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‘Patient Zero’ Of The Bubble Pandemic: Alan Greenspan

‘Patient Zero’ Of The Bubble Pandemic: Alan Greenspan

Authored by Matthew Piepenburg via GoldSwitzerland.com,

Below, we consider two well-known names in modern markets, former Fed Chairman Alan Greenspan, and current value investing legend,.

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'Patient Zero' Of The Bubble Pandemic: Alan Greenspan

Authored by Matthew Piepenburg via GoldSwitzerland.com,

Below, we consider two well-known names in modern markets, former Fed Chairman Alan Greenspan, and current value investing legend, Jeremy Grantham, co-founder of GMO Investment Strategies.

Years ago, I sat down with Jeremy Grantham in an office overlooking Boston Harbor to not only consider an investment in his fund, but to absorb the insights of a blunt-spoken observer of market risk.

Such blunt-speak, as I’ve written elsewhere, is a rare trait among the cadres of otherwise high-profile wealth managers whose incentives and survival are often predicated more upon selling hope than speaking to risk—the equivalent of being a whistleblower among a financial advisory complex driven largely by the gathering of fees rather than the reporting (and managing) of risk.

Almost a decade later, I’m still listening to Mr. Grantham and strongly recommend that others do the same.

A Market Bubble of Epic Proportions

Although it should come as no surprise to anyone who has tracked market history as well as market valuations, Mr. Grantham is one among only a handful of credible portfolio managers who have openly confessed that US markets are (and have been for some time) experiencing a market bubble of “epic proportions.”

In short: This ought to mean something.

As a keen tracker of both markets and market history, Mr. Grantham is no less confident and no less blunt in warning those who will listen that such epic bubbles always, and without exception, lead to equally epic busts.

We, of course, feel no differently, and have been warning of this bubble-to-bust cycle for years—not as “gold bugs” or “doom and gloomers,” but simply as market participants who can both count and read.

Toward this end, we’ve written at length about the gross over-valuations in risk assets, as measured by every metric known to history.

As for stock bubbles, we’ve examined record-breaking over-valuation signals from price to earnings and price to book valuations to equally scary price to cash flow models.

As for bond bubbles, one only has to look at the $18T+ levels of negative yielding bonds in the global market to plainly see bond over-valuation at levels which capital markets have never seen before.

For Mr. Grantham, however, traditional stock valuation tools have never been the most accurate measures of an equity bubble. Instead, and correctly, he points toward the long-term discounted value of future dividend streams as the truest measure of long-term stock valuation.

But as for bond risk, that too is no secret or mystery, yet one which remains eerily ignored in what Grantham (and ourselves) describes as the “market hysteria” of the current moment.

With central bankers now following the lead of Alan Greenspan (the author of the current “everything bubble” and “everything bust” to come) printing trillions of increasingly debased dollars to purchase otherwise unwanted bonds, the net result has been a world in which bond yields are all but extinct creatures.

As we’ll see below, this world without yield has major ramifications for boom-and-bust cycles in risk assets.

For now, however, there is no escaping the fact that we are in the biggest risk asset bubble in recorded history.

And yet despite such obvious icebergs ahead of us, investors have never been as “all-in” as they are today, chasing mispriced assets in everything from BTC and Tesla to US Treasury bonds as if bear market collapses have become outlawed by central bank magic.

As for Tesla, Grantham, like so many other blunt speakers, sees it as a telling symptom of valuation to the moon (white line below) but cash-flow in the basement (red line):

So, what gives? How did this crazy happen? Become “normal”? Who can investors blame? What can investors do?

How We Got Here: Alan Greenspan’s “Wealth Effect”?

If, like so many others trying to make sense of such madness, you are scratching your heads as to why and how the financial world lost its mind, once again, Mr. Grantham offers some guidance.

As for naming names, Grantham, much like us, can easily point to former Fed Chairman Alan Greenspan as the key architect of the current moral hazard and risk profile—and hence disaster to come—in US risk assets.

Years ago, Mr. Greenspan spun a tale of fantasy more egregious than Big Tobacco’s former “health affect” claim that cigarettes were good for you– namely the idea that extreme central bank support for stock markets has a “wealth effect” for the real economy.

When the markets tanked for one day in 1987, for example, Greenspan began lowering rates to help Wall Street recover. That pattern of bailing out markets with lower debt costs has since become the religious norm of the Fed under the subsequent mismanagement of Bernanke, Yellen and Powell.

Greenspan’s fantasy policy then, as now, was that lower rates stimulate markets, and that market wealth trickles down to economic health.

Well, there’s a number of problems with such policy fantasy, as facts are stubborn things…

The Greenspan Trickle?

First, it’s one thing to use rate reductions as market “rescue plans” when you are starting from a bond market that offered 16%, or then later 12%, 8% or even 4% yields on long-term sovereign bonds.

But what happens many years (and three Fed Chairs) later, when long term bond yields have been manipulated/ reduced to only 2%?

How much more room is left then to for “command control” central bankers to further reduce rates to save yet another over-valued bull market from crashing to earth?

In short, the Fed is running out of bullets, which means this low-rate bull market is running out of time.

Secondly, the so-called trickle-down “wealth effect” of bubbling stock markets benefiting Main Street economies is an openly failed premise as well as promise.

Does the following chart of income inequality in the US from Greenspan’s veiled wealth-transfer policies look like a balanced “wealth effect” to you?

The simple math and facts confirm that grossly inflated stock market growth had a mere 3%-4% impact on economic growth. In short, a true “trickle” indeed…

But as Greenspan, and then Later, Bernanke went on book and interview tours to congratulate themselves (while Paul Volker winced—I know this, because I saw him do it), they forgot to mention that despite their support for stock markets, those same markets crashed by 80% in the NASDAQ bubble of 2001-03 and by greater than 50% in the sub-prime bubble of 2008.

So much for the “Fed has your back.”

Greenspan’s Delusion Goes Public

But as we’ve written elsewhere, once the madness of Greenspan lead to a madness of crowds, the consequent animal spirits lead to what Grantham describes as a “state of mild hysteria” in which investor memories tend to get conveniently short.

While Greenspan and Bernanke were bragging of robust markets, for example, they failed to warn those hysterical investors of a little thing called “mean reversion” wherein Fed-stimulated markets always, well…pop.

Since Greenspan took office, we’ve already seen two of those “popping moments” with extreme prejudice yet apparently no memory.

Are you ready for the next mean reversion, or do you think Powell (and the MMT crowd) are endeared with magical powers?

Fantasy and delusion (including delusional central bankers), after all, are such comforting investment guides. But let us remind you of what mean reversion can and will look like:

Thus, instead of dividend streams or sound, traditional valuation metrics, markets now are at record, nosebleed highs because investor faith in central bank promises is as delusional as the bankers themselves—and this never bodes well.

Unfortunately, faith in fantasy (unlike true valuation) is impossible to measure, and hence timing/predicting the death of that faith, as we’ve written elsewhere, is an equally impossible task.

That said, once you start to see the large cap wunderkinder stocks like Tesla, Amazon, Google et al seeing massive daily sell-offs, followed by brief recoveries and then more sell-offs, you will know the end is near, and such endings are never pretty.

In the interim, what we can promise, however, is when, not if, the current market faith dies, so too will these “epic market bubbles.”

For now, we are seeing the longest bull market, and hence longest era of open delusion, ever recorded. That creates a great fear of missing out for equally delusional top chasers. But again, this is nothing new.

By the time the Japanese Nikkei died in 1989, losing greater than 80% from its tops and from which, some 30 years later, it has yet to recover, investors then were paying 65X earnings despite a prior history of never paying more than 25X earnings in Japan. They were sure their market would never pop; delusion and faith broke new records.

But of course, it did just that: It imploded—seemingly out of nowhere.

In short, trying to measure, and time, just how far crazy can go is a fool’s errand, as it’s impossible to measure foolish investors.

The current 12-year cycle of post-2009 market (and Fed-driven) hysteria can continue, despite ignoring some clear warning signs, like an OTC derivatives market trading 80M shares last February, only to end the year trading 1.15T shares, an open yet ignored sign of absolute insanity, for which the OTC market, as we’ve warned countless times, is the modern poster-child.

In addition, not even the NASDAQ markets or Cisco-like stocks I traded in the dot.com era (and bubble) of 1998-2001 can compare to the massive levels of over-valuation seen today in popular tech names whose market caps exceed that of GM, despite not making a single dollar of sales, profits or earnings.

Greenspan’s Sales Force

Of course, there will always be the salesmen, hedge fund managers, media bobbleheads, well-versed bankers and sell-side spin-sellers who will forever defend this bubble to keep investors (suckers) all-in, all the time.

To these snake-oil types, we can once again tip our hats to Alan Greenspan, who gave them the tag-line that they needed, namely that the Fed has your back and that fundamentals, or even market risk, no longer matters in a world where paper wealth (driven by central bank fiat paper) has replaced real wealth, and paper risk has been ignored by the headlines.

Such bubble-defenders have come up with all kinds of clever tricks to sell stocks that defy otherwise obvious symptoms of open fraud and dishonesty. Most notably, they point to the lack of yields in the bond markets to tempt more investors into the stock market.

But this comparison, as Jeremy Grantham reminds, is “ludicrous” for the simple reason that the bond market yardstick to which these stock peddlers are referring is an entirely artificial (i.e., Fed controlled) interest rate metric in which yields and rates, for all the reasons we’ve argued elsewhere, have zero correlation to natural market forces.

In short, the stock pushers are comparing bloated stocks to artificially repressed yields, the equivalent of comparing the price of a Ferrari to bag of magical beans. And yet millions of investing “Jacks” are climbing a stock market beanstalk toward a painful end.

Greenspan’s Broken Moral Compass

But Mr. Greenspan’s painful legacy goes even further. The moral hazard which marked his lack of ethics as Wall Street’s mistress as opposed to Main Street’s protector beginning in 1987 has now become the immoral norm of a market seemingly devoid of a moral compass.

The proliferation of SPACs, for example, in which smooth-talkers run around the country raising capital for a 20% carry (fee) and then hand those sucker dollars to hedge funds who take hefty premiums before pumping and then timely dumping the same is just one of countless examples of legitimized theft—much like Elon Musk’s “funding secured” short squeeze of 2018 or his front-running BTC tweet of 2021.

Goldman Sachs, another moral juggernaut (eh-hmmm), has no problem pumping IPOs for a fee that return no profits on a balance sheet.

As for more evidence of outright moral turpitude now accepted as normal market behavior, just consider 1) the price-controlled profile of the COMEX futures market lead by 8 major banks, 2) banks misreporting toxic derivatives exposure, 3) the lies the Fed uses to report CPI inflation, or, and most recently, 4) the Fed’s deliberate hiding of otherwise embarrassing M1 and M2 data from the public.

In short, the only thing we see “tricking down” from Greenspan’s example (he, Milton Friedman and Leo Malemed also helped bring mass leverage to the OTC market) and legacy has a foul smell to it.

Where to Hide from Greenspan’s Monster?

In the decades which have passed since Greenspan became the Fed template and “stimulus” supplier of Wall Street’s post-87 debt (keg) party of free money, repressed rates and hence massive stock and bond bubble-to-burst cycles, where can informed investors find value, safety and a comfortable night’s sleep?

With bond markets resembling a Frankenstein monster of artificial life thanks to a series of central bank lightning bolts (unlimited liquidity and open yield repression), do you still think of bonds as a “safe haven”?

As for value stocks, one would need more than a microscope and calculator to find traces of them today in the unprecedented over-valuation of the S&P or NASDAQ.

But as Grantham reminds, the Emerging Markets, for those wise and patient enough to invest rather than gamble, offers some obvious choices.

Like Grantham, however, we are equally, if not more openly, worried about the inflation that always shadows grotesque levels of rising money supply, to which, again, we can thank the trend begun by Mr. Greenspan and subsequently made legitimate by greater fools like Bernanke, Yellen and Powell.

Regardless of how measured (or mis-measured) by central-bank distorted inflationary scales or cleverly hidden M1 and M2 reporting methods, and regardless of the ongoing inflation vs. deflation debates in vogue today, we see undeniable evidence of grossly declining (debased) currencies in the U.S. and around the world, just one more legacy of the pro-market yet Main-Street-ignored policies unleashed by Greenspan and emboldened by subsequent Fed leaders.

In the end, sadly, the only thing “trickling down” from Greenspan’s “wealth effect” policies have been the debased dollars in your hip-pocket not the Fed “having your back.”

Thanks a lot Alan.

Tyler Durden Sat, 04/24/2021 - 14:21

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Wall Street Bonuses Fall For Second Year To 2019 Lows Amid Capital Markets Freeze

Wall Street Bonuses Fall For Second Year To 2019 Lows Amid Capital Markets Freeze

Wall Street bonuses have declined for two consecutive years,…

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Wall Street Bonuses Fall For Second Year To 2019 Lows Amid Capital Markets Freeze

Wall Street bonuses have declined for two consecutive years, falling to levels last seen in 2019, according to the latest yearly figures released by New York State Comptroller Thomas P. DiNapoli. This trend is occurring amidst a multi-year downturn in capital markets due to the Federal Reserve's interest rate hiking cycle.

According to the report, the average Wall Street cash bonus fell 2% to $176,500 in 2023, the lowest level since 2019. The drop was far less than the 25% plunge in 2022. Last year's bonus pool was $33.8 billion, unchanged from the previous year but far less than the $42.7 billion during the stock market mania in 2021. 

Source: Bloomberg 

"Wall Street's average cash bonuses dipped slightly from last year, with continued market volatility and more people joining the securities workforce," DiNapoli said in a news release on Tuesday. 

He continued: "While these bonuses affect income tax revenues for the state and city, both budgeted for larger declines so the impact on projected revenues should be limited." 

"The securities industry's continued strength should not overshadow the broader economic picture in New York, where we need all sectors to enjoy full recovery from the pandemic," he added.

Despite the slump, the report said Wall Street's profits rose 1.8% last year, "but firms have taken a more cautious approach to compensation, and more employees have joined the securities industry, which accounts for the slight decline in the average bonus." 

The report showed the industry employed 198,500 people in 2023, up from 191,600 the prior year. This expansion occurred during a period when US banks laid off 23,000 jobs. 

Given that swaps traders and economists at Goldman Sachs Group are forecasting fewer Fed interest-rate cuts this year, a higher-for-longer rates environment will continue to discourage capital-market activity. 

There's about a 50% chance of a June cut. Over the last several months, the Fed's interest-rate target implied by overnight index swaps and SOFR futures went from 700bps of cuts to currently 292bps of cuts for the full year. 

Any delay in the easing cycle will only mean another year of depressed bonuses for Wall Street. 

Tyler Durden Tue, 03/19/2024 - 10:00

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Caitlin Clark, Coach Prime, and Linsanity: The Anatomy of a Viewership ‘Craze’

This is a trying time for sports on television as the industry fights the headwinds of cord-cutting and media fragmentation. Television networks and leagues…

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This is a trying time for sports on television as the industry fights the headwinds of cord-cutting and media fragmentation. Television networks and leagues have taken measures that just a short time ago would have been considered extreme, desperate, or some combination of the two: an In-Season Tournament in the NBA; MLB in an Iowa cornfield; NASCAR inside the L.A. Coliseum. These efforts have been met with moderate success from a viewership standpoint, but they are not the type of needle-movers that drastically impact viewership in the aggregate. That type of shift requires a unicorn, and the last year has featured two: Caitlin Clark and Deion Sanders.

Clark has spent the past season breaking records on and off the court. Her Iowa Hawkeyes played in two of the four most watched college basketball games this season — regardless of gender. Both her record-breaking game against Ohio State and Big Ten Tournament championship win against Nebraska attracted over three million viewers. Only two men’s games, a Thanksgiving NFL lead-out between Michigan State and Arizona on FOX (5.18m), and a Duke-UNC game on ESPN (3.08m) also eclipsed the three million mark. Clark’s Big Ten Tournament semifinal against Michigan was the most watched women’s sporting event ever measured on Big Ten Network (1.08m). The championship game on CBS was the network’s most watched college basketball game of the year, men’s or women’s (pending results from this past weekend).

Of the six most watched women’s college basketball games this year, Clark played in five. Last year’s LSU-Iowa championship game delivered 9.9m viewers, the most ever for a women’s college game in the Nielsen people-meter era (dates back to 1988). The list could go on.

Deion Sanders — aka Coach Prime — transcended the sport of college football for a moment last fall. On his way to becoming Sports Illustrated Sportsperson of the Year, the Prime-fueled Colorado Buffaloes played in five of the fifteen most-watched regular season games of the year, more than any other school. Through the first five weeks of the season, Colorado played in either the first or second most-watched game of the week. Incredibly, that includes a Week 3 game against Colorado State that averaged 9.3 million viewers on ESPN, despite not kicking off until after 10 PM ET. That game drew four million more viewers than the second-most watched game that week, Georgia-South Carolina in the afternoon window on CBS. All of this for a team that won just one game the previous season.

Such viewership anomalies do not happen in a bubble; they are products of larger, media-driven forces. Think of last summer’s “Barbenheimer” craze for instance. Those two blockbuster films almost single-handedly lifted the box office from its pandemic-era depths. As many Hollywood analysts pointed out, the organic social media trend spurred from the strange juxtaposition of both movies being released on the same day led them to sell more tickets. Established media operations then picked up the story and fed into the trend. Social media isn’t always wagging the tail of traditional media, it can go both ways. The key to a true ‘craze’ however, is breaking through everywhere, no matter the media one consumes.

Maybe the most comparable sports craze in recent memory to the Clark-Sanders charged viewership of this past year is Linsanity. For a few weeks in 2012, New York Knicks guard Jeremy Lin broke out in a series of masterful performances that captured the imagination of the basketball world. Lin helped MSG Network improve its ratings by 82% through mid-February compared to the previous season — an absurd jump. However, Linsanity is perhaps also the most illustrative of another key factor in these viewership crazes: by definition, they are fleeting.

A look at Google search trends (below) puts these anomalies into perspective. Linsanity lasted about three weeks. Prime Time at Colorado was able to break through for about a month. Clark’s 2023 spike held for a few weeks in March, though her spike started much earlier this season, beginning to trend up in January. The lesson here, these massive viewership crazes are nice to have, can potentially raise the floor of a sport on the margins, but cannot be relied on for sustained viewership long term.

Caitlin Clark

Deion Sanders

Jeremy Lin

This isn’t to say these anomalies are without value. Networks have realized that facilitating these crazes help maintain healthy viewership in a difficult television environment. Thus, manufacturing these short-lived spikes could prove to be a key component of network’s strategies into the future. Last year for instance, FOX sent its Big Noon Kickoff show to a Colorado game four of the first five weeks of the season to help jump-start the Deion Sanders media blitz. ESPN’s College GameDay also setup shop in Boulder for the Week 3 game against Colorado State, the same week CBS’s 60 Minutes aired a Deion Sanders story.

As for Clark, ESPN recently announced that for the first time, it will embed a reporter (Holly Rowe) with Iowa for the team’s upcoming NCAA Tournament run. FOX gave Clark special treatment as well. When the network aired Caitlin Clark games this season, they would have her stat line permanently fixed on the scorebug. They livestreamed a “Caitlin Clark Cam” on TikTok. FOX even reportedly offered Clark an NIL package to incentivize her to play in college another year.

Of course, these crazes cannot solely be manufactured by the networks. There must be some truly organic interest in the subject for any of this to be possible. Between Clark and Sanders, there’s evidence to suggest that such crazes are becoming more frequent. Two in one year is notable when the last similar instance was Linsanity in 2012. This is partly due to the networks’ willingness to feed into these stories, though the growing desire in public life for shared experiences should not be discounted either.

Record-setting viewership has become commonplace for sporting events that have found ways to break into the monoculture. To be sure, some of that is because of Nielsen’s changes to out-of-home viewing measurements, though arguably the reason a property like the NFL has been so successful lately is because of its ubiquity in American life. Clark and Sanders have been able to simulate similar far-reaching appeal to generate viewership, albeit for shorter periods of time, and orders of magnitude smaller than the NFL.

A level of cultish personality, elite talent, or both seems prerequisite for a viewership craze to start. The level to which television networks will find ways to capitalize on these circumstances in the future remains to be seen. As traditional media fights for survival, with live sports as a main component, replicating Clark or Sanders-esque media booms may well become a substantial part of the formula. The next few years will be telling about how much influence traditional media still has in its agenda-setting role, and how far they’ll be willing to go to facilitate a media-induced frenzy.

The post Caitlin Clark, Coach Prime, and Linsanity: The Anatomy of a Viewership ‘Craze’ appeared first on Sports Media Watch.

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Gates-backed PhIII study tuberculosis vaccine study gets underway

A large study of an experimental vaccine for the world’s biggest infectious disease has finally kicked off in South Africa.
The Bill & Melinda Gates…

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A large study of an experimental vaccine for the world’s biggest infectious disease has finally kicked off in South Africa.

The Bill & Melinda Gates Medical Research Institute (MRI) will test a tuberculosis vaccine’s ability to prevent latent infections from causing potentially deadly lung disease. Last summer the nonprofit said it would foot $400 million of the estimated $550 million cost of running the 20,000-person Phase III trial.

It’s a pivotal moment for a vaccine whose origins date back 25 years when scientists identified two proteins that triggered strong immunity to the bacterium that causes tuberculosis. A fusion of those proteins, paired with the tree bark-derived adjuvant that helps power GSK’s shingles shot, comprise the so-called M72 vaccine.

Thomas Scriba

After decades of failures in the field, the vaccine impressed scientists in 2018 when GSK found that it was 54% efficacious at preventing lung disease in a 3,600-person Phase IIb study.

But the Big Pharma decided that a full-blown trial was too expensive to conduct on its own. Gates MRI stepped in to license the vaccine in early 2020, right before the Covid pandemic shifted global vaccine priorities towards the coronavirus, further stalling the tuberculosis shot.

“There’s been frustration that it’s taken so long to get this trial up and running,” Thomas Scriba, deputy director of immunology for the South African Tuberculosis Vaccine Initiative, told Endpoints News last summer.

At last, the vaccine is getting a chance to prove itself in a bigger study. If successful, it could lead to the first new shot for tuberculosis in over a century.

Emilio Emini, CEO of the Gates MRI, told Endpoints that the initial results may come in roughly four to six years. “Hopefully this will galvanize a refocus on TB,” he said. “It’s been ignored for many, many years. We can’t ignore it anymore.”

A substantial impact

Even though an existing vaccine helps protect babies and children against severe tuberculosis, the bacterium responsible for the disease still causes roughly 10 million new cases and 500,000 deaths each year.

Emilio Emini

By vaccinating adolescents and adults who test positive for infections but don’t have symptoms of lung disease, the Gates MRI hopes the shot will help prevent mild infections from becoming severe ones, curtail transmission of the bug, which is predominantly driven by people with lung disease, and reduce deaths.

“The impact would be substantial,” Emini said. But he cautioned that the biology behind mild and severe diseases is still mysterious. “The reality is that no one really knows what keeps it under control.”

The study, which will take place at 60 sites across seven countries, will include some people who are not infected with tuberculosis to ensure that the vaccine is safe in that broader population.

“Having to pre-test everybody is not going to make the vaccine easy to deliver,” Emini said. If the vaccine is ultimately approved, it will likely be used in targeted communities with high tuberculosis, rather than across a whole country, he added. “In practice, you would immunize everybody in those populations.”

Emini described the Gates MRI’s rights to the vaccine as “close to a worldwide license.” GSK retained rights to commercialize the vaccine in certain countries but declined to specify which ones.

A spokesperson for GSK said that the company “has around 30 assets under development specifically for global health … none of which are expected to generate significant return on investment.”

“It is not sustainable or practical in the longer term for GSK to deliver all of these alone. So we continue to work on M72, but in partnership with others,” the spokesperson added.

If the shot works, Emini said that the Gates MRI will sublicense it to a manufacturer that will be responsible for making and marketing the vaccine. The details are still being worked out, he noted.

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