Tag Archives: Stock Market

Doug Casey on Whether the “Everything Bubble” Has Finally Found Its Pin

Sneak peak: it has. From Doug Casey at internationalman.com:

International Man: Recently, large tech stocks lost over $1 trillion in value in just a few days. Many of these companies have been trading at insane earnings multiples for a long time.

Has the bubble finally popped?

Doug Casey: It actually started popping about a year ago—but now people are starting to notice that lots of these stocks are down not just down 50%, but 75%, and 90%.

Several classes of stocks are getting hurt particularly badly. One is the zombie companies that took advantage of low-interest rates and overleveraged. They borrowed a lot of money in order to pay dividends and buy back shares. The borrowing had little to do with growing the actual business. Now they can’t pay back the debt they’ve taken on since interest rates have gone up.

Continue reading→

Massive Stock Market Leverage Unwinds amid Brutal Bloodletting, by Wolf Richter

Losing borrowed money in the stock market is guaranteed to amplify your pain. From Wolf Richter at wolfstreet.com:

Margin debt started dropping a month before the Nasdaq went south, and it’s still dropping.

The total amount of leverage in the stock market is unknown and takes many forms. The only form that is tracked and reported on a monthly basis is margin debt. The other forms, such as Securities Based Lending (SBL) and hedge funds leveraged at the institutional level are not tracked. Not even banks and brokers that fund this leverage know how much total leverage their client has from all brokers combined, which became clear when the family office Archegos imploded in March 2021 and wiped out billions of dollars in capital at the prime brokers that had provided the leverage.

But margin debt – the tip of the iceberg and indicator of the direction of the overall stock market leverage – dropped by $27 billion in April from March, to $773 billion, according to Finra, which gets this data from its member brokers. Margin debt peaked in October last year at $936 billion and started falling in November. Over those six months, it has dropped by $163 billion, or by 17%. But leverage is still massive, and the unwind has a long way to go:

Continue reading→

No Wonder the Market Is Skittish, by Charles Hugh Smith

What happens when the central bank music stops. From Charles Hugh Smith at oftwominds.com:

The equity, real estate and bond markets all rode the coattails of the Fed’s ZIRP and easy-money liqudiity tsunami for the past 13 years. As those subside, what’s left to drive assets higher?

No wonder the market is skittish:

1. Every time the Federal Reserve began to taper quantitative easing / open spigot of liquidity over the past decade, reduce its balance sheet or raise rates from near-zero, the market plummeted (“taper tantrum”) and the Fed stopped tightening and returned to easy-money expansion.

2. Now the Fed is boxed in by inflation–it can’t continue the bubblicious easy-money policies, nor does it have any room left to lower rates due to its pinning interest rates to near-zero for years.

3. So market participants (a.k.a. punters) are nervously wondering: can the U.S. economy and the Fed’s asset bubbles survive higher rates and the spigot of liquidity being turned off?

4. The market is also wondering if the economy can survive the pricking of the “everything” asset bubbles in stocks, bonds, real estate, etc. as interest rates rise and liquidity is withdrawn. What’s left of “growth” once the top 10% no longer see their wealth expand every month like clockwork?

Continue reading→

Stocks Don’t Need More Alarm Bells, They’re Already Clanging and Jangling All Over the Place. But Here we Are: Leverage, by Wolf Richter

Leverage—borrowed money—amplifies both gains and losses. From Wolf Richter at wolfstreet.com:

Stock market leverage, the big accelerator on the way up, and on the way down.

Increasing leverage – borrowing money to buy stocks – puts buying pressure on the stock market up. Declining leverage – selling stocks to reduce leverage – puts selling pressure on the market. Stock market leverage has ballooned over the past 20 months by historic proportions, which has contributed to the historic surge in stock prices. So we’ll keep an eye on leverage.

The tip of the iceberg of stock-market leverage that we can actually see is margin debt, which is reported on a monthly basis by FINRA, based on data reported by its member brokers.

Other forms of stock-market leverage occur in the shadows, such as Securities Based Lending (SBA) that isn’t tracked and reported in a centralized manner, though some banks choose to disclose it quarterly or annually.

There is leverage associated with options and other equities-based derivatives. Then there is leverage at the institutional level such as with hedge funds, which doesn’t show up until a fund implodes, such as Archegos, and everyone gets to pick through the debris.

Continue reading→

Red Friday: A Little Dip and Already the Crybabies on Wall Street are Clamoring for the Fed to Soothe their Pain, by Wolf Richter

There’s nothing like a strong down day on the stock markets to get the easy money crowd to start clamoring for a bailout. From Wolf Richter at wolfstreet.com:

But raging inflation is a political bitch, and the White House got the Fed to acknowledge it, and that changes the equation.

Stock markets closed at 1 p.m. today, and there wasn’t enough time to rectify this evil situation that has emerged on Black Friday, when stocks were supposed to be meandering higher on very low volume, driven by a few algos that would make sure stocks meandered higher to easily book another winning day and a new record high for the S&P 500 to keep the hype going.

But the sellers had arrived overnight while the buyers suddenly weren’t super-interested at buying at these ridiculously inflated record prices after the largest and fastest money printing scheme ever. And voilà. What everyone knew would happen someday, happened on this Red Friday, and stocks swooned.

And already the crybabies on Wall Street have come out in force, clamoring for the Fed to end the tapering of its asset purchases, and to push out the expected interest rate hikes into distant infinity, and to maybe even re-start QE all over again before they even ended it, because, you know, stocks aren’t ever allowed to drop, not even a little bit off their ridiculously inflated highs.

But the Fed, unlike before, has bigger worries for the first time in four decades – and Powell and Brainard, along with just about every other Fed governor have acknowledged it: Raging consumer price inflation that has now spread broadly across and deeply into the economy, filtering into services such as rents that are unrelated to transportation mayhem and production shortfalls in Asia. Rents, accounting for about one-third of CPI, are just now getting started to flex their muscles in the inflation indices. And the mood of consumers has soured.

Continue reading→

The Counter-truths Unspin, by James Howard Kunstler

What if revulsion at Covid-19 totalitarianism plus the stolen election boil over at the same time the economy and financial markets head south in a big way? From James Howard Kunstler at kunstler.com:

Back in the day, LSD trips were mostly a matter of personal choice. Today, though, all you have to do is wake up somewhere between Montauk and the Farallon Islands and your senses are overwhelmed with hallucinations. The public used to depend on newspapers and TV networks to suss out reality, but that filter is long gone, replaced by a relentless “narrative” machine, and all it does is spin out one technicolor whopper after another.

The trouble is: narrative is not the truth. Generally, it’s the opposite of the truth. It’s manufactured counter-truth. The more narrative you spin, the faster you must spin off new supporting narrative to conceal the untruth of your previous narrative — until the national hive mind is lit up in unreality where nothing makes sense and the very language that separates humanity from the rough beasts becomes a social poison. And is “Joe Biden” not the perfect gibbering epitome of this mess, a ghost in the narrative machine, beckoning us into chaos?

America is on a bad trip. The country has lost its way psychologically. Two things will be required to bring it out of the fugue state it tripped into five years ago: some significant shocks to the system and the passage of time. Those shocks are in the offing and the “Joe Biden” regime — meaning Barack Obama and his wing-people who run things — are looking more and more desperate as auguries manifest.

Continue reading→

Do You Hear the Bells Ringing? by MN Gordon

The story of Ivar Kreuger was the point of departure for an Ayn Rand play (The Night of January 16th) and it holds lessons for today. From MN Gordon at economicprism.com:

There’s an old Wall Street adage, you’ve likely heard it, “No one rings a bell at the top (or bottom) of the market.”

The bell, of course, is the signal to sell at the market top.  Here we pause to take exception with this adage.  As far as we can tell, bells do ring at market tops.  Yet few hear them.  Most people’s ears are plugged with the prospects of easy riches.

Bull markets often give way to manias…where an asset’s intrinsic value becomes less important than the hope that an overpriced asset can be later offloaded at a higher price to a greater fool.  Certainly, irrational pricing based on greater fool dynamics is the sound of a ringing bell.  Though this can go on for years.

The current ratio of total market capitalization to GDP (now over 200 percent) is most definitely the sound of a ringing bell.  Another ringing bell is the $500 million batch in junk bonds recently sold by MicroStrategy for the sole purpose of buying bitcoin.  These bitcoin junk bonds pay a generous 6.125 percent coupon rate.

How will MicroStrategy pay the coupon if bitcoin goes down?  Will they sell more junk bonds?  Will anyone buy them?

Do you hear any bells ringing?

At the moment (at the market top), few people do.  These bells won’t be heard until after the market craters.  In retrospect, it becomes obvious that, at the market top, bells had been ringing practically every day.

The sound of a bell ringing at the market bottom is much more grim.  At real market bottoms, people kill themselves.  That’s when the great frauds are revealed.  And some former titans of industry are revealed to be great swindlers.

Today we look back nearly 100 years to one of the great Wall Street swindlers.  We squint for parallels to the present.  There is instruction to be found…and frauds to avoid…

Continue reading→

One Mad Market & Six Cold Reality-Checks, by Matthew Piepenburg

There are some commonly held notions out there that in no way comport with reality. From Matthew Piepenburg at goldswitzerland.com:

Fact checking politicos, headlines and central bankers is one thing. Putting their “facts” into context is another.

Toward that end, it’s critical to place so-called “economic growth,” Treasury market growth, stock market growth, GDP growth and, of course, gold price growth into clearer perspective despite an insane global backdrop that is anything but clearly reported.

Context 1: The Rising Growth Headline

Recently, Biden’s economic advisor, Jared Bernstein, calmed the masses with yet another headline-making boast that the U.S. is “growing considerably faster” than their trading partners.

Fair enough.

But given that the U.S. is running the largest deficits on historical record…

…such “growth” is not surprising.

In other words, bragging about growth on the back of extreme deficit spending is like a spoiled kid bragging about a new Porsche secretly purchased with his father’s credit card: It only looks good until the bill arrives and the car vanishes.

In a financial world gone mad, it’s critical to look under the hood of what passes for growth in particular or basic principles of price discovery, debt levels or supply and demand in general.

In short: “Growth” driven by extreme debt is not growth at all–it’s just the headline surface shine on a sports car one can’t afford.

Continue reading→

Reefer Madness and More, by David Stockman

Some marijuana has hallucinogenic properties, and that’s what they’re smoking on Wall Street and the Federal Reserve these days. From David Stockman at davidstockmanscontracorner.com via lewrockwell.com:

We sometimes wonder what they are smoking down on Wall Street, but today the question might better apply to the homegamers who are apparently hitting their bongs down in mom’s basement.

We are referring to Wednesday’s rip-snorting 47% rise in the stock of Tilray – the lead rabbit in the Reddit run on pot stocks.

As it happened, the day that GameStop peaked on January 27th, the once left for dead Tilray was valued at $2.9 billion. Thereafter it went vertical, weighing-in at $10.6 billion upon Wednesday’s close.

That’s not bad, of course, for a company with a mere $201 million of LTM sales, a net loss of $487 million and negative free cash flow of $261 million. And it’s not getting any better, either.

Since going public in 2018, the company’s net loss (blue line) has grown by 60X and its free cash flow (orange line) hemorrhage has worsened by 15X.

Indeed, when you look at Tilray’s three-year history as a publicly traded company, the massive swings in the market cap of this money loosing marvel are about as close to pure reefer madness as you can get without inhaling.

Continue reading→

Is This The Biggest Financial Bubble Ever? Hell Yes It Is, by John Rubino

It’s hard to argue with John Rubino; this is undoubtedly the biggest financial bubble ever. From Rubino at dollarcollapse.com:

If you’re over 40 you’ve lived through at least three epic financial bubbles: junk bonds in the 1980s, tech stocks in the 1990s, and housing in the 2000s. Each was spectacular in its own way, and each threatened to take down the whole financial system when it burst.

But they pale next to what’s happening today. Where those past bubbles were sector-specific, which is to say the mania and resulting carnage occurred mostly within one asset class, today’s bubble is spread across, well, pretty much everything – hence the term “everything bubble.”

When this one pops there won’t be a lot of hiding places.

Way too much money
Most bubbles start when an influx of outside cash sends the price of something up dramatically. This captures the imagination of the broader investing public and the process takes on a life of its own, culminating in an orgy of bad decisions and eventually a wipe-out of the easy fortunes made on the way up.

So to understand the everything bubble, let’s start at the beginning with that influx of outside money. This time it’s coming from the Federal Reserve in what can only be described as the mother of all print runs. M2, a medium-broad measure of the US money supply, has more than tripled so far in this century, and lately the arc has gone vertical, rising by nearly a third in just the past year.

M2 everything bubble

Continue reading→