Passive, trend following funds – which account for the bulk of daily flows across financial markets – have only helped exacerbate the situation. But what’s worse is market strategists’ refusal to acknowledge how these flows, which create destabilizing feedback loops, tend to drive trading. Instead, sell-side “experts” employ flimsy fake narratives ex post to explain trading activity. These narratives are often accepted without question or criticism by financial reporters at CNBC, the Wall Street Journal, Bloomberg… the list goes on.
To put this figure in perspective, this year, “Singles Day” GMV came in at just a few billion more than the annual revenue of Sears/K-Mart (140,000 employees and 1,500 locations world-wide)….. again, I’ll repeat that….. Alibaba sold, shipped and delivered the annual, global, sales volume of Sears/K-Mart in just one day! ….800 Million orders to deliver! Incredible! Bravo!…..all those guys on the tuk-tuks, scooters and bicycles must be exhausted……Like the Blob, Alibaba’s financial misrepresentations, as absurd as they are, have grown to the point where its oozing tentacles of slime have crept into every corner the world’s financial system.
This is one of my favorite subjects and regular readers are undoubtedly familiar with the “perpetual motion machine” characterization put forth over the summer by Howard Marks and my own “wave paradox” theory as presented in full over at DealBreaker…….Wells expands on these ideas and notes that passive investing is “beginning to resemble the footprint left by QE.”
One would be Get Rich Quick, of course. Eight months ago, you could have copped Bitcoin for a mere $1000, and around Labor Day it touched $5000, which seemed, well, figment-ish. In the last two weeks, it went all out hockey-stick, doubling. To a certain sort of mind this must seem irresistible. The result: a good old-fashioned mania. Digital tulip bulbs.
For two full years now, Saudi Arabia—a petro-state of strict, Islamist, Wahhabi extremists—has dropped American-made precision guided munitions on Yemeni “rebels” and civilians alike. Saudi fighter-bombers commute daily to the slaughter zone, courtesy of in-flight refueling missions flown by the U.S. Air Force. How nice.
Elon Musk knows how to make promises. Even by his own standards, the promises made last week while introducing two new Tesla vehicles—the heavy-duty Semi Truck and the speedy Roadster—are monuments of envelope pushing. To deliver, according to close observers of battery technology, Tesla would have to far exceed what is currently thought possible.
When the Obama administration led a 2011 NATO military intervention on behalf of rebels seeking to overthrow Libyan dictator Muammar el-Qaddafi, there was considerable optimism that the move would produce a much better country. Although U.S. officials and their media cheerleaders acknowledged that significant challenges remained for a post-Qaddafi Libya, they argued that the outcome could scarcely be worse than the oppressive status quo. Events over the past six years have proven their assumptions spectacularly wrong. Libya is now a cauldron of turmoil and Islamic radicalism.
In the movie, The Perfect Storm, George Clooney plays the Captain of the Andrea Gail. The Captain, after having a bad start to the fishing season, convinces his crew to go out one last time and they venture well past their usual fishing grounds leaving a developing thunderstorm behind them. After ignoring repeated warnings, a desperate Captain, and crew, head into a confluence of two powerful weather fronts and a hurricane in order to cash in on their bounty……They all died……Investors today, after having missed out on the first few years of the current bull market cycle, have now decided to throw all caution to the wind and ignore the repeated warnings in hopes of attaining the “riches” they have been promised.
Given that the price tag of the Yellen Put stretches into the trillions of dollars, how big will the next Fed intervention need to be? For example, will the FOMC stand by and watch the US equity markets correct as China slows in 2018, destroying trillions of dollars in paper wealth? After all, the chief priority of the FOMC arguably is not full employment or price stability, but rather preserving the Treasury’s access to the bond markets.
Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23 percent from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms, but excluded financials, which have seen the brunt of government de-risking and deleveraging efforts so far.