patrick.net

lostand confused says

Stocks flying high-maybe the repeat of 1929s?

Stocks are high-flying on collapsing realized volatility. It is a zombie market.

Meanwhile, in crypto-land...

Strategist says

Yes, there is a difference. What Wall Street perceives, is where stocks go. Where stocks go, is where the economy goes. Therefore what Wall Street perceives is what matters.
Wall Street backs the R Team by default.

Don't get me wrong, I am fine with Trump.

It feels as if the market is just looking for an excuse to creep up. The rally looks peculiar.

Peter P says

Strategist says

Yes, there is a difference. What Wall Street perceives, is where stocks go. Where stocks go, is where the economy goes. Therefore what Wall Street perceives is what matters.
Wall Street backs the R Team by default.

Don't get me wrong, I am fine with Trump.

It feels as if the market is just looking for an excuse to creep up. The rally looks peculiar.

Only if one of the three things happen

1) A massive crypto-crash
2) Continued fast rising rates
3) Massive layoffs esp. in tech / bubble sectors

Currently no signs, though rates started rising.

mell says

Only if one of the three things happen

1) A massive crypto-crash
2) Continued fast rising rates
3) Massive layoffs esp. in tech / bubble sectors

Currently no signs, though rates started rising.

All can happen at the same time, together with high inflation.

Well all you can do is be leveraged as much as you can in real estate bought at the last low and then minimize any other risks which means protect your savings in lowest risk instruments that return next to nothing.

anon_17263 says

I am prepping for either inflation or liquidity crisis.

Even hyperinflation is possible. The ask-less market will definitely have liquidity problems.

SRS which had been beaten down eternally finally today made a bigger move up as rates spiked. If and only if rates continue to rise housing prices will start falling.

anon_17263 says

I am prepping for either inflation or liquidity crisis.

So how are you prepping for inflation or a liquidity crisis?

Peter P says

Strategist says

Yes, there is a difference. What Wall Street perceives, is where stocks go. Where stocks go, is where the economy goes. Therefore what Wall Street perceives is what matters.
Wall Street backs the R Team by default.

Don't get me wrong, I am fine with Trump.

It feels as if the market is just looking for an excuse to creep up. The rally looks peculiar.

So how are prepping for the next financial crisis as you put it?

Peter P says

We are now in an Everything Bubble orders of magnitude larger than the previous housing bubble.

Tell me more. Stocks are frothy for sure, but even so, the p/e's are nothing like what they were in the dot-com bubble.

Patrick says

Tell me more. Stocks are frothy for sure, but even so, the p/e's are nothing like what they were in the dot-com bubble.

It does not feel like a bubble because there is no volatility (as opposed to Bitcoin).

Also, the cross-sectional behavior is strange. Most of the gains come from a few stocks.

Peter P says

It does not feel like a bubble

The only thing I can think of is ETFs and managed stock fund packages. Also, these are all closely linked to 401Ks and other retirement stock investment vehicles. That's the only thing I randomly hazard might be 'bubbly'.

I think you are right in that this is just a huge imbalance, but not real pinpoint bubble.

We are going to burp.

Rew says

I think you are right in that this is just a huge imbalance, but not real pinpoint bubble.

This can be more dangerous than just an equities bubble because so many things are linked. For example, risk parity coupled with short volatility. The gearing effect cannot be underestimated.

The whole world is short gamma. If something gets tripped everything may go the other way.

Patrick says

Tell me more. Stocks are frothy for sure, but even so, the p/e's are nothing like what they were in the dot-com bubble.

Whoa, Patrick. I have a FEW things to say about that statement:

1. P/E being not as as bad as the peak of the dot-com bubble is hardly reassuring.

2. Corporate debt has ballooned from 3.4T to 6.1T from 2008 to 2017, as can be seen here https://fred.stlouisfed.org/series/NCBDBIQ027S

3. That increase in corporate debt has largely been used to buy back stock so as to make P/E look smaller and thereby inflating the stock price. All that non-productive corporate debt will cause big trouble.

4. SP500 weighted earnings have barely recovered to 2007-2008 pre-crisis levels, but the stock prices have ballooned, the earnings can be seen here, http://www.multpl.com/s-p-500-earnings/

5. Nevertheless SP500 has risen from ~1500 pre-crisis to 2700 today, as can be seen here http://www.multpl.com/s-p-500-historical-prices (beware the log scale)

6. Crazy valuations of FANG and FANTA stocks. Highlights: Amazon PE of 303 and Tesla loosing $8.66/share the last 12 months. Bonus: Amazon non-GAAP free cash flow accouting blowing up in their face.

7. QE unwind is in full swing since October 2017.

8. One word: BITCOIN

9. Housing bubbles in Australia, Canada and Sweden under severe pressure

My god man, the everything-bubble (bonds, real estate/housing, stocks, cryptocurrency, what-have-you) is wildly inflated, and 2018 looks like it will be a VERY dangerous year.

It is not exactly clear what will start the whole house of cards tumbling down. Could be some SF unicorn startup failing (Uber?), could be Tesla not being able to raise more debt, could be Facebook once advertisers figure out that nobody with purchasing power really uses FB anymore (that's my subjective impression), could be Netflix succumbing to Net Non-neutrality, could be Amazon AWS being out-competed by Google Cloud (they now have their own new building on HW237 near Moffett Field) and MSFT Azure, could be collateral damage from Bitcoin and crypto-currency meltdown. Could be oil price shock from a civil war in Saudia Arabia. Could be China succumbing to debt. Could be US Healthcare industry succumbing to a repeal of Obamacare. There is a whole flock of black swans out there, paddling furiously to avoid getting dragged over the edge of the waterfall.

I have been more conservative than normal for me this past year. The run up in stock prices before the tax bill makes sense to me. It seems to me that the P/E ratios need to be adjusted to a post-tax earnings ratio.

justme says

1. P/E being not as as bad as the peak of the dot-com bubble is hardly reassuring.

2. Corporate debt has ballooned from 3.4T to 6.1T from 2008 to 2017, as can be seen here https://fred.stlouisfed.org/series/NCBDBIQ027S

3. That increase in corporate debt has largely been used to buy back stock so as to make P/E look smaller and thereby inflating the stock price. All that non-productive corporate debt will cause big trouble.

4. SP500 weighted earnings have barely recovered to 2007-2008 pre-crisis levels, but the stock prices have ballooned, the earnings can be seen here, http://www.multpl.com/s-p-500-earnings/

5. Nevertheless SP500 has risen from ~1500 pre-crisis to 2700 today, as can be seen here http://www.multpl.com/s-p-500-historical-prices (beware the log scale)

6. Crazy ...

What do you think the tax cut was enacted for? To kick the can down the road and pump up the economy going into the 2020 elections. Watch the tax cut money drive the equities and economy into froth hyperdrive. It's already started and the bill's not even signed

What goes up always comes down. Gravity works.

Watch out for a melt-up instead of a melt-down.


This has been my angle. It’s a different mindset than a decade ago, where you had to be adverse to taking on debt. So I’m levered and diversified, but taking gains and using them to pay down debt. I’m taking risks and being greedy, while remaining cautious. It is different this time

I didn’t even notice the 2007 meltdown. I’m not overly leveraged on real estate, I’m up 41% in the stock market since Trump took office, and my biggest clients are on 5 year contracts.

So I’m good for a while.

I'm richer than I have ever been, and bitches have never wanted my junk more than ever. Go Trump and MAGA!

The FED has hit one thing right. If things happen slowly, nobody will notice. The FED has tightened, and i hear nobody mentioning/noticing it. All attention is on BTC and Trump. Inflation jawboning and rate rise is in the next 3 years. Not sure where stawks will go at this level of valuation. Bonds are going to have issues, and I am NOT sure how the US treasury will sell with even more deficit after TAX cut together with rate rise. My friend answer is war will happen so that the world will have no other stuff to buy other than treasuries. I am not sure because if war happens, why would anyone wants to lend money to enemies? I am 75% cash and 25% on commodities. I am okay to miss all the gain at this artificial level. I am in a bunker to defend the risk.

I'm prepping for disaster by paying off debt. Made some $ off cryptocurrency (I should have held onto it) and got rid of credit cards, car payments, etc. Now its just a mortgage and that will be gone in 2 years.

bob2356 says

What do you think the tax cut was enacted for? To kick the can down the road and pump up the economy going into the 2020 elections.

And what can would that be?

bob2356 says

Watch the tax cut money drive the equities and economy into froth hyperdrive. It's already started and the bill's not even signed

What's wrong with a strong economy and stocks? It's the goal of every government. Stop complaining.

I was debating with myself yesterday whether I should mention the Germany Steinhoff situation as another black swan. I think I will. This particular swan already went over the waterfall.

https://wolfstreet.com/2017/12/19/margin-debt-backed-by-steinhoff-shares-hits-bofa-citi-hsbc-goldman-bnp/

Peter P says

Even hyperinflation is possible

Have you considered that in the current economic climate, hyperinflation might be exactly the thing we need to escape the coming debt crisis? Bankers hate it, and interest rates will necessarily rise, but it seems to me that the last hyperinflation was the biggest giveaway to the middle classes of any in the 20th century.
When money loses 3/4 it’s value in ten years, a lot of debt vehicles lose their grip on the people.

I don't think we even need hyperinflation. Just half a decade of 7-10% inflation would be an amazing debt destroyer. It would also smack home prices down, since people buy the payment not to sale price.

Although they've had an unprecedented ride, I have a feeling banks feel entitled to permanently low inflation. Be nice to shake it up.

Inflation returning to normal would also confirm widespread growth for the many, as well.

just any guy says

I'm richer than I have ever been, and bitches have never wanted my junk more than ever. Go Trump and MAGA!

Wine Women and Wealth. What more could a man want?

Unless something catastrophic happens, I don't see hyperinfaltion. In the free trade model,w e export inflation. If you can buy a Lenovo laptop for 100 bucks, who is going to buy an American made one for 800 bucks?
if you can hire a chinese worker , no rules, work 7 days a week, stays in dorm attached to the fatcory and only goes home twice a year-why would you hire an American worker with all rules, regulations, unemployment, lawsuits etc etc. Now if we slap an import tax, yes, but otherwise how is an unskilled worker's salary increase in the current environment.

lostand confused says

but otherwise how is an unskilled worker's salary increase in the current environment.

Slave labor and technology are the two main reasons why the wages for unskilled labor lags. Only government laws like minimum wages can reverse that.

The hotter the girl, the more expensive. Basic economic function.

Haven't really prepped. Just more discerning about taking on debt, living within our means, investing in something with value not tied to fiat currency, and long terms plans to move to the South Pacific. The last I'd probably due regardless of financial collapse though.

Strategist says

bob2356 says

Watch the tax cut money drive the equities and economy into froth hyperdrive. It's already started and the bill's not even signed

What's wrong with a strong economy and stocks? It's the goal of every government. Stop complaining.

Worked great 2002-2006.

mell says

The hotter the girl, the more expensive. Basic economic function.

My wife’s hot and she contributes a nice income. Not sure if she’s expensive, but I’d definitely say she’s a bit of a unicorn. Most hot girls don’t get and education or if they do, they don’t study anything useful.

Quigley says

mell says

The hotter the girl, the more expensive. Basic economic function.

My wife’s hot and she contributes a nice income.

Then what's wrong with her? Why did she merry you?

Quigley says

it seems to me that the last hyperinflation was the biggest giveaway to the middle classes of any in the 20th century.
When money loses 3/4 it’s value in ten years, a lot of debt vehicles lose their grip on the people.

Yes, as long as salaries surge to keep pace, then fixed mortgage debt really falls in value with inflation.

I feel fairly well set up for inflation since stocks generally ride out inflation pretty well. Prices for goods rise, so corporate earnings rise, so stocks rise.

lostand confused says

if you can hire a chinese worker , no rules, work 7 days a week, stays in dorm attached to the fatcory and only goes home twice a year-why would you hire an American worker with all rules, regulations, unemployment, lawsuits etc etc.

This is why globalization is a disaster for ordinary working people.

Patrick says

This is why globalization is a disaster for ordinary working people.

But they are all globalists, just different flavors.

Quigley says

Have you considered that in the current economic climate, hyperinflation might be exactly the thing we need to escape the coming debt crisis?

Hyperinflation is usually caused by a complete loss of faith in the currency. It will be tough for everyone without productive real assets.

Peter P says

Patrick says

This is why globalization is a disaster for ordinary working people.

But they are all globalists, just different flavors.

What do you mean? That working people are also globalists because they benefit from cheap foreign consumer goods which destroy their own jobs?

Patrick says

What do you mean? That working people are also globalists because they benefit from cheap foreign consumer goods which destroy their own jobs?

Both candidates were globalists, just different kind.

That said, I am quite happy that Trump won.