1. The Worst of Times: In hindsight, it was never going to end well when both stocks AND bonds were trading at crazy expensive levels. It is the worse case scenario for traditional passive buy and hold portfolios.
Source: Dr. Timo Teuber
2. Max Pain: Passive buy and hold + stocks and bonds down = portfolio pain. And it is showing up clearly in Google Trends data on searches for "why is 401k down".
3. Extreme Valuation Swinging: We’ve just witnessed an extremely rapid and substantial contraction in P/E multiples (which follows a previous extremely rapid and substantial expansion!). The question many will ask: "is it cheap yet?"
4. Is it Cheap Yet? In terms of levels, even though the US PE10 ratio has come down sharply, it is still some way off the bottoms seen in 2016/18/20. So I would say no, it is not cheap yet: not expensive anymore, but not cheap.
Even the rest of world is still not far off the top of the range of recent his
Global vs US PE10 Valuations: One of the most interesting aspects of the past decade has been the divergence in valuations between the USA and the rest of the world. A big part of the divergence in price/value has been driven by a massive divergence in relative earnings performance, with the US significantly and consistently outperforming the rest of the world in earnings growth…
But while the US has outperformed rest of world in earnings over the past decade, arguably this is already in the price and then some.
US PE10 valuations (i.e. price divided by trailing 10-year average earnings) are about double that of the rest of the world, and the breadth of overvaluation shows that it is a widespread issue (more than 90% of countries are at least 20% cheaper than the US by our calculations). One thing to note on this too is that such valuation gaps can partially close by the expensive one simply “catching down” or correcting further/faster than the other… and that seems to be happening as
Are we officially in the process of being caught off guard?
I wasn’t even going to write a note this morning, because it’s Sunday and I have a couple pieces planned for the week to come. But then I had an interesting set of realizations this morning while walking to get my coffee:
Many young people on Wall Street nowadays have never experienced real volatility in markets
Russia’s invasion of Ukraine and inflation at 7.5% in the U.S. are two extremely different, complex and unmapped pieces of terrain that we are going to be forced to navigate
In other words, we have a ton of inexperienced market participants that should be bracing for the economic shock of their lifetimes, but they’re not - they’re still at the stage where walking around Manhattan in Patagonia vests, drinking Starbucks and making dinner reservations at whatever douche-motel is trendy this week are among their top concerns.
This wasn’t a big deal when I first pointed out in November that I thought the NASDAQ could crash. We
iStock via Getty Images
- Things appear to be getting worse, not better, along the global supply chain, which was upended by the coronavirus pandemic over a year ago. That means entire companies and industries are going to have to deal with more extremes for the foreseeable future, making business investment a shaky decision that compounds the original problem. The volatility and uncertainty also destroy demand as prices become too high for consumers. The phenomenon, called the "bullwhip effect," could end up damaging the economy in the short-term, with violent swings in a range of goods. Seeking Alpha discussed the possibility back in May, but it looks like the situation is now in play.
- Warning bells: In an open letter to the United Nations General Assembly, business leaders from the International Chamber of Shipping, IATA and other transport groups (that account for more than $20T of annual global trade) sounded the alarm on the risks of a supply chain meltdown. "We are wit
- "The pace at which themes are transforming businesses is blistering, but the adoption of many technologies - like smartphones or renewable energy - have surpassed experts’ forecasts by decades, because we often think linearly but progress occurs exponentially."
- BofA Global Research strategists led by Haim Israel release a 152-page research report identifying 14 "radical technologies that could change our lives and accelerate the impact of global megatrends."
- They have a $330B market size today that could grow to $6.4T by the 2030s, Israel says.
- "These moonshots could transform and disrupt multiple industries, contributing to the next big cycle of technology-driven growth."
- The 14 are:
- 6G: "The next generation of telecom networks will be needed in less than a decade as data continues to grow exponentially and 5G reaches its upper limit capacity."
- Brain Computer Interfaces: "As we reach a point where humans are unable to keep up with computers and AI, brain computer interfaces could
While bitcoin has been one of the world’s best performing assets over the past 10 years, the cryptocurrency has had its fair share of volatility and price corrections.
Using data from CoinMarketCap, this graphic looks at bitcoin’s historical price corrections from all-time highs.
With bitcoin already down ~15% from its all-time high, Elon Musk’s tweet announcing Tesla would stop accepting bitcoin for purchases helped send the cryptocurrency down more than 50% from the top, dipping into the $30,000 price area.
“Tesla has suspended vehicle purchases using Bitcoin. We are concerned about rapidly increasing use of fossil fuels for Bitcoin mining and transactions, especially coal, which has the worst emissions of any fuel.”
Crypto Cycle Top or Bull Run Pullback?
It’s far too early to draw any conclusions from bitcoin’s latest drop despite 30-40% pullbacks being common pit stops across bitcoin’s various bull runs.
While this d
From the bottom in late March of last year, the U.S. stock market was up nearly 75%. This was the best 12 month return ever recorded since 1950.
Nearly 96% of stocks in the overall U.S. stock market showed positive returns in that time.
It’s highly like we will never experience a 12 month period of returns like that again in our lifetime. For all intents and purposes, the one year period following the bottom of the Corona Crash was the easiest environment in history to make money in the stock market.
If you think this type of market is normal, you’re sorely mistaken. It’s not always going to be this easy.
In fact, the stock market has already stopped being so easy in 2021. While the S&P 500 just hit its 26th new all-time high this year alone (including another new high at the close on Friday), a number of stocks are currently getting crushed.
And it’s not just any stocks; it’s many of the stocks retail investors flocked to last year following the crash:
For those who have not followed David Einhorn's crusade against central bank money printing, and the epic bubble these cluless academic hacks have created, his views on the "enormous tech bubble" we are currently living through and published in his latest letter to investors of his Greenlight hedge fund (which returned 5.9% in Q3) will provide some unique perspective.
To everyone else who is familiar with how his fund has been hammered by his tech short basket - and especially Tesla - over the years as the most overvalued tech stocks in history continued to rip higher year after year, we doubt his latest thoughts will come as a surprise, although his observations on the endgame are certainly remarkable, if for no other reason that he now declared the time of death of said "enormous tech bubble" as Sept 2, 2020.
Bubbles tend to topple under their own weight. Everybody is in. The last short has covered. The last buyer has bought (or bought massive amounts of weekly calls). The decline s
The Iran conflict notwithstanding, Mr. Market will do it's best to reassure you that everything will be fine. Only time will tell but I personally, would not want to enter any new positions here unless you're a daytrader. Not at 20x forward earnings already baked in. Watch the next plank of earning reports. Hedge if you are long any name...........except gold that is. I have a target of $1700 in a wave five count before a correction.
The idea that we are late in the economic and financial-market cycle is one that even most Wall Street bulls won’t dispute.
After all, when the economic expansion surpasses a decade to become the longest ever and the S&P 500 has delivered a compounded return of nearly 18% a year since March 2009, how can the cycle not be considered pretty mature?
Yet it’s not quite that simple. Huge parts of the economy have run out of sync, at separate speeds. Some indicators have a decidedly “good as it gets” look, others retain a mid-cycle profile — and a few even resemble early parts of a recovery than the end. Friday’s unexpectedly strong November job gain above 200,000 reflects this debate, suggesting we are not at “full employment” even this deep into an expansion.
And the market itself has stalled and retrenched several times along the way, keeping risk appetites tethered and purging or preventing excesses.
In the “late-cycle” category we find several broad, trending data readings: Unemploym
Since the beginning of the Industrial Revolution, the world has seen its population and the need for natural resources boom.
As more people and wealth translate into the demand for global goods, the prices of commodities—such as energy, agriculture, livestock, and metals—have often followed in sync.
This cycle, which tends to coincide with extended periods of industrialization and modernization, helps in telling a story of human development.
Why are Commodity Prices Cyclical?
Commodity prices go through extended periods during which prices are well above or below their long-term price trend. There are two types of swings in commodity prices: upswings and downswings.
Many economists believe that the upswing phase in super cycles results from a lag between unexpected, persistent, and positive trends to support commodity demand with slow-moving supply, such as the building of a new mine or planting a new crop. Eventually, as adequate supply becomes available and demand growth slows, the
Ms. DiMartino Booth, why is the Federal Reserve bad for America?
Because of its intellectual dishonesty. The Fed noticed around 2009 that if they had had a more reliable and realistic inflation gauge on which to set policy, they would have seen the crisis coming. But despite that recognition, they chose to do nothing about it.
Are there more realistic inflation gauges?
Several Federal Reserve Districts have come up with alternative gauges. The underlying inflation gauge from the New York Fed for example also includes asset price inflation. And it runs about one percentage point higher than what the Fed measure is – they prefer the core Personal Consumption Expenditures Price Index, the core PCE.
How would monetary policy look like with a more realistic inflation gauge?
Monetary policy would be much different. The Fed would not have been able to maintain a monetary policy as easy as it has done over the last couple of years. Central bankers are hiding behind the core PCE being at 1,6%. The
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