Man discusses Stock Market Manias of the Past vs the Echo Bubble.

The Big Picture

The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent, it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.

The above combination is consistent with a market close to a major peak – although one must always keep in mind that divergences can become even more pronounced – as was for instance demonstrated on occasion of the technology sector blow-off in late 1999 – 2000.

Along similar lines, extremes in valuations can persist for a very long time as well and reach previously unimaginable levels. The Nikkei of the late 1980s is a pertinent example for this. Incidentally, the current stock buyback craze is highly reminiscent of the 1980s Japanese financial engineering method known as keiretsu or zaibatsu, as it invites the very same rationalizations.

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

Weekly Commentary: Mania 

January 13, 2018

Weekly Commentary: Mania 

This might be the most fascinating market backdrop of my career. Not yet as dramatic as 1987, 1990, 1994, 1997, 1998, 1999, 2000, 2002, 2007, 2008, 2009 or 2012 – but, heck, we’re only two weeks into 2018 trading.

In the first nine trading sessions of the year, the DJIA tacked on almost 500 points. The S&P500 has advanced 4.2%, the Dow Transports 7.2%, the KBW Bank Index 6.0%, the Nasdaq100 5.7%, the Nasdaq Industrials 5.7%, the Nasdaq Bank Index 5.7%, the Nasdaq Composite 5.2%, the New York Arca Oil index 7.1%, the Philadelphia Oil Service Sector Index 9.8%, the Semiconductors (SOX) 5.5%, and the Biotechs (BTK) 6.3%.

It’s synchronized global speculation unlike anything I’ve witnessed. Italian stocks are up 7.2%, French 3.9%, Spanish 4.2%, German 2.5%, Portuguese 4.0%, Belgian 4.7%, Austrian 5.2%, Greek 6.1% and Icelandic 4.1%, European Bank stocks (STOXX600) have gained 5.4%, with Italian banks up double-digits. Hong Kong financials have gained 5.9%. Japan’s Topix Bank index is up 5.6%. Japan’s Nikkei has gained 3.9%, Hong Kong’s Hang Seng 5.0%, and China’s CSI 300 4.8%. Stocks are up 7.2% in Russia, 6.7% in Romania, 4.8% in Bulgaria and 5.8% in Ukraine. In Latin America, major equities indexes are up 3.9% in Brazil, 3.0% in Chile, 4.0% in Peru and 8.8% in Argentina.

It’s evolved into a full-fledged speculative Bubble and intense Mania. This type of euphoria, while fun and captivating, comes with unfortunate consequences. But there will be no worry for now. None of that. Once things have regressed to this point, negative news and troubling developments are easily disregarded. Speculation detached from reality.

I recall the speculative market that culminated in manic trading in the summer of 1998 – just weeks before the global system convulsed with the collapses of Russia and Long-Term Capital Management. There was the first quarter 2000 technology stock speculative melt-up – right in the face of deteriorating industry fundamentals. And how can we forget the fateful “subprime doesn’t matter” speculative run to all-time highs in the Autumn of 2007.

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

Australia’s Housing Bubble—–The Mania Down Under

June 17, 2015

Australia’s Housing Bubble—–The Mania Down Under

Australians are being “irrationally exuberant” and borrowing too much to invest in housing, exposing the economy to financial shocks, global bond fund giant PIMCO says.

In a detailed statistical study that compares Australian borrowers to those in other countries, PIMCO researchers found that Australians’ decision to borrow is driven by falling interest rates and rising house prices – not economic fundamentals that reflect the health of the economy like employment.

In the US wages and other measures of economic health drive people’s decisions to borrow.

The world’s biggest bond investor said Australians’ focus on capital gains and cheap credit “may not be sustainable or linked to the productivity of the asset.”

Australians also appear to be ‘trigger happy’ about debt – they respond far quicker than other borrowers to changes in interest rates and asset prices. They start borrowing more after only six months of increases in house prices compared with a year in the US.

“Households are exhibiting irrational exuberance because they are placing little weight on broader fundamentals like unemployment that may be more representative of future incomes or asset price returns, increasing the likelihood of asset price bubbles,” the report released by the bond fund on Wednesday said.

Australians react faster and “more vigorously to a shock in asset prices or mortgage rates” which makes the economy more vulnerable to an external shock, such as a sharp slow down in China’s economy or another financial market sell-off, the report said.

The conclusions may bolster those who believe parts of Australia’s property market are into a bubble, including Treasury secretary John Fraser, and put pressure on regulators to take action. A sharp fall in property prices could hit the big banks, which borrow billions each year from overseas investors like PIMCO.

“The key point is that the speed which Australian households reacted to changes in housing assets and mortgage rate was much faster,” the researchers said.

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

Why Markets Are Manic—-The Fed Is Addicted To The ‘Easy Button’

April 29, 2015

Why Markets Are Manic—-The Fed Is Addicted To The ‘Easy Button’

Later this week another Fed meeting will pass with the policy rate still pinned to the zero bound. The month of May will make the 77th consecutive month of ZIRP—–an outcome that would have been utterly unimaginable even a decade ago; and most especially not with the unemployment rate at 5.5% and after 23 quarters had elapsed since the official end of the recession.

There never was an Armageddon-like crisis in 2008 that justified all this; it all happened because two emotionally unstable and misguided high officials—-Ben Bernanke and Hank Paulson—-panicked Washington into the utterly false fear that Great Depression 2.0 was at hand.

I debunked this urban legend by chapter and verse in The Great Deformation, but suffice it to say here that not withstanding all the crony capitalist larceny that this financial terrorism enabled, it is impossible with the stock market at 2100—-50% above its pre-crisis level—that there remains any justification for maintaining these “extraordinary policies” seven years later.

In fact, the Fed’s cowardly dithering for yet another meeting this week has precious little to do with the so-called Great Financial Crisis—-the ostensible reason why we ended up with perpetual free money subsidies for financial market speculators. Instead, it is a product of a policy ideology and insular culture that has been building at the Fed and most other major central banks for more than two decades.

Central bankers now have their big fat thumbs perpetually on the Easy Button because they are addicted to it. In the case of the Fed, it has been in a rate cutting or rate holding mode during 80% of the time since 1990. Stated differently, during 240 of the last 304 months, the Fed has been riding the Easy Button.

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

 

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