If an equity bear market has arrived, expect it to be long and painful for those who hold on to their stocks. From Alasdair Macleod at alasdairmacleod.substack.com:
Last week’s action, particularly in Japan where the Nikkei 225 Index fell 15% in less than a month and 9% of that in just two days suggests the bull is over and the bear is now in charge.
Bear markets surprise the vast majority of investors, who are instilled with a mixture of peer pressure, complacency, and speculation.
These conditions can continue for some time, lulling everyone into an increasingly false sense of security. But there is lots to go wrong. There are government debt traps that require higher not lower bond yields to fund. Being the consequence of government budget deficits, inflation is not going away but will persist, putting a floor under central bank attempts to suppress interest rates. And commercial bank balance sheets are highly leveraged while lending risk is increasing, typical at the top of the bank credit cycle. Credit is the lifeblood of markets, and any restriction of bank credit is bearish. But the most important factor is the stretched valuation of equities compared with bonds.
Typically, equities continue to rise in the early stages of a rise in bond yields. And then a point arrives when the valuation disparity is too great to be sustained. This disparity is now probably greater than it has ever been in history, and certainly more than twice as great as anything seen since the mid-eighties when global commercial and investment banking activities were merged, and credit activities were refocused towards purely financial activities.
I shall demonstrate this overvaluation in two stages, so that this vital point is fully understood. The first chart shows the S&P 500 Index in red based at 100 in January 1985 (left-hand scale), and the yield on US Treasuries similarly based, but in blue (right-hand scale). Putting both axis on a log scale facilitates the display of large data disparities.
Caused by Warren Buffet?
Berkshire can head that a way. (rimshot)
Reading that the “Magnificent 7” stocks erase nearly $500 billion overnight. (H/T-TKL)
I always love those tales of the mythical free market capitalism while farting around the campfire. (s/)
This just in from Slim Pickens:
I’d say you’ve had enough. (waves cowboy hat)
{LMFAO!}