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Please Don’t Pop Our Precious Bubble!

Please Don’t Pop Our Precious Bubble!

Authored by Charles Hugh Smith via OfTwoMinds blog,

It’s a peculiarity of the human psyche that it’s…

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This article was originally published by Zero Hedge
Please Don't Pop Our Precious Bubble!

Authored by Charles Hugh Smith via OfTwoMinds blog,

It's a peculiarity of the human psyche that it's remarkably easy to be swept up in bubble mania and remarkably difficult to be swept up in the same way by the bubble's inevitable collapse.

Allow me to summarize the dominant zeitgeist in America at this juncture of history: Grab yourself a big gooey hunk of happiness by turning a few thousand bucks into millions-- anyone can do it as long as they visualize abundance and join the crowd minting millions.

Beneath the bravado and euphoric confidence in our God-given right to mint millions out of chump change, a secret plea lurks unspoken: please don't pop our precious bubble! The big gooey hunk of happiness available to all depends on one special form of magic spell: If we don't call the bubble a bubble, it won't pop.

And so Wall Street shills spew endless "research" (heh) proclaiming that the forward price-earnings ratio of 21.1 will only slightly exceed past norms, and so on--in summary: If we don't call the bubble a bubble, it won't pop.

What differentiates this bubble from the 1720 South Seas Bubble, the 2000 dot-com bubble or the 2007-08 housing bubble is: this bubble includes every asset class and has sucked the entire populace and economy into its magic maw.

The bubble has swept up housing, stocks, junk bonds, commodities, cryptocurrencies, NFTs, and numerous collectibles--the bulk of America's household assets are now firmly lodged in the maw of the Everything Bubble.

Here is a sampling of recent headlines in America:

  • I turned $10,000 into $6 million in six months.

  • My cat turned $6,000 in my RobinHood account into $6 million by walking on my keyboard.

  • I turned $100 my aunt gave me for the birthday into $6 million in one trade, buying way out of the money calls on a meme stock.

  • I turned $23 into $6 million so easily I'm going to sleep my way to $60 million.

OK, so these are slight exaggerations, but the zeitgeist is very real.

Another differentiating factor is the Everything Bubble has no boundaries. Flipping houses takes work as it is tied to the real-world house being flipped. But NFTs (non-fungible tokens) have no limits: an NFT can represent/instantiate a rock, photo, chipped glass, etc., and there are no limits on how many NFTs can be originated.

In the Everything Bubble, it is not surprising that a significant percentage of Americans have bought NFTs and many view NFTs as legitimate investments equivalent to cryptos, stocks, bonds and housing.

The only problem with the if we don't call the bubble a bubble, it won't pop magic mantra is that it has an expiration date. Human greed is unlimited, the number of currency units that can be issued by central banks is unlimited, the number of NFTs that can be originated is unlimited, and magical thinking has no limits, but enough of the assets being inflated in the Everything Bubble have faint ties back to the real world such that the distortions in the imaginary world of infinite wealth end up distorting the real world, which is much less forgiving than the imaginary one.

All speculative manias pop, even if no one calls the mania a bubble. The first declines are bought, as buy the dip has never failed, but since the smart money sold long ago, there isn't enough dumb money to keep the bubble inflating. Cats walking on keyboards start generating enormous losses, and all the punters who minted money are torn between HODL (hold on for dear life, i.e. never sell) or making outsized gambles on long shots that were guaranteed winners a few months ago.

This continues until the $6 million roundtrips back to $6,000, and then the tax bill arrives: somehow minting millions accrued taxes that aren't entirely offset by the losses.

Or the margin call exceeds the liquidated value of the account, and the can't-lose punter now owes the brokerage major money.

But never mind the banquet of consequences currently being laid out: maybe if we all shout please don't pop our precious bubble! the bubble will never pop and our $6 million will become $60 million and then $600 million.

In the manic grip of euphoric confidence, it seems impossible the bubble will ever stop inflating. Every dip generates a rally, and the strategy of rotating out of a weakening sector into a hot-hot-hot sector will obviously work forever.

It's a peculiarity of the human psyche that it's remarkably easy to be swept up in bubble mania and remarkably difficult to be swept up in the same way by the bubble's inevitable collapse. It's incredibly difficult to sell, walk away from the bubble mania and not look back. That's why so few people succeed in doing so. Those few who do get to keep whatever big gooey hunk of happiness they tore off during the mania and everyone who stays in the casino while it burns down watches their big gooey hunk of happiness melt away.

The banquet of consequences is being served, and everyone will attend. What you're served depends on when you sold.

S&P 500 stocks over 10 times annual sales: please don't pop our precious bubble!

S&P 500 Everything Bubble compared to bubbles #1 and #2: please don't pop our precious bubble!

Billionaire wealth increasing in the Everything Bubble: please don't pop our precious bubble!

*  *  *

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Tyler Durden Wed, 09/08/2021 - 16:20

Economics

All Eyes On Inventory

You’ve heard of the virtuous circle in the economy. Risk taking leads to spending/investment/hiring, which then leads to more spending/investment/hiring….

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You’ve heard of the virtuous circle in the economy. Risk taking leads to spending/investment/hiring, which then leads to more spending/investment/hiring. Recovery, in other words.

In the old days of the 20th century, quite a lot of the circle was rounded out by the inventory cycle. Both recession and recovery would depend upon how much additional product floated up and down the supply chain. Deflation, too.

On the contraction side, demand might fall off a bit for whatever reason(s), retailers getting stuck with a small inventory overhang. If they think it more than temporary, or don’t have the internal cash to finance it, the retail level scales back pushing inventory to wholesalers who then cut orders from producers.

Serious enough, producers begin to cut back their own activities, maybe to the point of forgoing new hires, perhaps laying off some workers already employed. Whatever necessary to equalize reduced order flow with cost structure and input utility.

When those layoffs hit, almost certainly it cuts further into demand (unemployed workers are far more careful and constrained consumers), more inventory stuck at retailers and wholesalers, then even fewer orders for producers who must sharpen their payroll axe all over again. This vicious cycle is what used to make up the balance of any recession.

But what if inventory first accumulates for other reasons?

It may be a different look to the cycle, though not necessarily an entirely different outcome. Suppose retailers (outside of automobiles) grow concerned about supply availability or shipping times. They might naturally react by boosting their current order flow if only to increase their chances some product makes it through the clogged shipping channels.

As that increased order flow unrelated to demand continues to move back through the supply chain, it probably would only make the transportation issues that much worse. It’s already a mess, and because it’s already a mess the entire supply chain tries to stuff more goods through it rather than less, rather than giving the system some time and space to work out enough kinks.

This, of course, would probably convince retailers to do it all over again, ordering even more they don’t need now or in the near future, now more desperate to try and raise their chances of receiving anything. More trouble for the shippers and so on.

Having intentionally over-ordered, and then over-ordered again (and again?), this time what happens when the logistics get more sorted out and then deliveries rather than trickle through come pouring out? This is the cyclical question for early 2022, not the unemployment rate.

Some companies have said they are ready, and have confidently declared how they will be able to manage holding such excessive levels of product. Maybe they can. But what happens to orders down at the lower reaches? Having received all this extra inventory, retailers and wholesalers aren’t going to keep double and triple ordering.

Before even getting to demand considerations, the orders are going to drop and producers are going to become less busy. The inventory glut having been forwarded up to the retail level, maybe wholesale, it will have to be worked down over time.

This is where demand comes into it. If demand stays as robust as some might currently assume, it might not take that much time to normalize inventory, then get past the whole issue and imbalance with nothing much lost.

And if demand isn’t as good, then we’re right back into the 20th century again.

The way the supply bottlenecks of 2021 have worked out, there is going to be an inventory overhang at some point. When it does come about and how bad it will be, that’s really the demand question. There seems to be quite a bit of optimism about it, to the point of complacency while corporate CEO’s bark in the media instead about all the massive inflation they plan on throwing your way.

Inflation today (therefore not inflation) but potentially too many goods tomorrow. However the inventory cycle manifests, the one thing each would have in common is its trough – disinflationary at the least.



Manufacturing PMI’s, for what it’s worth, remain elevated as if the upward segment of that unusual cycle remains relatively intact (note: ISM for September won’t be released for another week). With ships still stacking up on the US West Coast, this makes sense. Regardless of current levels of demand, these supply problems would only feed the imbalance for another month.

IHS Markit’s manufacturing index retreated again for the flash September 2021 estimate, but it remains above 60 therefore still in the post-2008 stratosphere. At 60.5 in the latest update, it is down, though, for the second month in a row since hitting the high of 63.4 back in July. And the index was 62.6 back in May, meaning it’s been four months treading.

It is the services side which has materially declined, leading many to assume it must be due to delta COVID if goods flow is largely uninterrupted at the same time. Markit’s services PMI dropped to 54.4 in September from 55.1 in August, while its employment component fell back to just 50.

This meant the composite, accounting for both manufacturing and services, declined to a very similar 54.5. Using this measure as a guide for possible GDP in Q3, that’s working down to a very disappointing 3% or less which might otherwise raise suspicions when it comes to the sustainability of demand.


If this more serious setback really is pandemic-related, then thinking it a temporary one might keep up the order flow as well as the logistical nightmare. Then the artificial inventory cycle gets even more artificial.

It could very well be that manufacturing remains high because of inventory and not because current potential weakness is only about delta.

Should it turn out to be unrelated, or only somewhat attributable to renewed disease measures, then inventory stops being a pesky annoyance of shipping bottlenecks and potentially starts being more like its old self. While that wouldn’t necessarily mean recession in early 2022, even a substantial downturn (chances would have it globally synchronized) having yet fully recovered from the last two would be enough trouble.

 

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Economics

This Has To Be A Mistake

This Has To Be A Mistake

While we were digging through the data for today’s household net worth report we stumbled upon something that seem…

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This Has To Be A Mistake

While we were digging through the data for today's household net worth report we stumbled upon something that seem beyond ridiculous: the ratio of Household Net Worth to Disposable Net Income. At 786% in the latest quarter, the chart at first appears to be a mistake but we triple checked it, and... well, here it is.

The latest, all-time high print is an increase from 698% in Q1 and also represents the biggest quarterly increase in history!

This number is so ridiculous, it is almost 50% higher than the long-term average of 540%. More importantly, it means that the total net worth number we reported earlier today, which in Q2 hit a record high of $142 trillion, is massively inflated on the back of what is obviously the biggest asset bubble on record.

It also means that if one were to strip away the asset bubble, and net worth was purely a reasonable function of disposable income, then total net worth worth be haircut by 31%, or some $43 trillion, which incidentally, is equivalent to the net worth of the top 1% of US society...

... and which as we showed earlier today is a record 32% of total household net worth.

As an aside, the fact that the top 1% have gained $10 trillion in wealth since the covid pandemic outbreak, is probably just a coincidence, and yet...

As for the chart which clearly has to be a mistake, we are sad to report that it isn't, and as politicians of both the Democrat and Republican party pretend to fight for the common man, all they are doing is enabling and accelerating the greatest wealth transfer in the world but not for nothing: they too want to be in the top 1%.

Tyler Durden Thu, 09/23/2021 - 22:00
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Economics

“Culture As An Asset”

#CKStrong Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground…

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#CKStrong

Stunning. Hedge funds hoovering up trading cards as an “alternative to equities” with the same passion Brooks Robinson hoovered up ground balls.

This is usually a sign of the endgame for markets, i.e,, the precursor to a bear market. Think the “Great Beanie Baby Bubble” of 1999.

In general, there are two types of assets,

  1. They can be rare—gold bars, diamonds, houses on Victoria Peak, bottles of 1982 Pétrus, Van Gogh paintings, stamps, beanie babies, or baseball cards or
  2. They can generate cash flows over time  – GaveKal

Creating An Illusion Of Scarcity

Scarcity relative to the money stock is what its all about now, folks. 

It probably won’t be long before the Fed has to bailout the baseball card market, no?

Full disclosure,  I do own a Mike Trout rookie card

Given the extreme valuations of all most all asset classes, coupled with the massive amount of money in the global financial system, markets are now really stretching, looking for, and actually attempting to create scarcity as a useful delusion to justify, rationalize, and drive speculation. 

Maybe I will start collecting poop as an “anthropological asset,” put it the blockchain and super charge the price ramp by snapping a few pictures of each sample, converting them to NFTs to load up to the internet.

Then again, maybe all this is signaling the start of a big, big inflation cycle and the markets are looking to get out of cash and protect their purchasing power.   But that’s too rational.  

Can you believe what markets have become, folks?   It is hard to see clearly when everybody is making money. 

 

 

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