Tuesday, November 28, 2017

The year of bubbles in a snapshot

As one more year of monetary accommodation draws to a close, John Mauldin has these bubble facts
  • A painting (which may be fake) sold for $450 million.
  • Bitcoin (which may be worthless) soared nearly 700% from $952 to ~$8000.
  • The Bank of Japan and the European Central Bank bought $2 trillion of assets.
  • Global debt rose above $225 trillion to more than 324% of global GDP.
  • US corporations sold a record $1.75 trillion in bonds.
  • European high-yield bonds traded at a yield under 2%.
  • Argentina, a serial defaulter, sold 100-year bonds in an oversubscribed offer.
  • Illinois, hopelessly insolvent, sold 3.75% bonds to bondholders fighting for allocations.
  • Global stock market capitalization skyrocketed by $15 trillion to over $85 trillion and a record 113% of global GDP.
  • The market cap of the FANGs increased by more than $1 trillion.
  • S&P 500 volatility dropped to 50-year lows and Treasury volatility to 30-year lows.
  • Money-losing Tesla Inc. sold 5% bonds with no covenants as it burned $4+ billion in cash and produced very few cars.
If all this is not enough to take the punch-bowl away, then we can be rest assured that real-world monetary policy will always be asymmetric - loosen when faced with economic weakness to ease conditions and stoke demand, and refrain from tightening when overheating for fear of bringing the house down. Prefix it with Greenspan or not, one cannot but not walk away with the feeling that central bank actions in recent years have released a moral hazard named Central Bank Put!

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