Gloom, Doom, or Boom? Finance and Economics

[Doc]

https://www.bloomberg.com/news/articles ... since-1947

BofA Says S&P 500 Real Earnings Yield is Lowest Since Harry Truman Was President

I tend to think of Joe Biden as a old and demented Harry Truman So that makes sense.

[Typhoon]

FT | Men of leisure deflated by the great bicycle bubble [paywalled]

A brisk look back at a market mania from the late 19th century.

If there’s one lesson to be drawn from this paper for today’s isolated sections of stock market mania it’s this: people with too much time on their hands and a bit of spare change in their pocket will inevitably do something stupid with it. The issue is now is that the casino is no longer a brisk walk away but in our back pockets. And the cost to play? Zero.

So, in a brief word, investors better get used to the rolling market manias — blockchain, weed, spacs, Gamestop and electric vehicles — of the past few years becoming more and more frequent.

Jamie Powell - DECEMBER 13 2021

A key part of any bubble are the participants. Remember the great Beanie Baby bubble of the late 1990s? Well, that particular slice of hysteria was set apart not just because the object was plush toys but because it was arguably the first one to be predominantly fuelled by female buyers. (If you would like to know more, do have a read of our piece on Zac Bissonnette’s excellent book on the mania here.)

So it was with some intrigue we opened a new working paper, titled Riding the bubble or taken for a ride? Investors in the British bicycle mania, this Monday morning.

Penned by two academics, William Quinn and John Turner, at Queen’s University Belfast, the paper triangulates shareholder registry data with share price quotes from the FT (where else?), and stockholder listings to explore who was pumping, and who was dumping, bicycle stocks between 1885 and 1900.

For those not in the know, the bicycle bubble was one of many microstock manias that emerged in the UK in the late 19th century. (Preceding it was the ‘Brush Boom’, which involved the stocks of anything to do with electrical lights.) Like today’s electric vehicle bubble, it had a lot to do with innovation and involved any business tangentially to do with transporting yourself about on a set number of wheels.

From the paper:

In the 1880s and early 1890s, there were a series of technological innovations in the production of bicycles, most notably the pneumatic tyre, weldless steel tube, and diamond frame (Harrison, 1969). The sharp improvement in the quality and cost of bicycles led to a rapid increase in demand, which came to a head in the ‘bicycle boom’ of 1895-1897. It is estimated that, at its peak, 750,000 bicycles were being produced annually, with 1.5 million people cycling out of a UK population of around 35 million (Rubinstein, 1977, p. 51).

In that 15-year period, an astonishing 601 new bicycle companies were formed, according to the working paper. A bust shortly followed at the turn of the century.

This is all pretty standard fare for those who have studied bubbles closely. Rising consumer enthusiasm begets rising revenues, which beget rising share prices which beget rising competition from entrepreneurs looking to make a mint. Eventually, an apex is reached when supply of both equity and goods overwhelms demand, and prices collapse. Consolidation begins and, if you’re a lucky, a new economy might emerge.

What is unusual about this particular bubble, however, is the participants who ended up losing out. Despite the popular view — perhaps best expressed by Charles Kindleberger’s book on the subject — that it’s often uninformed retail investors left holding the bag, this wasn’t quite the case here. In fact, it was the opposite.

From the paper:

The group that conducted the most sales was gentlemen and nobility — also the group that increased its ownership of cycle shares by the most during the bubble. This indicates that this group performed poorly in aggregate because it was extremely active in secondary markets at a time when cycle share prices were close to their peak. Although they were more likely to sell than any other group, they were also much more likely to buy, suggesting that this group engaged in substantial speculative investment. While a significant minority may have been successful, many more would have lost money. Notably, groups that might be characterised as low-information, such as clergy or tradesmen, do not perform particularly badly.

So it was the men of leisure — gentleman and nobility — who nursed losses, and not the retail crowd as you might expect. And what sets these two groups apart? Well, free time and proximity to the casino. Here’s the paper again:

The group which performed worst was gentlemen who lived near a stock exchange, a group which increased its holdings substantially despite accounting for a disproportionate number of sales. In other words, the biggest losers were men with considerable wealth, plenty of free time, and a convenient nearby stock exchange, who were very active traders during the mania.

If there’s one lesson to be drawn from this paper for today’s isolated sections of stock market mania it’s this: people with too much time on their hands and a bit of spare change in their pocket will inevitably do something stupid with it. The issue is now is that the casino is no longer a brisk walk away but in our back pockets. And the cost to play? Zero.

So, in a brief word, investors better get used to the rolling market manias — blockchain, weed, spacs, Gamestop and electric vehicles — of the past few years becoming more and more frequent.

[Nonc Hilaire]

The market is not a bubble. It is a bucket shop. That’s a term from the 1930’s for brokers that traded in equity iou’s instead of trading actual equities.

I think I may be the last investor that actually has control of some investments. I have negotiable stock certificates in my safe. When I talk to the DNS transfer folks they say I am a definite minority.

Everything now seems to be abstracted beneficial ownership without control. The controller leverages your positions, taking the profits but leaving the risk with the beneficial owner. Pension funds do not actually hold the securities they claim but just use those as a paper price reference.

[Typhoon]

The market is not a bubble. It is a bucket shop. That’s a term from the 1930’s for brokers that traded in equity iou’s instead of trading actual equities.

I think I may be the last investor that actually has control of some investments. I have negotiable stock certificates in my safe. When I talk to the DNS transfer folks they say I am a definite minority.

Everything now seems to be abstracted beneficial ownership without control. The controller leverages your positions, taking the profits but leaving the risk with the beneficial owner. Pension funds do not actually hold the securities they claim but just use those as a paper price reference.

I would guess that the owners of shares in the Compagnie du Mississippi and the South Sea Company held their negotiable stock certificates in person - not that it did them any good in the end.

[Typhoon]

The long view. With a pee[k] into a possible future.

M. Hutchinson | The first retrograde century since the 14th

Judging by its first 21 years and the prospects therefrom, there is a good sporting chance that the 21st century will be a grim one for most people. Since at least mediaeval times, each century has been an improvement on the previous one, for ordinary people living through it. Incomes have risen, technology has made lives easier, endemic violence both small-scale and large-scale has declined in frequency. The 21st century may be the first since the 14th that reverses this trend.

[Miss_Faucie_Fishtits]

Qp6rfDRo4xw

[Typhoon]

FT | When the Web3 bubble pops, real world assets will survive [paywalled]

Forget the metaverse — industrial changes are what create long-term value across economies

by Rana Foroohar

Silicon Valley loves a snappy marketing slogan. Its favourite these days is “Web3”, an abbreviation of Web 3.0, which is itself shorthand for everything from blockchain to cryptocurrencies to meme-driven retail investing apps and the metaverse. Web3 builds on Web 2.0, which was all about social media and user-driven content, taking it to the next level of either utility or hype, depending on your point of view.

I can see both sides. I have no doubt that digital coins will dominate the financial markets of the future; it’s a natural, no-brain successor to paper. But just as I would have been unable to pick which one of several hundred early 20th-century automotive start-ups would replace the horse and buggy, I am reluctant to buy into today’s crypto craze (I think sovereign-backed digital currency will ultimately win out over private coin).

Speculation is, of course, a natural part of the development and adoption of transformative new technologies, as academics like the British economist Carlota Perez and venture capitalist turned Cambridge scholar William Janeway have shown in their respective work. While some bubbles, like the property one that underpinned the 2008 financial crisis, are unproductive, others — such as the 1920s stock bubble, which triggered the Depression but also helped fund and fuel the spread of radio, the telephone, aviation and electricity — have productive elements.

These “productive bubbles” come with froth, but they also create long-term value across entire economies. The question for investors today, particularly as central bankers pull back on the easy money that has enabled the latest era of nosebleed technology valuations, is “what will be left when the Web3 bubble eventually pops? What has real value, and what will meet the fate of former Web 2.0 darlings?” 

In parsing this question, it’s worth thinking about what happened in a recent productive bubble, between 1998 and 2001. In the “new economy” of the late 1990s, anything with dotcom at the end of it rose in value, but most of it came crashing down in the early 2000s. Etoys.com, iVillage and boo.com were among the many big name fatalities of that era. There were also more serious companies like Amazon, Apple, Oracle, Microsoft and others that took large double-digit share price hits, but ultimately rebounded.

But the most valuable asset to emerge from the rubble was the fibre on which the next two decades of consumer internet development would be built — broadband. The investor excitement about frothy consumer plays like pets.com also allowed once unloved telecom companies to raise $2tn in equity and $600bn in debt from “investors eager to bet on the future,” as asset manager Ben Carlson lays out in his 2020 book Don’t Fall For It: A Short History of Financial Scams.

Those companies laid down 80m miles of fibre optic cables, creating tremendous overcapacity. Many of the most lauded telecoms names, like Global Crossing and 360networks, went bust. But, as Carlson writes, “within four years of the end of the dotcom bubble, the cost of bandwidth had fallen by 90 per cent”.

The creation of that cheap, efficient digital highway is what ultimately enabled the consumer internet, the app economy and the blur of 24-7 digital media in which we all live. Twenty years on, amid a pandemic that has left us all clamouring for more bandwidth, calls for politicians and business leaders to build out superfast 5G networks are deafening.

So what does this tell us about what will happen after this latest tech boom turns to bust, as it shows signs of doing? I’d argue investors should pay less attention to the metaverse and more to those who are using capital to build out hard assets of the future.

On that score nobody has done more than Tesla’s Elon Musk. Putting aside his contemptuous attitude towards government and the issues inherent in the monopolisation and privatisation of space, I am very long on his electric vehicles (deliveries were up 87 per cent in 2021) and am begrudgingly awed by his satellite broadband efforts, which are already transforming connectivity in swaths of rural America (my brother in South Dakota can now do his IT job remotely, thanks to Mr Musk).

I am also long on the traditional industrial companies in Germany pushing ahead with the internet of things, the large retailers using automation to take control of their supply chains, and other unglamorous but highly profitable uses of 5G, artificial intelligence and clean tech that are being adopted in places far beyond Silicon Valley. All of it is encouraged by government support, as many productive bubbles are.

As Tim O’Reilly, a technology big thinker and one of the popularisers of the term Web 2.0, wrote recently: “The easy money to be made speculating on cryptoassets seems to have distracted developers and investors from the hard work of building useful real-world services.”

But when we step back from the dust that will eventually settle around Web3, it will be the ubiquitous, industrial changes driven by companies like Tesla that will probably be most impactful. They are transforming old industries and building real world assets.

[Typhoon]

M. Hutchinson | De-financializing the global economy

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I doubt that history will rhyme as the author would like, but a change will occur . . . eventually.

[Typhoon]

Jeremy Grantham | Let the Wild Rumpus Begin

Executive Summary

All 2-sigma equity bubbles in developed countries have broken back to trend. But before they did, a handful went on to become superbubbles of 3-sigma or greater: in the U.S. in 1929 and 2000 and in Japan in 1989. There were also superbubbles in housing in the U.S. in 2006 and Japan in 1989. All five of these superbubbles corrected all the way back to trend with much greater and longer pain than average. Today in the U.S. we are in the fourth superbubble of the last hundred years. Previous equity superbubbles had a series of distinct features that individually are rare and collectively are unique to these events. In each case, these shared characteristics have already occurred in this cycle. The checklist for a superbubble running through its phases is now complete and the wild rumpus can begin at any time.

[Typhoon]

Medium - Doctorow | As Stocks Tumble, Wealthy Speculators Bid Up House Prices

The long-run effect of Obama’s choice to bail out lenders, not borrowers

Rather, the lenders should have their bond debt converted to equity and the Wall Street fraudsters prosecuted rather then being rewarded with bailout bonuses.

[Typhoon]

Spenglerman | Hiking US rates will only make inflation worse

Interest rate policy is the wrong tool for fixing America’s multi-trillion-dollar consumption-promoting supply-side crisis

By DAVID P GOLDMAN JANUARY 28, 2022

The Federal Reserve has unsettled world stock markets by signaling a blunder in monetary policy. Raising interest rates won’t reduce inflation. If anything, raising interest rates will make inflation worse.

This isn’t a conventional business cycle where excess credit leads to heightened demand for goods and services. It’s a supply-side crisis. Interest rate policy is the wrong tool.

There’s a simple way to stop inflation. The US government should stop its multi-trillion-dollar subsidy for personal consumption and instead support investment in productive capacity.

Not clear to me how "hiking US rates" → "inflation worse".

However, I do agree with his last statement.

[noddy]

it might be because low interest rates means big purchases with low velocity of money , like houses.

if the cashed up folks stop doing that, they might move their spending to high velocity of money things in the local economy

velocity of money is really weird at the moment, its why we dont have runaway inflation despite the printing press.

https://usceconreview.com/2021/04/15/th ... -velocity/

the double whammy of pent up covid spending plus high interest rates stopping people from making big investments like houses could cause large amounts of spending in the local economy as all that printed money starts to move around.

[noddy]

my whole life ive believed the mass immigration story to be lies and thankfully covid has exposed it

https://web.archive.org/web/20220203142 ... ion-truth/

unemployment is not a sign of a lazy workforce, its a sign of importing too many workers.

Economists need to sweep aside their biases surrounding immigration and examine the data as it stands. This data shows unequivocally that closed borders, not stimulus, is the primary driver behind Australia’s low unemployment and underemployment.

The data is staring them in the face.

[Typhoon]

Reuters | U.S. consumer prices post largest annual gain in 40 years as inflation becomes widespread

Consumer prices increase 0.6% in January
CPI rises 7.5% year-on-year
Core CPI gains 0.6%; up 6.0% year-on-year

Define "inflation".

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[Source: John Williams | Shadow Government Statistics]


How's the M2 money velocity?

[Nonc Hilaire]

I don’t know the M2 velocity but I’m pretty sure the acceleration is 32ft/sec^2.

[noddy]

the money, they just arent spending it.

United States - Velocity of M2 Money Stock

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source

https://tradingeconomics.com/united-sta ... -data.html

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I wonder how much this is just recording how corrupt our stimulus/money printing systems is.

if the money was making it to the poor and working class, it would have a high velocity as it gets spent in the local economy and bounces around from one goods and service worker to another.

its imperative we are kept poor and desperate now, it will cause runaway inflation otherwise!

[Nonc Hilaire]

Rafi Farber on the economic end game.
https://youtu.be/HB0uFTE-m8A

HB0uFTE-m8A

[Typhoon]

Shadowstats | Inflation charts

[noddy]

the war in Ukraine has already pushed petrol up 30% and grains up 30% in Australia and you couldnt pick 2 better sources of inflation on everything else.

not much food doesnt have flour in it and nothing gets transported or produced without fuel.

its going to be a wild ride.

[Heracleum Persicum]

the war in Ukraine has already pushed petrol up 30% and grains up 30% in Australia and you couldnt pick 2 better sources of inflation on everything else.

not much food doesnt have flour in it and nothing gets transported or produced without fuel.

its going to be a wild ride.

Yes


Can not see any scenario causing prices to fall, even a depression would not make prices fall

This not anymore old game jacking up interest rate to kill demand, inflation.

Issue not demand , issue is "supply".

For many reason now, Russia, China, covid-19, political regrouping , etc etc , SUPPLY has dropped and would not pick up

Many sectors of economy in reality are bankrupt, just held over water by $ 6 Trillion "stimulus" free money , worldwide same.

Add now the War going on and maybe clash with China

World not same world we last spoke .. LOLOL

pretty much everything has changed

[noddy]

their will be no more stable normality for the rest of our lives.

its going to be one crazy thing after another like the early 1900's.

[Heracleum Persicum]

https://news.cgtn.com/news/2022-03-12/I ... index.html

"At the NIOC, we are ready to meet the needs of the European companies, along with other companies,"

Sanctions out the window

[Heracleum Persicum]

their will be no more stable normality for the rest of our lives.

its going to be one crazy thing after another like the early 1900's.

In the past, America was the "arbiter" of world resources , primarily energy (Oil and Gas) , but also metals and commodity.

America decided who gets what, and who not.

That is why "Ducks lined up" .. World was @ America's mercy

Not anymore

Now America one of those who must watch out to get 'enough" of everything.


YES , noddy , you right , we @ 1900

1900 , the colonial powers had a hegemony on world resources , energy (Oil and Gas) , metals and everything else.

Germany demanding it's share, became the bad guy .. like China today

WAR was preprogrammed , BANG followed

When dust settled, we in a totally new world

Who lost the big BANG ?

The colonial powers

Who won ?

The 3rd world

India, China , Iran ...





.

[noddy]

I have no idea what the the world will look like after the dust settles, I will not be alive to see it anyway.

probably it will be 3 main markets - China, America and Europe, each controlling its own sphere.

some countries (hopefully Australia) will be able to play a game against all three - other countries will be trapped inside one only and exploited.

maybe Iran can end up with one foot in China and one in Europe - all I know is Russia has broken its chances of that for another generation atleast, they will be Chinas toy for a while now.

[Heracleum Persicum]

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