Near Record Multiple Priced In
James Bianco of @biancoresearch:
“The vaccines are coming, the stimulus checks are coming, the money is coming. It’s already in the price. That’s why you’re already paying near-record multiples for a lot of markets.”https://t.co/6RLFAetfqh
— DoubleLine Capital (@DLineCap) January 22, 2021
“Any wobble or any disappointment will be met very poorly by these markets if you don’t give them what they’ve already priced in.”https://t.co/6RLFAebE1H
— DoubleLine Capital (@DLineCap) January 22, 2021
Records Last Only So Long
Records only last so long. Tip of hat to Henry Aaron.
— Jiggs45 (@wlbritton) January 23, 2021
Bubble Talk
Low real rates do not result in high PE multiples, unless it’s a bubble. pic.twitter.com/HcBj0xsvwH
— zerohedge (@zerohedge) January 23, 2021
A Word on Fundamentals
“We have to recognize that this has been a manufactured heads-you-win, tails-you-win-market. It has nothing to do with the fundamentals. The fundamentals in the economy are actually not good at all.”https://t.co/63DmM57exj
— DoubleLine Capital (@DLineCap) January 19, 2021
.@EconguyRosie: “People are talking about the light at the end of the tunnel. At some point in 2021 we’re going to be pricing in life beyond that light, and there’s a lot of potholes, a lot of uncertainties.”
One of those? Commercial real estate.https://t.co/Mu4IRz9sid
— DoubleLine Capital (@DLineCap) January 19, 2021
I have given up trying to figure out when this all breaks.
But when it does, the Fed’s reaction is going to be very interesting.
Mish
That’s an amazing article. Thanks for sharing.
What article?
As so many of you have already noted, “pop it will…” I have felt that way since 2015, along with John Hussman, who I deeply respect. I welcome getting back to a market I can at least connect to investing fundamentals, if not celebrate. It’s been hard to sit out the runup since then, but I do sleep at night.
The sad part of the market “popping” is, the usual suspects are likely to get bailed out, while the rest take a direct hit in the pension. Ironically, failure to address the obvous distortions in valuations now ensures greater suffering down the road. And will further undermine personal savings prospects for decades to come.
My wife asked me this morning, “honey, why aren’t we in stocks?” Her friends are crowing about “all the money they are making in the market”. Really? The little guys are about to be crushed — again… The traders and promoters? — IBGYBG. Which is completely predictable, and truly sad.
All good points, I agree.
“all the money they are making in the market”
I would reply that they’ve only made money once they’ve sold and crystallised it. Until then it’s just a current valuation based on the price of the last trade. The only return they’ve crystallised is any dividend they might have received.
How Options Trading Could Be Fueling a Stock Market Bubble
A swell of individual investors are betting that stocks will go up. That enthusiasm is having a growing influence over the regular stock market itself.
By Matt Phillips
Jan. 25, 2021
Lyn Alden, brainiac, has an article for non-brainiacs about how interest rates affect equity prices:
I kind of wonder if she and Hussman would disagree about something on this issue, but I’m not smart enough to figure that out.
Nice article. She kinda turns me on with all that well expressed financial knowledge.
Yes I think he would disagree.
I wish I had an extra dollar for every time I’ve read a ZH article insisting that the Fed is “out of ammunition”. It would solve my present conundrum of how to raise more cash.
Their ability to kick proverbial cans down the road has amazed me since ~2008.
I continue to hear the Fed has used up all its tools. They must have bought short-term extended warranty on the tools because they have been incredibly lucky.
With corporate balance sheets loaded-to-the-gills with debt and capital structures containing only tiny slivers of equity at this point, this “market” is a one-way bet on eventual hyper-inflation. Even a whiff of deflation could be absolutely deadly.
Exactly. The argument that the Fed will print and buy enough for markets to go up forever is the same as saying: “USD [actually all currencies] are going to straight line to zero.”
As long as people actually want USDs (!) then real valuations for equities are still bound to matter in capital markets at some point.
Either markets revert to real valuations “soon” (next few years), or the eventual crash will be absolute. I think latter is extremely unlikely in my lifetime, versus a harsh deflation that eclipses GFC in next few years is not unlikely. … During bull markets we forget that markets crash all the time (every decade or two) — it’s not a rare event, it’s a guaranteed event.
I expect these bubbles will get considerably bigger before they pop. Especially with the helicopter money to paper over the economic effects of COVID.
But I decided equities were too manipulated and subject to central bank policy a decade ago….
The problem with stocks now is that everybody knows about the Fed put and trusts it.
It’s not that I don’t believe in it…..it’s just that playing that game depends on market timing now….in way that it never did in the old days. Everybody thinks they’re in a liquid market…but they don’t consider what can happen on some bright day when absolutely everybody wants to be a seller, and…..almost nobody understands the actual mechanism of that works.
When corrections do come, there is no tangible value in stocks to reduce the risk….in housing there is…..
“mechanism of how that works”
Mish, for all the time you spent in Illinois time to volunteer your services to mediate between the Chicago Public Schools and Chicago Teachers Union. The fate of the city depends upon it.
Having been through many bubbles, this is clearly a bubble. The bigger the bubble, the bigger the pop. Not sure when it will pop, but it will pop and many investors will be decimated.
we’re all frogs sitting in a pot being slow boiled. Because the temperature is getting raised ever so slowly we don’t recognize the danger. The risk reward trade-off in the market could not be worse. And when you consider low bond yields , fixed income isn’t really an alternative to equities.
You are right about the frog and the pot..It is not only stock markets related though;
democracy too is becoming a oligarchic, socialist, technocratic dictatorship… gradually so, and we re indeed getting boiled like frogs in a pot….
too many in this country no longer believe in democracy. they believe the election was stolen and they would be very happy if trump stayed in power regardless of the vote. we really need to bring back civics class in school. there’s simply a lack of knowledge and understanding and the time to teach, indoctrinate and whatever you wish to call it needs to start when people are young
It really is so much like the 1920’s and 30’s in so many ways. Parties now want to split up just like in democracies of that time. People want to try so many different political/economic things without knowing what’s been tried before. I fear we may have to relive many of those events before we sort out. But in the end there may be nothing we can do to avoid an eventual depression. Because of QE I don’t think most people have any realization how close we came in 2008.
At ZIRP, it is a different world. Money is free for traders. Also the whole price and valuation argument goes out the window when Fed computers keep the bond market levitated. Money will come out of stock and into bonds if the Fed ever let’s up.
I see a market that goes nowhere interestingly in 2021 but will make a bull run in 2022 as we come out the mistakes of Trump administration on covid and trade. It will take a year to undo the mess Trump created.
WHERE is it, that ‘free money’? I want some ! Personally I have ‘worked’ for the money I invest in the bond/stock markets…. Yes I know about margin accounts , but they don’t come for free, especially not when the markets turn against you! Free lunch ? Forget it…..although the FED is doing ‘the best’ it can…..
What specifically did Trump do that will be un done?
Pulling back the troops. Gotta get the war machine going again.
Here’s an interesting article on Bitcoin. Doesn’t sound like anything to be in.
The Bit Short: Inside Crypto’s Doomsday Machine
Crypto Anonymous
Jan 14·2021
This is the story of a Bitcoin trade — the most financially impactful trade I’ve ever made in my life. It’s also the story of the deep-yet-frantic investigation of the crypto ecosystem that led me to make that trade. And it’s the story of what’s really going on in crypto — and what we should do about it.
If you own meaningful amounts of cryptocurrency or you’re considering buying some, you’re the reason I wrote this. Please do read to the end.
Bitcoin will take the blame as the fall guy if this market crashes.
Anybody who studies crypto knows about the Tether scam. It’s been ongoing for a couple of years.
You seem to be amazingly smart about everything (or claim to be). The guy who wrote the article apparently wasn’t. Let’s see you publish something as in-depth rather than [apparently] spending much of every day hanging out on Mish’s blog making comment after comment.
I tried to learn as much as I could about crypto, and once owned a lot of alt coins….but I got out of it because I was losing….and I couldn’t afford to just buy and forget and hope…….I took a small loss and decided that I needed to concentrate on assets that are less volatile and markets that are less manipulated.
People make super gains on crypto…but it’s really too volatile to tie up any big amount of money….not a buy and hold imho. Maybe for people who have mad money and want to buy a lottery ticket.
You pretty much have to take the gains on crypto when you can…..it typically gives back a whole lot of any gain.
Some coins that have use cases are interesting…..but bitcoin still is too much of the market…..every coin moves with bitcoin.
Momo crowd (momentum) doing their part along with trend. So long as the train moves forward the momo gets a bid.
Add buyers (index trackers) that are not price sensitive.
Stir.
Increasing risk, momos tightening stops, some butterfly flapping its wings and the exit gets crowded and the momo shorts get placed.
I wonder how much of the stock market reflects either or both of these things:
Stocks are desirable, inflation-proof money.
Why pay dividends to “owners” who have no need for them? Let the “owners” defer taxes by converting dividends to the stock price. Cost? High P/E. Pffft.
Are stocks inflation proof? It’s complicated, maybe to some degree over an economic cycle? Say supplies dry up because the pandemic causes costs to rise. Companies start to put their prices up because of difficulty getting stock. However people aren’t getting wage rises so they begin to buy only what’s necessary, so profit margins are squeezed. Eventually they begin to demand more wages, if they can. Prices would be higher but profit margins wouldn’t be.
As far as affordability is concerned, price rises are being offset by temporary govt. stimulus being doled out as direct payments. The big question is wether inflation continues past the pandemic. With prevailing interest rates as low as they are (and the resulting wiggle-room that provides to central banks) THAT really is THE question that will determine the world’s economic future at this point.
Regarding dividends, it’s money in the bank. Capital gains are mostly just paper gains because people don’t sell, not until they start to vanish anyway.
None of these guys know anything. The market is in melt up mode. It will never break.
I missed on on 250% gains because I listened to these clowns after the GFC. I’m not making that mistake again.
There’s probably a lot of people with similar thoughts. If they’ve all now bought, who’s left to buy?
Central Banks – the buyer of last resort
Exactly. And buy they will.
Out of interest is the Fed showing up any Company Share registers, or their purchase vehicle.
Yes, the feds reaction will indeed be interesting! Like you, not a clue when it pops, but pop it will. It’s either destroy American hegemony by crushing the USD or secure hegemony and let the stock market function as a “market” rather than as a device to further enrich the top 1%
Interesting times ahead
How about the FED attempt to do both? If the top 1% goes to cash, the USD survives. Companies default on debt, but the rich have enough dollars to buy what’s left of collapsed companies for next to nothing. The rich still stay rich in the long run, the USD stays strong, and those not recognizing the bubble and financial mischief take the losses. It’s not how many dollars one has, its how much stuff the wealthy can buy with the dollars they have.
“But when it does, the Fed’s reaction is going to be very interesting.”
I think may be the Fed’s will jack up the QE to 400 billion per month as they might need 5 trillion to double the market in a year.
But then I also think it the dollar index which will limit what the Fed will do.
Going to be very interesting indeed