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"Where Is The Bubble Today?" - Stifel Explains
Some valid, if seven years overdue, observations from Stifel's Barry Bannister on where the bubble is today, the biggest bubble of all time we might add.
Where is the bubble today? Perhaps central banks are the bubble. In 1929-1949 the bandage came off quickly (i.e., deflation was absorbed) and the three Dow Industrials down-waves (left chart) were (89)% 1929-1932, (49)% 1937-1938 and (24)% 1946-1949, averaging (54)% and clearly front-loaded during 1930s deflation. Since 2000 (right chart), the S&P 500 waves were: (49)% 2000-2002 and (57)% 2007-2009 as central banks tried to mitigate deflation, the implication being a 3rd ~(53)% decline may lurk in the 2015-2020 period (perhaps triggered by losing the deflation battle) to match the 1929-49 three-period average of (54)%. We watch the 100 week moving average (red line) for clues.

And, as a cautious Stifel, further notes about the propsect of future gains, "Curb your enthusiasm for the S&P 500 from 2015-24E"
The Fed front-loaded the bull market since 2009 via QE/0% rates, lowering both the discount rate (for DCF models) and corporate cost-of-capital (creating faux economic profits, ROIC(1) minus WACC(2)). Thus, we only see a 5.5%/year total return CAGR (2% dividends + 3.5% price) point-to-point from 2015 to 2024E. That is still ~2,900 (3.5%^10 price-only) for the S&P 500 at the end of 2024E. But given the way 2000-2020E parallels with 1929-1949, significant equity downside risk before 2020 is possible if the battle against deflation is lost, since the “bubble” today may be the invincibility of central banks in the face of severe deflationary headwinds.
And remember: the biggest parallel between the 1929-1949 period and the present one, is what is about to take place on December 16, which as we showed previously, is precisely what happened when the Fed - again making a policy error in tightening in 1936 - unleashed the second round of the great depression and sent the Dow Jones some 50% lower the next year, and only the second World War managed to push the US out of its historic slump.
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Perhaps central banks are the bubble."
Bingo!
It's not a policy error...the policy error was blowing the fricken bubble up in the first place!
...and like any centrally located rectum bubble, when it bursts the shit's going everywhere
Short central banks. I'd hate to see what takes their place though...
1: Sell Jan gasoline
2: buy Jan WTI
3:???? (jerk off to porn)
4: Profit
The price ratio of gas/oil is middle-of-the road compared to last 10 years. Not clear if reverse trade wouldn't be the profitable one.
Looks like Yellen just moved some billions into stocks. Boy does she love to day trade!
When you sell debt and the world is awash in it, literally drowning in it then how could you call that a policy error?
I'd say it's a fan damn tastic job myself!
There's a lot of bubbles out there:
Government. There are at least a dozen gov agents for every working american.
Government handouts. All time highs.
Debt. the Governmental, Personal and Corporate kind.
Digital ink. Fucking crazy ass bubble. There must be a quadrillion treasuries out there.
Food Stamps. I know, that falls under handouts. But I was thinking of political/corporate payoffs when i wrote it.
Political BS. I don't think the amount of rhetoric and the "Saviour Speech" levels have ever been higher.
And, as a cautious Stifel, further notes about the propsect of future gains, "Curb your enthusiasm for the S&P 500 from 2015-24E"
I agree with this yet you rarely see it in print. Everyone wants the crash to happen fast like in 2000 or 2008. My feeling is they will fight the bear tooth and nail and will drag out the decline over next ten or twenty years. The stock market may even stay at current levels nominal while the currency crashes and long term interest rates hit rock bottom (i.e. the s&p chronically underperforms t bonds). When outflows become relentless it will take a toll but you may want to pull up a chair because it could take a long time.
Going long KMB,maker of "depends maximum absorbancy" , no brainer!
They WILL NOT raise rates unless it is a "one and done" followed by so form of outward QE, which back-door QE has never stopped as the FED balance sheet is now 4.5 trillion.
......again making a policy error in tightening in 1936 - unleashed the second round of the great depression and sent the Dow Jones some 50% lower the next year, and only the second World War managed to push the US out of its historic slump.
Bull fucking shit. More Keynesian crap suggesting that only through mass destruction of World war were we somehow able to choke off the depression.
Article and its author - both pieces of shit!
You could be right if we read those comments in a mainstream Keynesian text. But perhaps he meant "policy error" in terms of their own policy of keeping their house of cards standing and "push out" of historic slump in terms of physically leveling overseas factories that could compete.