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Bubbles #1-3 from @QWQiao's latest macro piece... "A tale of ten bubbles"
Bubble #1: The passive Investment Bubble
The price of one of the largest providers of market indices, MCSI, went 10X over the last decade
Bubble #1: The passive Investment Bubble
The price of one of the largest providers of market indices, MCSI, went 10X over the last decade
A cult of passive investing was fueled by:
+ ability to easily park money in 500 stocks at once
+ public encouragement from investors like @WarrenBuffett
+ the longest bull market in history
Momentum outperformed value; a vicious circle
+ ability to easily park money in 500 stocks at once
+ public encouragement from investors like @WarrenBuffett
+ the longest bull market in history
Momentum outperformed value; a vicious circle
Bubble #2: The buyback bubble
From 2009 to 2019, companies in the S&P500 bought $5.3 trillion of their own shares.
FIVE TRILLION
From 2009 to 2019, companies in the S&P500 bought $5.3 trillion of their own shares.
FIVE TRILLION
Buybacks fueled by:
+ Trump's corporate tax cuts
+ historically low interest rates
+ few investment opportunities
+ misaligned executive incentives
Executives used tax cuts & cheap capital to pump their shares and boost their bonuses
Now the largest market bidders are gone
+ Trump's corporate tax cuts
+ historically low interest rates
+ few investment opportunities
+ misaligned executive incentives
Executives used tax cuts & cheap capital to pump their shares and boost their bonuses
Now the largest market bidders are gone
Bubble #3: Corporate debt bubble
The US currently has the largest corporate debt burden in US history, overtaking the prior record of 72% set in 2008
The US currently has the largest corporate debt burden in US history, overtaking the prior record of 72% set in 2008
If you overlay China's corporate debt, the US's pales in comparison
Borrowing money to fuel growth is the core of capitalism
There is a tipping point however, when companies have too much debt to service and not enough cash to weather a downturn. Like right now.
Borrowing money to fuel growth is the core of capitalism
There is a tipping point however, when companies have too much debt to service and not enough cash to weather a downturn. Like right now.
Bubble #3: The commercial real estate bubble
In 2008, we had a residential real estate crisis. This time, it’s their commercial counterpart.
Total commercial real estate loans at U.S. banks have surged by over 50% ($700B) since 2012
In 2008, we had a residential real estate crisis. This time, it’s their commercial counterpart.
Total commercial real estate loans at U.S. banks have surged by over 50% ($700B) since 2012
The largest real estate ETF, $VNQ, quintupled over the last decade
This surge is greater than that of the S&P500's, in part due to the enormous amount of leverage used in commercial REITs
Adding insult to injury, commercial real estate will be hit hardest by #COVID
This surge is greater than that of the S&P500's, in part due to the enormous amount of leverage used in commercial REITs
Adding insult to injury, commercial real estate will be hit hardest by #COVID
Stay tuned for bubbles #3-6. Messari Pro subscribers can read all 10 bubbles here https://messari.io/article/tale-of-ten-bubbles
