Madness returns to the market: spydell — LiveJournal

Madness returns to the markets. Pay attention to European indices. The leading countries of Europe have restored the capitalization of the stock market on average before the start of the MER, i.е. before the start of the energy and inflationary crisis in the acute phase.

Moreover, the recovery over the past month is so epic that the indices are not far from their January highs.

For example, the German DAX is 11.5% from its all-time high, the French CAC40 is already 9.5% from its all-time high, the UK FTSE100 is 3% (THREE!) from its January high, the Italian IT40 is 12.7%. Overall, the top 100 European companies accounted for 8.7% of their historical peak capitalization.

In the period from November 15 to November 30 last year, the markets were falling, so the year-on-year dynamics may go into a positive area, and if we take not the highs, where the volume of transactions was insignificant, the average pre-crisis values ​​in the period from November 2021 to February 2022, then the current values literally in a few percent (3-4%) of pre-crisis levels.

The recovery of the markets began on October 13, during this period the growth momentum became one of the most significant in 20 years – there were only THREE times when the recovery was more rapid – April 2009, October 2011 and April 2020. The current momentum is comparable to November-December 2020.

Even the American market, which lagged far behind, almost compensated for everything. The Dow30 is up 8.7% from its January high, the S&P500 is up 16%, and the NASDAQ is up 28%, all due to the debacle of critically overbought tech companies.

Accordingly, world indices, excluding technology companies, are 6-9% of their peak levels and about 3% of their pre-crisis averages. Thus, in just a month, the bubble was restored to its previous value.

Interestingly, the bubbling narrative is that “not everything is as bad as it seems.”

• Inflation is not as bad as it seemed, and the rate of inflation slowdown is better than expected.

• Economic resilience is better than expected – no crisis, very mild recession

• A slowdown in monetary policy tightening by major central banks is about to begin. And they haven’t even started tightening yet.

• The stability of the debt and monetary structure is preserved, the bond market

• The dollar has let go, interventions are no longer needed, the currency crisis is over!

• Energy, inflation and debt crises are over – hooray!

This is a grandiose deception and delusion – an epic trap in the conditions of a degrading consciousness over 15 years of monetary drug frenzy, which led to a strong dependence of economic agents on external doping to maintain efficiency. Problems have not yet begun, and the slowdown in inflation is temporary, limited, but more on that another time.

Not a bad characterization of the total frenzy of the market and the realization that, in the short term, the market is almost always wrong. Participants in the financial system have included in their expectations and prices the total neutralization of all risks and the complete end of the crisis.

This is confirmed by the current capitalization of the stock market of developed countries, with the exception of those (USA, Europe, Japan, Australia, Canada, South Korea), which is 3% lower than the average pre-crisis levels of October 2021-February 2022.

Accordingly, a return to the past reality is expected: the inflationary crisis has been defeated (this is just one pseudo-positive inflation report in the United States), the debt crisis has been avoided, the pace of monetary policy tightening by the world’s leading central banks will slow down, and in 2023 they will begin to normalize to the former paradigm of infinitely cheap liquidity, and economic activity will be stable without a collapse (soft landing).

All this is nonsense, a completely inadequate reading and evaluation of current balance sheets and prospects.

In order to return to the previous paradigm of estimating market multiples, it is necessary to return monetary policy to the regime of an unlimited printing press with zero rates, which existed from 2009 to 2021 – this is impossible with the current inflationary risks. A fundamentally different reality is coming.

It is important to note that an inflationary crisis never ends all at once. such processes involve a significant transformation of economic and financial ties, the balance sheets of economic agents, the cost structure, and many factors that irreversibly change the system.

Also, the phase of contraction of consumer and investment activity is just beginning, which will have a clearly negative effect on the financial performance of the business.

In order not to repeat:

October 31 were described ( factors behind market growth;

November 7, I described ( a reversal market formation with a record intraday volatility, which actually happened;

November 11 factors ( for rising and falling.

What else should be added? For a sustained market reversal to occur, like in April 2009, October 2011, February 2016 or March 2020, financial, fiscal or macroeconomic conditions are needed to fuel this growth.

Who is the main liquidity provider to the US market? Corporations through buyback, the Fed through QE operations and cheap liquidity, the US Treasury through helicopter money to the public, non-residents and the public in the framework of sustainable economic development.

Will corporations pay buyback on a trajectory of falling profits and shrinking margins? Will the US Treasury cut corporate taxes amid record debt, huge deficits, and borrowing problems? Will there be another phase of QE with record inflation? Will non-residents send capital to the US with their own record cash gaps and problems in the domestic market? The answers are obvious. What about consumer activity? I will form a separate analysis, but here the prospects are gloomy.

Therefore, do not count on a steady rise in markets – at the moment it is a rally in a bear market.

Yandex Zen

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.