Have you read any of the recent articles from Michael Burry – curious about your thoughts on his perspectives. From what I can tell he does seem to look at things in a different and intelligent way but I think he would only be accurate if things were fair instead of manipulated and I also think that he greatly underestimates the level of exuberance irrespective of how irrational it might be.
Jeremiah
From what I’m able to read about Mr Burry, I guess he makes large sector bets by shorting asset sectors.
Prior to QE, predicting bubbles was easy
It was a much more straightforward process to predict when to short a particular sector before quantitative easing QE was established as a bona fide monetary tool.
For instance, I owned eight rental houses back in the closing couple months of 2005 and sold off six of them, anticipating a housing crash. I made this prediction, because the rental income I was deriving was not rising nearly as much as the prices. I was running the numbers with a pen and paper on my kitchen table and determined that the values had gone insane.
Okay. For about 18 months, the prices continued to move higher and I began to initially regret selling off my portfolio the way I did. However, I parked the proceeds in physical gold and silver and then the stock market crash happened in 2008. The property values on those houses dropped by at least 50% and I was sitting pretty. I was able to make this determination because before the GFC 2008, there was no viable way for the FED to step in the way it does now.
In 2008, the old world reached its financial denouement
The reason why the GFC occurred in the first place was because for the first time in modern history the supply of debt was greater than the world’s ability to absorb it all. That’s it, pure and simple.
Yes, organic fixed income demand was no longer high enough to absorb all of the new supply of fixed income securities.
With the sovereign nation-states running ever larger fiscal deficits and financing them with sovereign debt securities, the nation state governments were crowding out private investment on a scale not seen since World War II.
But there were no wars occurring during the aughts. These trends had become institutionalized and the world had reached a financial denouement. Essentially, the world was consuming more than 100% of its net savings rate. As a result, the industrialized nations began to experience a spiraling of debt defaults that had never been experienced since the Great Depression.
QE changed everything and created a new world
Since the GFC and Bernanke’s conjuring of QE, we no longer can deduce outcomes based on simple math.
What do I mean? Because of QE, the nation states can go into hock for any amount desired and run fiscal deficits to levels that were previously inconceivable. The central banking cartel can absorb the excess debt.
As a result, asset sectors that look over valued can now continue remaining overvalued for years if not decades longer than they normally would be. For many prudent contrarians, the stock and housing markets have been grossly overvalued since 2015 and before. Good luck shorting it. Many of these traders who didn’t adjust to the new reality are no longer around.
How we survive with QE
I started a shortwave show back in 2015, and I would analyze all of the Cassandra’s in the stock and housing markets who were pounding the table about imminent collapse. I told my listeners and the readers of my blog not to be concerned about this as the Federal Reserve was more than capable of absorbing all of the extra debt issuance.
It’s all so very clever and ingenious and this is why the standards of living for the average person have continued to fall as the asset owners have been able to consolidate their wealth and power over the masses.
The world is slowly sinking in a sea of red ink, yet those with the income-generating assets have life preservers and boats. Every person on the planet suffers from QE and all of the debt outstanding, so it’s vital that we figure out ways to keep our heads above water.
Think of all that debt that needs to be serviced in a post-QE world. The interest costs are mind blowing, but those who only have a pocket full of debts and a wage are not only servicing their own personal debts, but are effectively servicing everyone else’s via monetary and price inflation.
In order to survive in this crimson ocean, we must own enough of the assets, so that they go up in value more than our standards of living would otherwise fall. Wage earners and fixed income pensioners get decimated. Essentially, the more income generating assets someone owns the better his or her relative outcome. And this is all made possible because of QE.
Going insolvent waiting to be right
So, Mr. Burry could lay out all of the cogent points on his investment thesis and be able to show with all of his analysis and evidence that a market is overvalued and yet be wrong for a long time. And that’s the important concept to keep in mind. The markets can remain overvalued for much longer than someone can remain solvent waiting to be right.
I cannot overemphasize how QE has completely changed the investment landscape. In a world of quantitative easing, everything goes up in value. I mean everything. And at the end of the day, I would prefer to be swimming downstream than to be fighting the rapids going in the opposite direction.
Gold is touching the psychological level of 5000 USD and silver is around 100 USD.
If they are going to correct, it would be now wouldn’t it?
Or maybe they will just keep going.
Trees don’t grow to the sky, but maybe gold and silver will be the base of the global currency.
Silver is off its rails. I personally don’t recommend that at this price, and it’s always more susceptible to a correction than gold. Moreover silver does have a current geopolitical supply and demand thesis taking it to its unexpectedly new heights. But the move in gold is just a reconciliation with other types of assets, like stocks and businesses.
If the LA Lakers can sell for $10 billion as they just did, priced in gold, it should be fairly consistent. The only difference between a sports team, and it’s estimated the New York Giants would sell for over $8 billion now, is that the sports team generates a lot of money. Gold doesn’t.
The LA Lakers last sold in 1979 for $67.5 million.
The S&P 500 was well under 1,000 for a while after the GFC. It’s trading close to 7,000 now.
It’s all relative.
I’ll add that the gold silver ratio is a good indicator for silver. Right now its about 48 to one. Earlier last year it was about 80 to one, a good time to buy physical silver. Silver has been on a tear catching up and closing the gap in the ratio as Stone said.
‘T-Rex’ Trump devours European leaders in Davos over Greenland
Donald Trump’s quest to gain control of Greenland appeared to have taken a leap forward at a high-stakes showdown with America’s European allies in Davos. And it was the result of a familiar Trump negotiation strategy.
Before his appearance at the World Economic Forum in the Swiss ski resort on Wednesday, Trump started by setting out a maximalist position that would cause widespread outrage.
The president suggested he might invade the icy wasteland, which would constitute an attack on NATO ally Denmark, of which Greenland is an autonomous territory.
He also threatened 10 percent tariffs on eight recalcitrant European allies who opposed his designs on Greenland, starting on February 1.
Trump then allowed that double thunderbolt to sink in for several days. European and NATO allies predictably frothed at the diplomatic mouth, making indignant statements about him acting like an ‘international gangster.’
Then, in his Davos speech, Trump pulled an unexpected rabbit out of the hat.
He withdrew the military threat, telling his audience that he would ‘not use force,’ and instead urged immediate, sensible negotiations, to which his relieved allies were now presumably more receptive.
Seemingly, it took just a few hours for Trump’s plan to work, and for European opposition to crumble, at least partially.
He and NATO Secretary General Mark Rutte quickly announced they had reached the outlines of a deal on the future of Greenland, and Trump agreed to drop his remaining threat, the tariffs.
Trump’s negotiating tactics may have been extreme, but they appeared to have worked. The man behind ‘The Art of the Deal’ said he was leaving Davos with what he came for, an agreement that ‘everybody’s very happy with.’
To some European leaders, Trump’s approach may have seemed as subtle as a sledgehammer, akin to making them a Godfather-style offer they could not refuse, or like a school bully offering protection in return for lunch money.
Article continues…
https://www.dailymail.co.uk/news/article-15483007/amp/Trump-tore-Europe-pieces-Davos-savage-insults-Greenland-ultimatum-lay-real-warning-world.html
Godfather – Make him an offer he can’t refuse…
In the scene, substitute Robert Duvall with Marco Rubio
https://youtu.be/EkZpxF_ZGsQ?si=Y24SWU9UI9slTpZt
Great casting!
You’d think by know these leaders would of read his book! I’ll bet mineral rights and more than just a military base end up in this deal. The Russians and China won’t like this, but they’ll have to live with it. The North American Technocrate, or Oceania is coming together!
You are correct. Trump has radically transformed the US military in a way that I thought was inconceivable.
This war is coming this decade and Trump and his colleagues know it. He’s trying desperately to unravel all of the damage that has been done. I really do give him credit.
Yes, he may be going about it in ways that I question. But, he’s working incredibly fast, since he knows his time is short.
A deal will be worked out for Greenland that will be amenable to all sides. North America and Europe will be better off anyway when this war commences, which will be thermonuclear.
In addition, this war will be the time of Jacob’s trouble as outlined in Jeremiah as well as conforming to Ezekiel 38 and 39. Knowing this helps me to tolerate what Trump is doing.
I would be in full panic mode if a libtard were president. We must remember that these political leftists who are controlled by the communists are there to weaken the country.
These Marxists were effective in weakening the military and its capabilities through its global treaties, large reduction in missile capabilities, and DEI requirements.
These leftists hate the United States as it is and were hoping that the US would surrender in this war and be merged into a global government. Thus, what the Marxists in government are doing makes perfect sense when we view it through this lens.
Of course, all sides are controlled, but given the circumstances, I suspect it’s better this way.
The Demorats are salivating for the mid term elections! If these libtards get control, I shudder to think of it! Talk about anarchy and chaos. Of course, that would play very well for the SOS.
Japan has a woman prime minister who promises everything…. Typical….
Buyers flee Japanese debt as Takaichi hits the ground spending
SINGAPORE, Jan 20 (Reuters) – Japan’s government bonds are in free fall as investors take a dim view of an atmosphere of competitive spending on the hustings, where politicians are jostling to cut taxes in an economy with the heaviest debt burden in the developed world.
Prime Minster Sanae Takaichi called a snap election on Monday and is running on a platform of stimulus to drive a return to inflation and growth after decades of stagnation.
But she launched her campaign – echoing opponents – with a vow to suspend a food levy for two years, and bond markets baulked at the vagaries of how any election winner could pay for the estimated 5 trillion yen ($32 billion) hit to annual revenue.
There were no buyers, dealers said, so 20-year, 30-year and 40-year yields rocketed to record highs in a rout reminiscent of the 2022 collapse in British gilts and a warning for market confidence in Japan’s balance sheet.
PARTIES IN RACE TO PLEDGE MORE SPENDING
“Markets (are) digesting the idea that all parties in Japan are in a race to see who can promise to spend more money,” said Ales Koutny, head of international rates at Vanguard in London.
“As we saw with the UK, markets at some point just have enough and start to demand much higher financing costs.”
And those costs are surging on the implications for an economy that had grown accustomed to cheap money.
Ten-year yields have leapt 18.5 basis points in two days, the sharpest rise since Japan loosened a cap on the benchmark bond yield in 2022.
Twenty-year yields are up a staggering 28 bps in two days to a record-high above 3.4% and 30-year and 40-year yields have shot up by 40 bps, breaching 3.8% and 4% respectively. [JP/]
‘REGIME-STYLE REPRICING OF THE LONG END’
“Takaichi’s election gamble and the talk of food tax cuts and fiscal expansion have changed the narrative very quickly,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.
Japan’s 30-year yield is now 35 bp higher than that of Germany, he noted.
“The market is no longer treating super-long JGBs as an anchored asset, they’re being repriced closer to global fiscal-risk curves,” he said.
“This isn’t just a technical selloff, it’s a regime-style repricing of the long end, driven by politics, positioning, and a structural buyer vacuum.”
CONCERNS THAT SPENDING MAY GET OUT OF HAND
Moves in the bond market extended sharply after demand faltered at a 20-year auction on Tuesday morning, and came in tandem with a pullback in the stock market and months of pressure on the currency, stoked by fiscal worries.
Investors have been backing away from such tenors for years as interest rates have started to rise and nobody is certain how far they need to climb.
At the same time, inflation has been running above the Bank of Japan’s target for nearly four years and Takaichi’s platform of more spending is driving worries it gets out of hand and has been pushing down on the currency.
“Who is the natural buyer for all these JGBs that have been issued?” said Ian Samson, a multi-asset portfolio manager at Fidelity International.
“A portfolio manager like me looks at inflation still way above target, the Bank of Japan moving very, very slowly, an increasing lack of credible monetary or fiscal anchor and clearly aren’t willing to step in.”
GOVERNMENT KEEPING CLOSE EYE ON LONG-TERM RATE MOVES
To be sure, beyond investors’ discomfort with the spending plans, the fallout in financial markets from the rout may be contained. The longest-dated debt is heavily owned by insurers who hold it against long-term liabilities and tend to keep it until it matures.
Japan’s chief cabinet secretary said on Tuesday the government was watching long-term rates moves closely.
Moves in 10-year bond have also been unsettling. A 31 bp rise in the yield so far this month, if sustained, would be the sharpest monthly rise in more than two decades and points to a painful adjustment permanently higher in borrowing costs.
The yen has been sliding since Takaichi took charge of Japan’s ruling party and global bond markets were also rattled on Tuesday, with selling in European and U.S. debts. [GVD/EUR]
And with three weeks left in the campaign, analysts think a circuit breaker will be hard to come by and that it’s unlikely that politicians will go out on a limb to soothe markets.
“The bottom line is no one wants to buy or catch the falling knife at this point,” said Naka Matsuzawa, chief macro strategist at Nomura Securities in Tokyo.
“There’s no buyers on the level of the market.”
Japan is farther down the debt road but seems like the other G7 countries aren’t to far behind. Although nobody has a printing press like the USA!
Revelation 19:13. The True Word of YHVH!
Israeli historian Yuval Harari said at the World Economic Forum that artificial intelligence will eventually take over all religious texts.
He predicts that AI will control every major world religion, including Christianity, Islam, and Judaism.
Harari pointed out that Judaism defines itself as the religion of the book, granting ultimate authority to words rather than to people.
“What happens when the greatest expert on the holy book is an AI?”
The second half of 2027 is the beginning of the end. The Great Reset is the Great Tribulation. Please come soon, YHVH, and put and end to this. You promised in the Book of Obadiah that the Edomite Jews would finally be destroyed.
Revelation 3:9. Behold, I will make them of the synagogue of Satan, who say they are Jews and are not, but do lie — behold, I will make them to come and worship at thy feet, and to know that I have loved thee.
Something to look forward too!
Thanks for another great economic analysis. Do you see anything reversing the long bond yield climb this time ( seen spiking for both heavy printers JPY & US). Could this long bond yield rise reverse the anticipated asset price gains caused by the continued easing / liquidity injections
Yeah. The big fly in the ointment.JGB yields continue their upward ascent.
To answer your question, I would have to say yes. I mean, this could adversely affect asset price gains, certainly.
The ever higher price of gold is quite concerning as to its timing. It’s telegraphing something’s a miss.
$40 billion a month purchase program announced by the Fed is not helping, so I wonder if something else might be in the works. I wonder how bad things would be if the FED weren’t purchasing t bills.
If we do see some sort of impending catastrophe, so to speak, I could see a central bank program that could start buying long bonds.
Lots of observations, but few answers at this point. I don’t want to go out on a limb and say things are going to collapse or retrace, but we could see a run on stocks and other risk-on assets. And that could be the catalyst for some massive sovereign bond buying program.
Yes gold is telegraphing — and in the early stages doesn’t seem deterred by the rate tremors and growing uncertainty… whether it can maintain that posture remains to be seen
It’s a freight train
The stock market makers are trying to throw the retail investor out of the market as it barrels higher also.
Now isn’t this headline interesting!
Pope Leo Evaluating US Invitation To Join Trump’s Gaza Board Of Peace
Leo’s from Chicago and has a big fan base in Latin America. It would make sense, I gi. The religious leader of Oceania.
This board of peace bears watching. Even the U.N. is feeling vulnerable. Looks like a new world body which may well be involved with much more than just gaza. There is talk Trump could lead it for life. The final make up will be announced soon enough.
That is very astute! I suspect there is a very small group of people that grasp this monumental Q.E. transformation. I have come to learn it, albeit slowly, from this blog site. Your thesis is proving accurate and very smart people, like Burry, are not catching on. Stone, are you aware there is a movie I believe called, The Big Short, about Burry and several others on the housing market crash? Its interesting.