In Charts: Global and US Markets: Mania!

 

In Charts: Global and US Markets: Mania! 

 

Global stocks surge to uncharted territories riding on record global equity flows…. 

 

 

Sources link, link, link 

 

US risk assets fly to the moon… 

 

Sources link, link 

 

As valuations reach extremely overstretched conditions… 

 

Source link, link 

 

As retail traders go berserk… 

 

 

Source: links, links, links 

 

Awesome quotes… 

 

Ben Hunt of the Epsilon Theory: 

 

The stock market is no longer a transmission belt between private capital and companies that can make productive use of that capital. This real-world connection with capital markets has been severed, turning them into political utilities. THIS is financialization.  

 

Peter Atwater: 

 

People forget that illusion happens in clusters. Widespread, extreme overconfidence is a feeding ground for fraud. There is never just one roach when the lights are turned on. 

 

Sven Henrich of the Northman Trader 

 

The greatest trick the devil ever pulled is convince people that permanent intervention and unlimited debt expansion is consequence free and can be a substitute for structural growth. 

 

Finally, from @ProfFeynman (Richard Feynman) 

 

The biggest difference between stupidity and intelligence is: When you're stupid, you think you know everything, without questioning and when you're intelligent, you question everything you think you know. 

S&P 500 and Global Equities: Behind The Best 71-Day Returns Since 1987; China’s Credit Rockets! Continued Ascent of US Primary Dealer Holdings of T-Bills

A delirious stock-exchange speculation such as the one that went crash in 1929 is a pyramid of that character. Its stones are avarice, mass-delusion and mania; its tokens are bits of printed paper representing fragments and fictions of title to things both real and unreal, including title to profits that have not yet been earned and never will be. All imponderable. An ephemeral, whirling, upside-down pyramid, doomed in its own velocity. Yet it devours credit in an uncontrollable manner, more and more to the very end; credit feeds its velocity—Garet Garett

S&P 500 and Global Equities: Behind The Best 71-Day Returns Since 1987; China’s Credit Rockets! Continued Ascent of US Primary Dealer Holdings of T-Bills

Figure1

This first chart shows that the S&P 500 has registered the fourth-best return in 71 days and the best return since 1987. (chart courtesy of Charlie Bilello)

But here’s the rub. Beneath the surface, of the top four best returns in 71-days, namely, 1975, 1930, 1987 and 1943, yearend returns were either strikingly single digit or stunningly negative.

Said differently, by the close of the year, the gains of the top four were completely or mostly reversed.

The possible reasons:

-1975 signified the tail end of 1973-1975 recession.

-1930 represented the onset of the Great Depression

-1987 saw the horrific Black Monday crash and

-1943 may have been the prelude to the post World War 2 the short recession of 1945.

Will the SPX follow the same path?

Figure 2

The next chart (also from Charlie Bilello) shows the intensifying euphoria that has engulfed global equity markets.

Forty-six of the forty-eight national ETFs including the Philippines have posted positive returns! The average returns have been an astounding 12%, the best start since 1987! (returns in USD)

1987 again!

Will global equity markets share the same fate of the SPX?

The third chart comes from Ed Yardeni’s Country Briefing: China

It shows how the Chinese government has panicked to have incited the unleashing a tsunami of credit at a scale never seen before!

Figure 3

The perspicacious Doug Noland with the nitty gritty:

China’s Aggregate Financing (approximately system Credit growth less government borrowings) jumped 2.860 billion yuan, or $427 billion – during the 31 days of March ($13.8bn/day or $5.0 TN annualized). This was 55% above estimates and a full 80% ahead of March 2018. A big March placed Q1 growth of Aggregate Financing at $1.224 TN – surely the strongest three-month Credit expansion in history. First quarter growth in Aggregate Financing was 40% above that from Q1 2018. 

Over the past year, China's Aggregate Financing expanded $3.224 TN, the strongest y-o-y growth since December 2017. According to Bloomberg, the 10.7% growth rate (to $31.11 TN) for Aggregate Financing was the strongest since August 2018. The PBOC announced that Total Financial Institution (banks, brokers and insurance companies) assets ended 2018 at $43.8 TN.

March New (Financial Institution) Loans increased $254 billion, 35% above estimates. Growth for the month was 52% larger than the amount of loans extended in March 2018. For the first quarter, New Loans expanded a record $867 billion, about 20% ahead of Q1 2018, with six-month growth running 23% above the comparable year ago level. New Loans expanded 13.7% over the past year, the strongest y-o-y growth since June 2016. New Loans grew 28.2% over two years and 90% over five years. 

China’s consumer lending boom runs unabated. Consumer Loans expanded $133 billion during March, a 55% increase compared to March 2018 lending. This put six-month growth in Consumer Loans at $521 billion. Consumer Loans expanded 17.6% over the past year, 41% in two years, 76% in three years and 139% in five years. 

China’s M2 Money Supply expanded at an 8.6% pace during March, compared to estimates of 8.2% and up from February’s 8.0%. It was the strongest pace of M2 growth since February 2018’s 8.8%. 

South China Morning Post headline: “China Issues Record New Loans in the First Quarter of 2019 as Beijing Battles Slowing Economy Amid Trade War.” Faltering markets and slowing growth put China at a competitive disadvantage in last year’s U.S. trade negotiations. With the Shanghai Composite up 28% in early-2019 and economic growth seemingly stabilized, Chinese officials are in a stronger position to hammer out a deal. But at what cost to financial and economic stability?

Beijing has become the poster child for Stop and Go stimulus measures. China employed massive stimulus measures a decade ago to counteract the effects of the global crisis. Officials have employed various measures over the years to restrain Credit and speculative excess, while attempting to suppress inflating apartment and real estate Bubbles. Timid tightening measures were unsuccessful - and the Bubble rages on. When China’s currency and markets faltered in late-2015/early-2016, Beijing backed away from tightening measures and was again compelled to aggressively engage the accelerator. 

Credit boomed, “shadow banking” turned manic, China’s apartment Bubble gathered further momentum and the economy overheated. Aggregate Financing expanded $3.35 TN during 2017, followed by an at the time record month ($460bn) in January 2018. Beijing then finally moved decisively to rein in “shadow banking” and restrain Credit growth more generally. Credit growth slowed somewhat during 2018, as the clampdown on “shadow” lending hit small and medium-sized businesses. Bank lending accelerated later in the year, a boom notable for rapid growth in Consumer lending (largely financing apartment purchases). And, as noted above, Credit growth surged by a record amount during 2019’s first quarter. 

China now has the largest banking system in the world and by far the greatest Credit expansion. The Fed’s dovish U-turn – along with a more dovish global central bank community - get Credit for resuscitating global markets. Don’t, however, underestimate the impact of booming Chinese Credit on global financial markets. The emerging markets recovery, in particular, is an upshot of the Chinese Credit surge. Booming Credit is viewed as ensuring another year of at least 6.0% Chinese GDP expansion, growth that reverberates throughout EM and the global economy more generally.

So, has Beijing made the decision to embrace Credit and financial excess in the name of sustaining Chinese growth and global influence? No more Stop, only Go? Will they now look the other way from record lending, highly speculative markets and reenergized housing Bubbles? Has the priority shifted to a global financial and economic arms race against its increasingly antagonistic U.S. rival? 

Chinese officials surely recognize many of the risks associated with financial excess and asset Bubbles. I would not bet on the conclusion of Stop and Go. And don’t be surprised if Beijing begins the process of letting up on the accelerator, with perhaps more dramatic restraining efforts commencing after a trade deal is consummated. Has the PBOC already initiated the process?

April 12 – Bloomberg (Livia Yap): “The People’s Bank of China refrained from injecting cash into the financial system for a 17th consecutive day, the longest stretch this year. China’s overnight repurchase rate is on track for the biggest weekly advance in more than five years amid tight liquidity conditions.”

Figure 4

US primary dealer holdings of T-Bills and Floating Rate Notes have been spiraling upwards. Why? Have they been accumulating USTs for their account or on behalf of clients? Have these intensifying accumulation been about the growing scarcity of risk-free collateral?

Four different charts that are related (see Garet Garrett excerpt)

The year of the pig.

The Militarization of the Philippine Government, Pumps and Dumps Account for 90% of the Week’s 1.08% Gains, Xi Jinping Put and Global Short Squeeze

A tyrant... is always stirring up some war or other, in order that the people may require a leader—Plato

In this issue

The Militarization of the Philippine Government, Pumps and Dumps Account for 90% of the Week’s 1.08% Gains, Xi Jinping Put and Global Short Squeeze

-The Militarization of the Philippine Government

-90% of the Week’s Phisix Gains From Mostly PUMPS and DUMPS, How This Will Backfire

-Asian Currencies and Stocks Surge on Xi Jinping Put and Wall Street Short Squeeze

The Militarization of the Philippine Government, Pumps and Dumps Account for 90% of the Week’s 1.08% Gains, Xi Jinping Put and Global Short Squeeze

The Militarization of the Philippine Government

At the behest of President Duterte, the military will take control of the Bureau of Customs (BoC)… 

From the Inquirer (October 29, 2018): Armed Forces of the Philippines (AFP) would be taking over the operations of the Bureau of Customs (BOC) temporarily due to unmitigated corruption at the agency. In his speech during the thanks giving party of former Foreign Affairs Secretary Alan Peter Cayetano in Davao City, Duterte said the military would run the corruption-hit bureau while all of its employees were on floating status

However, such decree was a unilateral decision made that bypassed the DnD chief…

From the Inquirer (October 31, 2018): Defense Secretary Delfin Lorenzana said Wednesday that he was not consulted by President Rodrigo Duterte on his decision to place the Bureau of Customs under military control. “No. Wala. It’s just the decision of the President,” he told reporters when asked if the President talked to him before the announcement over the weekend.

The militarization of the bureaucracy has been broadening. The list now includes the BoC. 

From the Inquirer (November 3, 2018): Eight retired military and police generals currently serve in top government posts. These are Delfin Lorenzana as defense secretary, Hermogenes Esperon as national security adviser, Rolando Bautista as social welfare secretary, Roy Cimatu as environment secretary, Eduardo Año as interior secretary, Eduardo del Rosario as housing secretary and Task Force Bangon Marawi chair, Rey Leonardo Guerrero as customs commissioner and Isidro Lapeña as director general of the Technical Education and Skills Development Authority.

The published justification or the given reason is that “they deliver”…

From the Inquirer (November 1, 2018): Duterte, who continued to defend former Customs Commissioner Isidro Lapeña and Lapena’s predecessor, Nicanor Faeldon, said he had appointed former military officers to his Cabinet because they were the one who delivered. ost of my Cabinet secretaries are already military men, why? I do not have anything against the bureaucracy, but the bureaucracy takes a long time to deliver. It will take you forever [to implement projects] because they’re fond of debating,” he said, speaking in a mix of Cebuano and English.

Has bureaucratic efficiency been the genuine reason for the militarization?  Or could there be others?

Prior to the BoC’s takeover, the President appealed to the military

Philstar (October 26, 2018):  (bold mine)

The military may have blown its chances of initiating real change in the country when it returned power to politicians after helping oust unpopular administrations, President Duterte said on Wednesday.

“Kayo rin ang may kasalanan niyan (It’s your fault). You have had your chance to really change the country but you did not,” the President said in a speech at the awarding ceremonies for artists at Malacañang.

“You in the military, listen to this. You have maybe staged so many coup d’états, mutiny and everything. The problem with you is, every time there’s a successful revolution, you returned power to the people. Power emanates from the people, remember, not to the few,” he said, apparently referring to the February 1986 EDSA Revolution that toppled dictator Ferdinand Marcos and the so-called EDSA 2 in 2001 that forced president Joseph Estrada to step down. The Armed Forces of the Philippines (AFP) played a key role in both civilian-led uprisings.

He said the country’s politicians were backers of oligarchs or were themselves the “rich people who… were able to maintain their alliances with government to milk more money.”

“So next time if you want a revolutionary government or if you want… Sleep on it, think about it, and not just surrender and salute whoever you want to salute,” he said in a mix of English and Filipino.

What do you think he means by the last paragraph: “So next time if you want a revolutionary government or if you want… Sleep on it, think about it, and not just surrender and salute whoever you want to salute”? Or Duterte’s call for action to the military?

Aside from amassing political power through centralization, could this be about legacy?

The President expressed intent to retire in August. He has also undergone clinical tests where he denies having cancer.

Under the present system, if he retires, the Vice President assumes power.  If the opposition takes over, the incumbent President’s current actuation may be investigated. He may be tried publicly and incarcerated. So the assumption of a friendly administration is a required condition for him to relinquish power. 

But for such condition to occur means an overhaul of the incumbent institutions founded on the 1986 Constitution. And this can only happen through an extra-constitutional move, thus, the call for “revolutionary government”!

Again it may be two birds with one stone. The President is a self-declared ideological lefty.

Mr. Duterte has repeatedly been threatening to impose a revolutionary government. But without full support from the military, he won’t succeed. So could he be inspiring the military to conspire with him to establish a revolutionary government?

The slippery slope to a neo-socialist state from the political prism: First, a martial law at Marawi City. Then, the closure of Boracay. Now, the militarization of the government. Record fiscal deficits and various draconian controls make up the economic sphere.

As an aside, reports say that mass defiance of established rules has greeted the opening of Boracay. From the Philstar(November 2): “Barely a week since Boracay was reopened, some tourists and business establishments have defied regulations set by the Boracay Interagency Task Force to help protect and preserve the island. Parties, including loud music, smoking anddrinking in Boracay are back, Tourism Secretary Bernadette Romulo-Puyat said, citing reports she received on Wednesday.”

Unintended consequences have begun.

Will Duterte militarize Boracay too?

In response to many critics, Malacanang denies establishing a junta.

And why the bypass of the DnD chief? Because the latter has expressed opposition to a revolutionary government? Is the leadership reaching out to would-be supporters in the military of a junta? Or is he buying off support?

And will a militarized Bureau of Customs be used to curb record trade deficits? How? By manipulating statistics? By imposing import controls?

There is hardly any realization of the significance of such gradation.

The Dalai Lama captures the essence of dictatorship through the systematic reinforcement of coercion via militarization.From the Reality of War (bold added)

There are people with destructive intentions in every society, and the temptation to gain command over anorganisation capable of fulfilling their desires can become overwhelming. But no matter how malevolent or evil are the many murderous dictators who can currently oppress their nations and cause international problems, it is obvious that they cannot harm others or destroy countless human lives if they don't have a militaryorganisation accepted and condoned by society. As long as there are powerful armies there will always bedanger of dictatorship. If we really believe dictatorship to be a despicable and destructive form of government, then we must recognize that the existence of a powerful military establishment is one of its main causes

Finally, the great Austrian economist Nobel Prize winner Friedrich von Hayek on socialism’s inherent totalitarianism (bold mine)

But if democracy had to abdicate only from the control of economic life, this might still be regarded as a minor evil compared with the advantages expected from planning. Indeed, many of the advocates of planning fully realize — and have resigned themselves to the fact — that if planning is to be effective, democracy in the economic sphere has to go by the board. But it is a fatal delusion to believe that authoritarian government can be confined to economic matters. The tragic fact is that dictatorial direction cannot remain confined to economic matters but is bound to expand and to become "totalitarian" in the strict sense of the word. The economic dictator will soon find himself forced, even against his wishes, to assume dictatorship over the whole of the political and cultural life of the people.

See? More evidence of the path to a neo-socialist fascist-dictatorship state!

And with the introduction of more economic distortions, unintended consequences of grand scale have only been mounting.

All actions have consequences.  The markets and the economy are representative of a dynamic and complex feedback loop process.  Time will see through the accelerating ventilation of the repercussions from such unparalleled distortions (bubble government plus bubble economy), as it has already been

After all, there is no such thing as a free lunch. Not in the world of economics.

90% of the Week’s Phisix Gains From Mostly PUMPS and DUMPS, How This Will Backfire

How to generate a rally.

The Phisix closed up by 75.96 points or by 1.08% this week.

However, never will you hear about HOW this has taken place.

 

In a week abbreviated by two holidays, the output by the national benchmark had been shaped by two pumps and a dump! The net pump during the three days was 68.45 points or 90% of the week’s output!

As usual, such massive price-fixing's main beneficiary has been the Sy Group.

The PhiSYx trades at the 7,000-7,100+ range, but SM just hit a milestone! SM’s share of market capitalization reached the second highest in its trading history in the week that ended on October 26! It was the third highest at the end of this week

The last time SM reached its zenith share of a market cap weight of 14.01% was when the headline index rose to 9,041. In short, the push to 9,000 was mainly about the big caps, mostly SM.

Now even at 7,000-7,100 SM’s share of market cap (13.9% October 26, 13.83% October 31) has been narrowing relative to the January record. It shows how SM has been used to save the index!

That’s because many of the index composite issues have not participated in the pumping! For this reason, prices of a batch of issues have reached multi-year lows! Among the top 16: URC and JGS 2014, AEV 2013, TEL 2004, SECB 2014, BPI 2015 and GTCAP 2013!

Price Inequality!

Because of the index pumping on a limited number of issues, market cap weighted 2017 eps of the PhiSYx remains at a whopping 22.12! At 7,140!

See the charade?

The hope is that greater fools join, not only to pump the broader market but also pay for even higher prices for the most expensive issues!

 

A crucial deterioration in market breadth and peso trading volume accompanied the manipulated push of the PhiSYx to 9,058 in 2017 to January 2018

The distribution of trading activities had been CONCENTRATED towards the biggest market caps while the broader market fell. It exhibits the artificial effects of these price-fixing pumps.

That’s how one gets a big rally and a record.

Brazen manipulation of prices distorts the real value of capital, thus, economic imbalances emerge and accrue from it. The race to build supply is its prime repercussion.

As an example, the decaying volume in the PSE resonates or dovetails with the banking system’s liquidity conditions.

Banking liquidity strains should translate to lesser money available for allocation to the stock market. So the PSE’s market breadth deteriorates as the big index issues absorb most of the available liquidity via rampant price-fixing. Not only should the concern be of the inequality in price-valuations between the favored issues and not, but also growing risks from unexpected developments on issues with grossly exaggerated valuations. As interest rates streak upward, the dearest issues have been the most leveraged!

The Sage of Omaha, Warren Buffett spoke about the significance of interest to stocks in CNBC, “The most important item over time in valuation is obviously interest rates," he said in an interview last year. "If interest rates are destined to be at low levels. … It makes any stream of earnings from investments worth more money. The bogey is always what government bonds yield."

Eventually soon this whole façade, pillared by easy money and the price-fixing process, will implode.

Remember, the current leadership is a product of economic bubbles. Because getting something out of nothing has reached the national psyche, popular (neo-socialist) policies resonate with it.  

Asian Currencies and Stocks Surge on Xi Jinping Put and Wall Street Short Squeeze

China’s Xi Jinping put on has geared up.

China’s stock markets went on fire as Chinese Communist party leaders signaled a fresh round of stimulus measures. The benchmark Shanghai Composite surged 2.99% this week.

As the USD-yuan approached the psychological threshold of 7, a level that has not been breached since the global financial crisis a decade ago, according to the South China Morning Post, China’s central government sold yuan bills in Hong Kong to stem the fall.  As such, aided by the stimulus chatters, the yuan rallied by .8% the most since January

 

Asian currencies benefited from the powerful rebound of the yuan. All Asian currencies were up mostly from a short squeeze. South Korea’s won, the bruised Indonesian rupiah and Indian rupee rallied strongly by 1.74%, 1.72%, and 1.4% respectively. The Philippine peso was up by .2%. It would have been higher on a regular session

The Xi Jinping Put supported by the massive short-covering spike in Wall Street likewise reverberated in Asia

Led by the fantastic gains in the national equity benchmarks of Hong Kong (+7.16%), Japan (+5.0%), India (+4.98%) and Singapore (+4.86%), 89% of the region’s bourses spiked higher. The region’s average weekly return was +3.07%, which had also been about short-covering.

The US will hold its mid-term elections on Tuesday, November 6. The US Federal Reserve meets in November 7 and 8. Washington will reintroduce sanctions to Iran on November 5.

The likely outcome could be enhanced bidirectional volatility for global markets.

 

Here is an interesting chart from Bloomberg, chronicling US President Trump’s tweet or embrace or “ownership” of the S&P 500