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South Sea Company Bubble (Pre And Post Pop) Redux
In our holiday abbreviated week, there is one piece of data we wanted to highlight not so much to our constant, non-Fed originating readers, but to our constant-Federal Reserve fan base, with the hope that they may point it out to their chairman, whose recent remarks indicate that he is unaware of any bubbles forming anywhere. For a distinguished historian of Bernanke's stature, we are confident that he has heard of the original stock bubble, and in particular, the South Sea Company. The chart below demonstrates the relative indexed performance of the South Street Company and of Buffett darling, BYD (1211.HK). The Buffett investment is not alone: there are hundreds if not thousands of companies whose fundamentals, no matter how hard one tries, can never be spun enough to justify their ludicrous valuations. We all know what happened to the South Street Company. The only question remaining is when will the very first market bubble pop experience its most recent reincarnation in the form of BYD and all its brethren, whose only purpose in life is to make the top ticker, and so many others, lose fortunes (with a little nudging from the all seeing prop, and otherwise trading, market makers).
But why worry. This time it is different (someone is probably about to publish a book under that title), and all those who keep chasing the momentum are certain to find buyers when everyone turns seller, thank to the infinite liquidity provided by High Frequency Traders.
h/t Geoffrey Batt
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What do you think the Devil is going to look like if he's around? Nobody is going to be taken in if he has a long, red, pointy tail. No. I'm semi-serious here. He will look attractive and he will be nice and helpful and he will get a job where he influences a great God-fearing nation and he will never do an evil thing... he will just bit by little bit lower standards where they are important. Just coax along flash over substance... Just a tiny bit. And he will talk about all of us really being salesmen. And he'll get all the great women.'
-Aaron Altman (Broadcast News)
'Hey, don't you know it's a waste of your day
Caught up in endless solutions
That have no meaning, just another hunch
Based upon jumping conclusions
Caught up in endless solutions
Backed up against a wall of confusion
Living a life of illusion.'
-Joe Walsh
'Have you ever had a dream, Neo, that you were so sure was real? What if you were unable to wake from that dream? How would you know the difference between the dream world and the real world?'
-Morpheus
'Now those memories come back to haunt me they haunt me like a curse. Is a dream a lie if it don't come true? Or is it something worse?'
-Bruce Springsteen
'History repeats itself, first as tragedy, second as farce..'
-Karl Marx
As mentioned in FT weekend, it is slightly more profitable to be amoral, but even more so to be immoral.
Qn.som.yale.edu :In stocks, vice outperforms virtue, according to the study “Sin Stock Returns” by Frank Fabozzi. Fabozzi and his co-authors created a portfolio of stocks in six vice industries — adult entertainment, alcohol, biotech, gaming, tobacco, and weapons industries — across 21 countries and tracked its performance against stock market index returns. The average sin stock produced an annual return of 19.02% compared to an annual average stock market return of 7.87%. The sin portfolio also outperformed the market in 35 of the 37 years tracked.
FT notes that a $10,000 investment in sin stocks would have become $6,300,000 versus just $164,000 in standard equities.
Isn't that special?
The struggle of virtue and vice is writ large as the debate between deflationistas and debasionistas. Ones' lens depends on what one means by ones' ends. The deflationistias mean that deflation is the midwife of hyperinflation. The debasionistas mean that America's resilient wealth exporting machine will import higher asset values. The former pines for reason before farce, the latter embraces the tragedy.
This ends with bubbles, in gold and equities. And then a crash and then more bubbles.
Most probably we break the 2007 downtrend next year and bounce off the 1982 uptrend.
If we break the 1982 uptrend, we really risk a hyperinflationary episode for deflation is the hemlock of the elites.
The higher the lower and the lower the higher. The cycle of strife, as it were.
Vice before virtue, farce before reason, the question vexing? Duck or Rabbit Season?
The answer both ... in due time.
Hobbes first law of nature is that every man ought to endeavour peace, as far as he has hope of obtaining it; and when he cannot obtain it, that he may seek and use all helps and advantages of war.
The dollar is the bullet, the Fed is the weapon. The key to the gun cabinet is for Members Only
Pleased to meet you hope you guess my name.
The beginning of the end will come around Valentine's Day, the same as began the crash of 2008- only it came in 2007.
Watch the Shanghai Index. When it shows weakness, that will be the tell. The weakness may not show for long because of liquidity pressures in Asia. But there will be cracks. Just watch for it.
"This time it is different (someone is probably about to publish a book under that title) . . ." Already been written:
http://www.amazon.com/This-Time-Different-Centuries-Financial/dp/0691142...
No way.
A guy from UBS on CNBC just said everything is fine.
reminds me of an old simpsons halloween episode...
police radio: "monsters are terrorizing the streets of springfield! over!" (or something along those lines)
chief wiggam: "well, i'm glad that's over." (continues eating sandwich)
Clicking the graph shows a nice enlargement.
I noticed that as well - intentional, or not?
like finding those secret tracks at the end of The Roots CDs...damn good soap tyler(s).
you know? Glad others saw it :)
Speaking of that CNBC UBS dude, they prop him up to say how rosy things are, just before we have one of those knuckleheads talking about how now both the dollar and equities will rise, and then Dennis the Menace proudly introduces this news item about a hedge fund guy named Tepper, whose favorite good luck charm is a pair of "brass testicles" who "made $7 billion" betting on banks to rebound back in March, and he is characterized by Dennis as someone who "bet on hope." The Tepper story has been all over cnbc like it is some heartwarming tale of holiday cheer. WTF!
I filled 2 barf bags before I recovered enough to make it out of the lunch room.
I know.
Wasn't that something to see?
I'm glad I'm not the only one who noticed the complete shamelessness in that.
The question I have for them is, "If doing the opposite of what the market is doing is always the right call, what should people be doing right now?
Shorting like hell, right?
excellent piece. tulips anyone ? bueller ??
From Wikipedia a good post South Seas Company "bubble solution" was proposed:
"A resolution was proposed in parliament that bankers be tied up in sacks filled with snakes and tipped into the murky Thames."
I like that, maybe here we will dump them in the Hudson. :)
I went back and took a good long look at the inverse bubble of the USD index for the noughties and the little uptick in the dollars value recently does not look so impressive but maybe just maybe.............
Random, but fitting signature line, from Ahab on a couple of German forums:
"I think the next big thing will be Chinese collateralized debt obligations traded on a dot com selling South Sea-bound cargo carrying tulips for alternative energy (cellulosic ethanol)."
I have to say that this blog is more and more becoming detached.
You can say that about BIDU, etc., etc.
My only question is that can you ever imagine potential or just harp on valuations.
BYD has teams of engineers that are looking to crack key battery technology. It might not happen, but there is a reason Buffet asks to invest 25% and is only granted 10%.
There are a lot of bullshit plays out there, but I do not think BYD is one of them.