Tag Archives: stock market bubbles

Robinhood Thursday and the Washington Idiots at Work, by David Stockman

Posted on February 21, 2021 | 2 comments

Central banks’ profligate production of fiat debt liquidity is behind the Gamestop fiasco and stock market valuations completely untethered from underlying economic value. From David Stockman at David Stockman’s Contra Corner via lewrockwell.com:

Today, especially, the “idiots at work” sign should be flying high over Capitol Hill.

We are referring to the boisterous congressional hearings about who is to blame for the crash of GameStop, the alleged nefarious machinations of the hedge funds and Robinhood and the purportedly innocent victims in mom’s basement who thought call options were the greatest new video game since Grand Theft Auto IV.

But among today’s silly foibles, the incessantly repeated idea that the Reddit Mob was a victim of a “pump and dump” scheme surely takes the cake. If these people were stupid enough to think that the value of a company dying in plain sight (i.e. GME) could go from $400 million to $23 billion in less than six months while its reported finances continued to deteriorate, they deserve to loose every dime of the stimmy money they threw into the Robinhood pot.

Still, the fact that the greedy, dimwitted Reddit Mob got its just desserts isn’t the half of it.

What was really on display Thursday in the recently christened (since January 6th) Holy of Holies of American Democracy is the utter cluelessness on both sides of the political aisle with respect to the financial elephant in the room: Namely, that the Fed has transformed Wall Street into a giant, destructive gambling den, which is now sucking a growing share of the populace into the pursuit of instant get-rich speculations that have no chance of panning out.

Continue reading→

2 Comments

Posted in Banking, Business, Currencies, Debt, Economics, Economy, Financial markets, Government

Tagged , , , ,

The Carrot Top, by the Northman Trader

Posted on December 4, 2017 | Leave a comment

It’s hard to find even a single sign of a classic stock market top that’s not present right now. From the Northman Trader at northmantrader.com:

No period is worse for bears than when it’s the best time to sell stocks. It’s the polar opposite of when conditions are worst for bulls, right when it’s the best time to buy as it was in January-March 2009. The exhaustion factor is enormous. It’s called capitulation as moves get stretched to the extreme even though the set-up is valid.

November’s close marked the 13th consecutive month straight up for global markets. Nothing but up with fewer and ever smaller dips in between. Deutsche Bank’s Reid illustrated the point: “We’ve never had such a run with data going back over 90yrs”. I’d say that qualifies as the worst of time for bears.

Yet we could be sitting on a generational opportunity to sell equities as it could be argued that conditions will never be better for bulls as the game of offering carrots of free money is coming to an end. Indeed it could be argued that the prospect of tax cuts is the final carrot the free money scheme has to offer. The carrot top. No more carrots.

Consider the central banking liquidity game has peaked and is dropping off:

The 2016/2017 period saw the largest amount of central bank intervention ever. Ever. Over 8 years after the financial crisis.

The slow reduction in central bank liquidity has been supplemented by record ETF inflows this year. Retail went long and continues to buy the most expensive market since 1900 according to Goldman:

Even now via @jennablan: “U.S.-based money market funds attract inflows of $33 bln in week ended nov 29, largest inflows for the year”.

And leverage has never been higher either. Via @Schuldensuehner: 

“Dow Jones Industrial closed >24k for the first time ever. Wall St record has occurred in tandem w/record margin debt. Margin debt now at $561bn, double amount of tech bubble of 2000, 47% > than in 2007”:

Retail is in and we see it in various data charts:

Via @BN:

To continue reading: The Carrot Top

Leave a comment

Posted in Collapse, Debt, Economy, Financial markets, Investing

Tagged

The Mother Of All Irrational Exuberance, by David Stockman

Posted on November 24, 2017 | Leave a comment

Right now, we are living through the most irrational of irrational exuberances. From David Stockman at davidstockmanscontracorner.com:

You could almost understand the irrational exuberance of 1999-2000. That’s because everything was seemingly coming up roses, meaning that cap rates arguably had rational room to rise.

But eventually the mania lost all touch with reality; it succumbed to an upwelling of madness that at length made even Alan Greenspan look like a complete fool, as we document below.

So doing, the great tech bubble and crash of 2000 marked a crucial turning point in modern financial history: It reflected the fact that the normal mechanisms of honest price discovery in the stock market had been disabled by heavy-handed central bankers and that the natural balancing and disciplining mechanisms of two-way markets had been destroyed.

Accordingly, the stock market had become a ward of the central bank and a casino-like gambling house, which could no longer self-correct. Now it would relentlessly rise on pure speculative momentum—- until it reached an asymptotic top, and would then collapse in a fiery crash on its own weight.

That’s what subsequently happened in April 2000 when the hottest precincts of the stock market—the NASDAQ 100 stocks—-began a perilous 80% dive; and it’s also what happened in the broader markets—–including the S&P 500—in 2008-2009, when a thundering 60% plunge unfolded in a hardly a year’s time.

So with the market raging in self-fueling momentum at the 2600 mark on the S&P 500, we reflect back to the great dotcom crash for vivid reminders of what happens next. That earlier meltdown is especially pertinent because in many ways today’s stock market mania is far less justified than the one back then.

Moreover, the dotcom version was also the first great central bank fueled bubble of modern times—a creature that market participants understandably did not fully grasp. Yet to its everlasting blame, the Fed’s subsequent experiments in reflationary bailouts of the casino gamblers has only caused Wall Street’s muscle memory to atrophy further.

Indeed, after 30 years of Greenspan-style Bubble Finance and two devastating crashes, Wall Street is even more credulous today than it was on the eve of the tech crash. Back then, in fact, there was a considerable phalanx of Wall Street old-timers who warned about the dotcom insanity. Now almost no one sees this one coming.

To continue reading: The Mother Of All Irrational Exuberance

 

Leave a comment

Posted in Business, Capitalism, Debt, Economy, Financial markets

Tagged ,

Infographic: The Everything Bubble Is Ready to Pop, by Jared Dillian

Posted on October 8, 2017 | 1 comment

The centerpiece of the greatest debt bubble ever created has been the bubble in central bank and government debt, which has in turn created myriad subsidiary bubbles. From Jared Dillion at riskhedge.com:

Infographic: The Everything Bubble Is Ready to Pop

It wasn’t always this way. We never used to get a giant, speculative bubble every 7–8 years. We really didn’t.

In 2000, we had the dot-com bubble.

In 2007, we had the housing bubble.

In 2017, we have the everything bubble.

I did not coin the term “the everything bubble.” I do not know who did. Apologies (and much respect) to the person I stole it from.

Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously.

And the infographic below that my colleagues at Mauldin Economics created paints the picture best.

I don’t usually predict downturns, but this time I bet my reputation that a downturn is coming. And soon.

When there’s nothing left but systemic risk, everyone’s portfolio is on the line. To that end, I’ve put together a FREE actionable special, Investing in the Age of the Everything Bubble, in which I discuss ways to prepare for the coming bloodbath (download here).

http://www.riskhedge.com/post/infographic-everything-bubble-ready-pop

1 Comment

Posted in Debt, Economy, Financial markets, Investing

Tagged ,

Stupid Is As Stupid Does, by Jim Quinn

Posted on April 4, 2017 | 1 comment

Jim Quinn debunks eight years of stupidity behind one of history’s greatest bubbles. From Quinn at theburningplatform.com:
If you prefer fake news, fake data, and a fake narrative about an improving economy and stock market headed to 30,000, don’t read this fact based, reality check article. The level of stupidity engulfing the country has reached epic proportions, as the mainstream fake news networks flog bullshit Russian conspiracy stories, knowing at least 50% of the non-thinking iGadget distracted public believes anything they hear on the boob tube.

This stupendous degree of utter stupidity goes to a new level of idiocy when it comes to the stock market. The rigged fleecing machine known as Wall Street has gone into hyper-drive since futures dropped by 700 points on the night of Trump’s election. An already extremely overvalued market, as measured by every historically accurate valuation metric, soared by 4,000 points from that futures low – over 20% – to an all-time high. Despite dozens of warning signs and the experience of two 40% to 50% crashes in the last fifteen years, lemming like investors are confident the future is so bright they gotta wear shades.

The current bull market is the 2nd longest in history at 8 years. In March of 2009, the S&P 500 bottomed at a fitting level for Wall Street of 666. In a shocking coincidence, it bottomed on the same day Bernanke & Geithner forced the FASB to rollover like mangy dogs and stop enforcing mark to market accounting. Amazingly, when Wall Street banks, along with Fannie and Freddie, could value their toxic assets at whatever they chose, profits surged. The market is now 240% higher.

To continue reading: Stupid Is As Stupid Does

1 Comment

Posted in Financial markets, Government, Investing

Tagged

Why This Market Needs To Crash, And likely will, by Chris Martenson

Posted on March 26, 2017 | 1 comment

This article’s conclusions are nothing you haven’t heard from SLL and its guest posters, but it is well reasoned and well supported. From Chris Martenson at peakprosperity.com:

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up. Ka-Poom! First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

It really cannot end any other way. Money is not wealth; it is merely a claim on wealth. Debt is a claim on future money. The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP — forever. That is, compound the claims at twice the rate of income year after year from here on out.

This would be like having your credit card balance rolled over every month as the balance grows at 10% each year, while your income advances at only 5% per year. Eventually you simply have a math problem: your income becomes swamped by your debt service payment. First you are insolvent, then bankruptcy eventually follows.

To continue reading: Why This Market Needs To Crash, And likely will

 

1 Comment

Posted in Business, Collapse, Debt, Debtonomics, Economics, Economy, Financial markets, Money

Tagged ,

All Time Highs, by Jim Quinn

Posted on July 14, 2016 | Leave a comment

Equity markets have spasmed upward on indications that Japan will up its ante on government debt monetization, via helicopter money. That will do about as much good as its many previous expansions of government debt and central bank monetization, which have plunged the nation into debt and retarded its economy. However, its more low cost liquidity for the speculative set to buy financial instruments, any financial instruments. This won’t be the first time stock markets make new highs while the economy has already slid into recession. From Jim Quinn at theburningplatform.com:

The stock market has reached new all-time highs this week, just two weeks after plunging over the BREXIT result. The bulls are exuberant as they dance on the graves of short-sellers and the purveyors of doom. This is surely proof all is well in the country and the complaints of the lowly peasants are just background noise. Record highs for the stock market must mean the economy is strong, consumers are confident, and the future is bright.

All the troubles documented by myself and all the other so called “doomers” must have dissipated under the avalanche of central banker liquidity. Printing fiat and layering more unpayable debt on top of old unpayable debt really was the solution to all our problems. I’m so relieved. I think I’ll put my life savings into Amazon and Twitter stock now that the all clear signal has been given.

Technical analysts are giving the buy signal now that we’ve broken out of a 19 month consolidation period. Since the entire stock market is driven by HFT supercomputers and Ivy League MBA geniuses who all use the same algorithm in their proprietary trading software, the lemming like behavior will likely lead to even higher prices. Lance Roberts, someone whose opinion I respect, reluctantly agrees we could see a market melt up:

“Wave 5, “market melt-ups” are the last bastion of hope for the “always bullish.” Unlike, the previous advances that were backed by improving earnings and economic growth, the final wave is pure emotion and speculation based on “hopes” of a quick fundamental recovery to justify market overvaluations. Such environments have always had rather disastrous endings and this time, will likely be no different.”

As Benjamin Graham, a wise man who would be scorned and ridiculed by today’s Ivy League educated Wall Street HFT scum, sagely noted many decades ago:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

Short-term traders can make immediate profits using momentum techniques, following the herd, and picking up pennies in front of a steamroller. Remember your brother-in-law who was getting rich day trading stocks in 1999? Remember your cousin who was getting rich flipping houses in 2005? Remember The Big Short, where the Too Big To Trust Wall Street banks were getting rich creating fraudulent mortgage derivatives and selling them to suckers? There are always profits to be made for awhile. Then the bottom drops out, because fundamentals, cash flow, valuations, and reality matter in the long run.

Lance Roberts points out some inconvenient facts, and I’ll point out a few more.

“It is worth reminding you, that while the markets are moving higher and pushing new highs currently, it is doing so against a backdrop of weak fundamentals, high valuations, and deteriorating earnings.”

History might not repeat itself, but it certainly rhymes. Late in 2007, as the housing collapse was well under way, the stock market hit all-time highs of 1,575 in October. The bulls were exuberant, even as the greatest housing crash in history was evident to everyone except Bernanke and Paulson. Corporate earnings were falling. Valuations were at levels only seen in 1929 and 2000. The so called “doomers” like Hussman, Shiller and Schiff were warning of an impending crash. Very few heeded their warning. In retrospect, the economy was already in recession by December 2007 despite economic reports saying otherwise. GDP and other falsified economic indicators were revised negative years after initially being reported as positive. Familiar?

To continue reading: All Time Highs

Leave a comment

Posted in Economy, Financial markets

Tagged

Bubble Alert: Meet The $25 Million Grilled Cheese Truck, by Tim Price

Posted on February 10, 2015 | 2 comments

A company with $1 million in assets and $3 million in liabilities, with 3rd quarter of 2014 sales of less than $1 million and a net loss of more than $900,000, just went public and the stock market values this company at $100 million plus. And what is this amazing companies product? Gourmet grilled cheese sandwiches. From Tim Price at sovereignman.com, via davidstockmanscontracorner.com:

There are some time-honoured signs of an impending market top.

One of them is that margin debt has peaked.

Another is that interest rates are going through the floor.

Another is that the velocity of money is also going through the floor.

Another is that Goldman Sachs’ Senior US Investment Strategist Abby Joseph Cohen reckons the stock market is relatively cheap, an opinion which she generously gave at a recent Barrons roundtable.

Barrons actually gave us two signs of a market top for the price of one (but then everything’s devalued these days) – their February 6th edition pointed out that the value of fine art sold at auction had quadrupled from $3.9 billion in 2004 to some $16.2 billion in 2014.

Barrons then tastefully offered readers a choice between the conclusions of malign ‘bubble’ and benign ‘boom’.

The problem is that in an environment of ubiquitous government manipulation, markets can trade at whatever levels central bankers want them to trade at, for a period at least.

So we’re not going to be rash enough to call a market top; we’ll merely draw attention to some anecdotal evidence of a certain, how shall we put it, irrational exuberance at work in the US stock market.

http://davidstockmanscontracorner.com/bubble-alert-meet-the-25-million-grilled-cheese-truck/

To continue reading: Bubble Alert

2 Comments

Posted in Business, Financial markets, Other Views

Tagged ,