money MARKETS now and then – asset prices – capitalisation – valuation

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GM/post/caw 2-2022 Techno Crash to Land on Wine?

Who says US rates will go up for real? Maybe the Fed’s endlessly extended expectation will do. No real rise yet but there has been worried talk of liquidity problems all along. Bears may gasp for breath as the very idea of de-leveraging seems to evaporate. Unperturbed, the ageing bull isn’t roaring but keeps coughing up recoveries as dips for fomos. Derivatively disconnected from the real economy, valuations have been un-moored by QE for ages. Even after a fractional interest rate rise or two, credit will still be cheap and remain as elastic as the valuations. Real or not, the show can’t stop as long as TINA screams for More!

Crash? What Crash!

But forever? “Like all cycles, they cannot go on forever. Market cap cannot exceed GDP forever. Valuations cannot go up forever. Debt burdens cannot grow forever. …” Read Kit Winder’s The End Game for a reminder of fundamental reasoning.

Could this time be different? Will resurrecting fundamentals correct the financial incontinence and let the bears have their ball?  Will 2022 be the year of the stockmarket crash?

Just in case, maybe it’s time to rotate. But where to? Should the bubble look like bursting, will there be an old fashioned stampede into safe&sound? A goldrush? Unprecedented cryptomania? Or a run for cover on land in a final submission to real-existing rentier-capitalism?

Whatever your preference, best order some wine with it: According to the investment firm Premier Cru, it would have provided a phenomenal return over the past 60 years. Our £100 could today be worth as much as £478,000 tax free.”
Land&Wine? – Re-Evaluation Reversals Renegotiated

markets – latest updates here

articles up to 5-2022 20-5-2022 Faisal Islam: “How concerned should we be about asset prices in the world now?” 20-5-2022 Investors spooked as gloom grips markets – Even veterans accept we are at a historic juncture as inflation surges – by Katie Martin 20-5-2022 What are investors supposed to trust in now? by Merryn Somerset Webb 18-5-2022 ‘Big Short’ investor Michael Burry warns stocks will crash and rallies won’t last. Here’s a roundup of his recent tweets and what they mean. by Theron Mohamed

“The Big Short” investor Michael Burry expects a far steeper decline in the stock market. The Scion Asset Management chief’s view is based on how past crashes have played out. Burry warned brief rallies were likely, and joked about his penchant for premature predictions.

Michael Burry, the hedge fund manager of “The Big Short” fame, rang the alarm on the “greatest speculative bubble of all time in all things” last summer. He warned the retail investors piling into meme stocks and cryptocurrencies that they were careening towards the “mother of all crashes.”

The Scion Asset Management chief’s dire prediction may be coming true, as the S&P 500 and Nasdaq indexes have tumbled 15% and 24% respectively this year. In tweets he’s since deleted, Burry has taken credit for calling the sell-off, explained why he expects further declines, and cautioned against buying into relief rallies. …”… 15-5-2022 Street is heading into a summer from hell — and top investors say it’s going to bring a near-biblical reckoning to the market 15-5-2022 Get set for another debt binge as real interest rates fall – Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble – by Matthew Lynn

…”In the space of just a few months the price of money has risen ten-fold, and that is a dramatic rise, at least in percentage terms. At the margins it will make a difference. … Yet the really important number is the real interest rate; the cost of money after you allow for inflation. And that tells a different story. … It is easy to be fooled by quarter-point rises into thinking that rates are being tightened. That is what the Bank says it is doing, and that is what the headlines say. That is to completely mis-read what is actually happening. In truth, as inflation continues to accelerate at a far faster rate than the cost of money, in real terms rates are being cut, and dramatically so. We have a few decades of history to tell us that is only going to stoke another wild bubble in borrowing and asset prices – and with this one we don’t even know when it will end.” 16-5-2022 Cutting City regulation risks another financial crash, say economists – Leading economists publish letter to Rishi Sunak in response to proposed financial services and markets bill – by Kalyeena Makortoff 14-5-2022 Junk bond party starts to wind down by Joe Rennison 14-5-2022 Where the next financial crisis could come from by John Dizard

Farewell to all that 2-4-2022 Crypto vs gold: the search for an investment bolt hole John Plender 28-2-2022 Here’s the biggest threat to stock markets shaken by Russia-Ukraine war -by Joanna Ossinger

Synopsis: U.S. stock futures plunged as much as 2.9% Monday, erasing gains from late last week as speculation that central banks would throttle back on tightening policy gave way to worry that the geopolitical crisis in Europe could slow global economic growth. – … “A recession is likely to start at some point this year,” said Matt Maley, chief market strategist at Miller Tabak + Co. “We’re headed for a bear market.” … 21-2-2022 We really did hit peak stupid’: Elite investors on Wall Street say privately that the market is about to undergo a cataclysmic shift — and many that the market is about to undergo a cataclysmic shift — and many won’t survive the ‘washout’ Linete Lopez 21-2-2022 ‘Peak Stupid’—Cataclysmic Market Warning Issued As The Price Of Bitcoin And Ethereum Crash – by Billy Bambrough

Bitcoin, ethereum and other cryptocurrency prices have crashed as the crisis in Ukraine rattles global investors. The bitcoin price, dipping under $38,000 per bitcoin, is down 10% on this time last week and almost 30% from its early February high of almost $46,000. Ethereum, the second-largest cryptocurrency after bitcoin, has seen similar declines—with fierce competition weighing on the ethereum price. Now, as assets that have soared over the last couple of years see heavy sell-offs in the face of looming Federal Reserve interest rate hikes, one billionaire value investor has warned some are going to get badly hurt in the coming “cataclysmic market shift.” “I think there’s going to be a few people who’ve really gone over their skis and will get hurt badly,” the unnamed billionaire told Insider, with bitcoin and crypto named along with blank-check SPACs and retail-led meme stocks as examples of overblown market exuberance. 19-2-2022 Investors brace for central banks’ retreat from bond markets – Tommy Stubbington, Kate Duguid

The biggest buyers in bond markets are now poised to become sellers, as central banks who purchased trillions of dollars of debt since the 2008 financial crisis start trimming their vast portfolios. Leading central banks such as the US Federal Reserve and Bank of England are widely expected to kick off the process of “quantitative tightening” in the coming months, complicating the outlook for bond investors who are already grappling with runaway inflation and the spectre of aggressive interest rate rises this year. …

…The looming tightening of monetary policy marks a stark contrast to the coronavirus res The Federal Reserve will probably begin the QT process later this year, investors say. It may offer more details of plans to wind down its $9tn balance sheet at its meeting next month, at which it is widely expected to raise interest rates for the first time since the start of the pandemic…

“I’m sure the Fed is going to be watching the UK. It’s probably quite a useful control experiment,” said Steven Major, HSBC’s global head of fixed income research. “If you look at [low long-term yields in the UK], the suggestion is there are plenty of willing buyers if the central bank just gets out of the way.”

yardeni research pdf 18-2-2022 Central Bank: Monthly Balance Sheets – by Edward Yardeni 17-2-2022 Stock market faces the most ‘massive misallocation’ of ‘capital in the history of mankind,’ says ARK’s Cathie Wood By Mark DeCambre 17-2-2022 The next financial crisis is coming, and it will be stamped ‘made in China’ – The world is awash in debt and rich nations now owe the equivalent of two-and-a-half times their economic output, far more than in the financial crisis. One country stands out as having accumulated more debt in a short period of time than any other – China – and it now poses the greatest risk to the post-pandemic recovery. by David Chance 11-2-2022 Grantham on The Long View: Everything You Need to Know About the U.S. Stock Market ‘Super Bubble’ – And how the history of bubbles might foreshadow the fallout – by Jessica Bebel 3-2021 Its curvature foreshadows the next financial bubble – An international team of interdisciplinary researchers has identified mathematical metrics to characterize the fragility of financial markets. Their paper “Network geometry and market instability” sheds light on the higher-order architecture of financial systems and allows analysts to identify systemic risks like market bubbles or crashes – by Max Planck Society 11-2-2022 The next crisis – What would happen if financial markets crashed? – Look to history for a guide, but know that next time will be different

…”…Yet the reinvention of finance has not eliminated hubris. Two dangers stand out. First, some leverage is hidden in shadow banks and investment funds. For example the total borrowings and deposit-like liabilities of hedge funds, property trusts and money market funds have risen to 43% of gdp, from 32% a decade ago. Firms can rack up huge debts without anyone noticing. Archegos, an obscure family investment office, defaulted last year, imposing $10bn of losses on its lenders. If asset prices fall, other blow-ups could follow, accelerating the correction.

The second danger is that, although the new system is more decentralised, it still relies on transactions being channelled through a few nodes that could be overwhelmed by volatility. etfs, with $10trn of assets, rely on a few small market-making firms to ensure that the price of funds accurately tracks the underlying assets they own. Trillions of dollars of derivatives contracts are routed through five American clearing houses. Many transactions are executed by a new breed of middle men, such as Citadel Securities. The Treasury market now depends on automated high-frequency trading firms to function. …

Ordinary citizens may not think it matters much if a bunch of day-traders and fund managers get burned. But such a fire could damage the rest of the economy. Fully 53% of American households own shares (up from 37% in 1992), and there are over 100m online brokerage accounts. If credit markets gum up, households and firms will struggle to borrow. That is why, at the start of the pandemic, the Fed acted as a “market-maker of last resort”, promising up to $3trn to support a range of debt markets and to backstop dealers and some mutual funds. Was that bail-out a one-off caused by an exceptional event, or a sign of things to come? Ever since 2008-09 central banks and regulators have had two unspoken goals: to normalise interest rates and to stop using public money to underwrite private risk-taking. It seems that those goals are in tension: the Fed must raise rates, yet that could trigger instability. The financial system is in better shape than in 2008 when the reckless gamblers at Bear Stearns and Lehman Brothers brought the world to a standstill. Make no mistake, though: it faces a stern test.” 1-2-2022 Betting on a ‘very unlikely’ ECB rate move …”…With ECB rate rise bets piling up and four-five Fed rate hikes discounted already for 2022, the euro bounced off 19-month lows against the greenback and German bond yields rose to the highest since 2019. …”… 31-1-2022 Bears beware. Past corrections for the S&P 500 are only 15% on average, outside of recessions by Joy Wiltermuth 31-1-2022 Does the S&P 500 Hitting SMA Mean a Bear Market Is Coming? – The S&P 500 hit a new record on the first day of trading this year, and since then has pretty much been heading downward.

research.danskebank/pdf 31-1-2022 UK BoE preview: Another rate hike and passive QT 8-2021 Liquidity Is Evaporating Even Before Fed Taper Hits Markets – Gap between money-supply growth and GDP is now below zero – Negative readings in last decade spelled trouble for S&P 500 – Fed Is ‘Adjusting the Dials’ on Inflation: Pimco’s Schneider – By Lu Wang

“A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases. The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account. …”… 31-1-2022 Nasdaq Index Poised for the Worst January in Its 50-Year Existence – Tech stocks priced on future earnings dented by rate hike bets – Despite gains Monday, shares still far from avoiding milestone – By Thyagaraju Adinarayan 29-1-2022 A market crash will depend on which bit of the equation investors got wrong M.S.Webb 29-1-2022 Darker market mood sets in, one year after GameStop frenzy 29-1-2022 Quantitative tightening is no substitute for higher interest rates – Reversing trillions of dollars of asset purchases may prove to be an unreliable tool 25-1-22 If Jeremy Grantham is talking about a US ‘superbubble’, we should listen – The Boston-based fund manager has hard-to-deny evidence to back up his prediction of a ‘wild rumpus’ – by Nils Pratley

…”…He ran through his checklist of a late-stage bubble, of which “the most important and hardest to define” is “the touchy-feely characteristic of crazy investor behaviour”. On that score, he has hard-to-dispute examples: the meme stock merriness of a year ago; dogecoin, a parody cryptocurrency, rising to a value of $90bn “because Elon Musk kept joking about it”; and shares in car hire firm Hertz soaring because the company said it would order some Teslas. Those episodes are now over, reckons Grantham, and we’re on to “the vampire phase” of the bull market. Share prices have defied Covid, the end of quantitative easing and the promise of higher rates but, “just as you’re beginning to think the thing is completely immortal, it finally, and perhaps a little anticlimactically, keels over and dies”. …”… 22-1-2022 John Hussman, a notorious market bear who called the 2000 and 2007 crashes unloads on the Fed for creating ‘the most extreme financial bubble in US history’ — and warns of a 70% drop in the S&P 500 just to return to normal valuation levels – by William Edwards 2017 ‘Wall Street has gone completely mad’ — One market bear forecasts a decade of stock losses – by Joe Ciolli

By multiple measures, US equity valuations are close to the highest on record. Investor and former professor John Hussman doesn’t think this is a sustainable situation, and forecasts that stocks will see negative returns over a 12-year period. Hussman’s perma-bearish views have seen mixed success in the past, and a good number of Wall Street strategists are bullish on US stocks through 2018. 19-1-2022 -39- Repo Review: Sponsored Repo

“In this issue of Monetary Mechanics, I am going to talk about the effect of the explosion in sponsored repo on the broader short-term interest rate complex, as well as how it fits into the broader development of money markets in the post-GFC financial system. … My objective here is to attempt to provide a high-level overview of the most fundamental features of sponsored repo to attempt to uncover and understand what (if any) effect this practice has on the rest of the global financial system. I will do my best to place sponsored repo within the proper context relative to the rest of the US repo market complex, and also to impart some informative, interesting, and useful insights about sponsored repo that may not have been fully fleshed out by other people. …”…

the 1-2022 Why capital will become scarcer in the 2020s – Populism, climate change and supply-chain fixes will raise the long-term cost of capital

the 11-2021 Will the world economy return to normal in 2022? – If it does not, a painful economic adjustment looms -by Henry Curr 13-1-2022 Wie gefährlich ist der Liquiditätsentzug für den Markt? Über steigende Zinsen muss man sich vorerst keine Gedanken machen. Für den Aktienmarkt ist der drohende Liquiditätsentzug von größerer Bedeutung. 12-1-2022 Billionaire trader Paul Tudor Jones rings the bubble alarm, warns the Fed could tank the economy, and predicts pandemic winners will struggle – by Theron Mohamed 23-12-2201 The Market is Now Forecasting More Than 3 Hikes in 2022 – Investors increasingly believe the Fed will hike sooner and more often in 2022. 12-2021 2022 to see monetary decoupling between West and East – It does not look like the new year is going to be calmer than 2021 – By Alicia Garcia Herrero 4/12/2021 Omicron and US monetary policy uncertainty roil global markets 20/11/2021 Markets are showing signs of frothing over 20/11/2021 Low yields leave traders numb to risk, says ‘scared’ veteran Dan Fuss – vice-chair warns markets have given up ‘natural prudence and caution’ by Loomis Sayles 10/2021 Research alleges groups look to influence the US benchmark pickers by buying debt ratings 6/2021 Hussman Market Comment – Alice’s Adventures in Equilibrium

…”…Notably, the lack of equilibrium thinking obscures a critical fact about investing: every security, once issued, must be held by someone until it is retired. As a result, the only thing that a security will ever provide to its investors, in aggregate, is the stream of actual cash flows that it delivers between the point that it is issued and the point that it is retired. The price changes called out by Mr. Market are not changes in aggregate wealth – they mainly provide varying opportunities for wealth transfer between one investor and another. There’s an increase in aggregate wealth only if there’s an increase in expected value-added output and deliverable cash flows. Otherwise, a change in the valuation of a given stream of cash flows merely reflects a change in the expected rate of return…”… 10-2020 Identifying Speculative Bubbles and Its Effect on Markets

Squeezed V ?