The Bubble That Could Break the World

The key to bubble analysis is to look at what’s causing the bubble. If you get the hidden dynamics right, your ability to collect huge profits or avoid losses is greatly improved.

Based on data going back to the 1929 crash, this current bubble looks like a particular kind that can produce large, sudden losses for investors.

The market right now is especially susceptible to a sharp correction, or worse.

Before diving into the best way to play the current bubble dynamics to your advantage, let’s look at the evidence for whether a bubble exists in the first place…

My preferred metric is the Shiller Cyclically Adjusted PE Ratio or CAPE. This particular PE ratio was invented by Nobel Prize-winning economist Robert Shiller of Yale University.

CAPE has several design features that set it apart from the PE ratios touted on Wall Street. The first is that it uses a rolling ten-year earnings period. This smooths out fluctuations based on temporary psychological, geopolitical, and commodity-linked factors that should not bear on fundamental valuation.

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As Internet Stocks Hit Records, Familiar Questions About Bubbles Arise

Inflows suggest “renewed exuberance” while valuations have gotten to “spicy” levels, Bank of America writes

Double-digit gains by internet stocks, among the biggest companies on Wall Street, have pulled the technology sector to record highs in 2017, with the industry recovering all the losses suffered in the busting of the dot-com bubble. However, the return to these levels has raised familiar questions about valuation, and whether investors have again put too much faith in the fast-growing tech sector.

While analysts were quick to note differences between 2017 and 2000—including companies that are more established and strong profits from major players—there are familiar elements of frothiness in price and investor exuberance, some analysts and investors say.

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BofA Finally Asks “Is The Tech Bubble Happening Again?”

While not nearly in the same ballpark as what is taking place right now with bitcoin, and its various alt-coin peers, the ~30% YTD move higher in tech stocks has been just as impressive, and is beginning to result in warnings of “deja vu” among at least among some bank analysts. One such growing skeptic, is BofA’s Michael Hartnett who writes that US growth stocks have just surpassed the 2000 “bubble” highs vs global value stocks and wonders if “the [next] tech bubble has started.”

Asking rhetorically “Alexa, how high can markets fly?” Hartnett writes that 2017 has seen big global stock (10%) and bond gains (4%), as well as the dramatic resumption of a bullish “deflation” trade. Leadership in stock markets has reverted to the “growth” theme, while leadership in bonds has reverted to the “yield” theme. For example:

  • Nasdaq Internet index annualizing a 80% total return
  • CCC rated junk bonds annualizing an 18% gain, while EM sovereign bonds (EMGB) annualizing a 17% gain.

Pointing out something we showed one month ago, namely that in a world awash with central bank liquidity “nothing matters”, Hartnett laments that “the lack of tax reform, lack of strong economic growth, no oil recovery, more geopolitical tension, China credit fears, none of it has mattered thanks to the ongoing central bank “Liquidity Supernova”: central banks have purchased a whopping $1.1tn of asset YTD.”

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Wall Street Completely Owns The Trump Administration

While America’s corporate press remains singularly obsessed with unproven and likely fabricated Russia-collusion conspiracy theories, Wall Street’s well on its way to getting away with financial murder thanks to an army of cronies embedded within the Trump administration. Indeed, Goldman Sachs running Donald Trump’s economic policy is perhaps the most concerning aspect of his Presidency when it comes to negative impacts on average citizens, yet it’s almost never placed at the forefront of the corporate press narrative.

Many of you probably recall headlines in recent weeks about how Trump might be in favor of “bringing back Glass-Steagall” as well as breaking up the big banks. These are two things I think are extraordinarily necessary and important, but it turns out Trump has no intention of actually doing any such thing….continue reading

 

Inside the New York Fed: Secret Recordings and a Culture Clash

Barely a year removed from the devastation of the 2008 financial crisis, the president of the Federal Reserve Bank of New York faced a crossroads. Congress had set its sights on reform. The biggest banks in the nation had shown that their failure could threaten the entire financial system. Lawmakers wanted new safeguards.

The Federal Reserve, and, by dint of its location off Wall Street, the New York Fed, was the logical choice to head the effort. Except it had failed miserably in catching the meltdown.

New York Fed President William Dudley had to answer two questions quickly: Why had his institution blown it, and how could it do better? So he called in an outsider, a Columbia University finance professor named David Beim, and granted him unlimited access to investigate. In exchange, the results would remain secret.

After interviews with dozens of New York Fed employees, Beim learned something that surprised even him. The most daunting obstacle the New York Fed faced in overseeing the nation’s biggest financial institutions was its own culture. The New York Fed had become too risk-averse and deferential to the banks it supervised. Its examiners feared contradicting bosses, who too often forced their findings into an institutional consensus that watered down much of what they did.

The report didn’t only highlight problems. Beim provided a path forward. He urged the New York Fed to hire expert examiners who were unafraid to speak up and then encourage them to do so. It was essential, he said, to preventing the next crisis.

A year later, Congress gave the Federal Reserve even more oversight authority. And the New York Fed started hiring specialized examiners to station inside the too-big-to fail institutions, those that posed the most risk to the financial system.

One of the expert examiners it chose was Carmen Segarra.

Segarra appeared to be exactly what Beim ordered. Passionate and direct, schooled in the Ivy League and at the Sorbonne, she was a lawyer with more than 13 years of experience in compliance – the specialty of helping banks satisfy rules and regulations. The New York Fed placed her inside one of the biggest and, at the time, most controversial banks in the country, Goldman Sachs.

It did not go well. She was fired after only seven months…

via Inside the New York Fed: Secret Recordings and a Culture Clash – ProPublica.

The Secret Goldman Sachs Tapes

Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street’s regulators are people who are paid by Wall Street to accept Wall Street’s explanations of itself, and who have little ability to defend themselves from those explanations.

Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn’t pay it much attention.

That may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived…

via The Secret Goldman Sachs Tapes – Bloomberg View.

Shocker! Economic crashes linked to Bible pattern

Wait until Wall Street figures this one out

The eight greatest postwar economic crashes are all mysteriously connected to a biblical Sabbath year pattern known in Hebrew as “the Shemitah,” reveals a book about to be released by the author of “The Harbinger,” the bestselling Christian book of the last three years.

The much-anticipated sequel by Jonathan Cahn is called “The Mystery of the Shemitah” – and it is certain to rock the world of financial speculators, stock market traders and economists.

Among the stunning findings of the author who found jaw-dropping links between the 9/11 terrorist attack and an otherwise obscure biblical passage, Isaiah 9:10, is that 100 percent of the worst U.S. economic calamities since World War II are all lined to the “Shemitah,” the biblical Sabbath year, its wake or the biblical month of Tishri in which the “Shemitah” falls.

“I have to tell you, economically speaking, this new book by Jonathan Cahn is one of the scariest things I have ever read,” said Joseph Farah, producer of “The Isaiah 9:10 Judgment,” the bestselling documentary film made with the author about the subject matter of “The Harbinger.” “If ‘The Harbinger’ got your attention, ‘The Mystery of the Shemitah’ will have you on your face praying.”

continue reading… via Shocker! Economic crashes linked to Bible pattern

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