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The appetite for free money will never wane.
DW8 flying in recent times, picked up a teeny parcel ages ago as a bottom drawer stock and hadn't checked it for a while. I'd expect a pull back on a cap raising before the end of the year.

QAN cap raising is interesting timing
 

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The amount of new traders is crazy. Have tipped into gold and gas with really decent success last month. It seems that FOMO is driving a lot of ramping and new investors are the ones getting burnt.
 
Fair enough man, that's all you had to say

In hindsight my initial posts were a bit too 's**t-stirrey', I really just came in here b/c the crypto thread is so rekt. Ha.
burge13 said:
As I said, the tech behind crypto will be used and possibly world-changing. The nonsense with it, like whatever is meant in that tweet, will go nowhere

The lending is good but so many exit scams in that space, not worth the risk to me
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On POT-LX1 using BigFooty.com mobile app
 
If you don't want to expose yourself to the volatility of a traditional crypto asset such as BTC or ETH, checkout Curve for $USD stablecoin yields. Again, from cold wallet.

Curve is legit whale territory though, I tend to pick my plays carefully.

On POT-LX1 using BigFooty.com mobile app
 
craigos said:
The amount of new traders is crazy. Have tipped into gold and gas with really decent success last month. It seems that FOMO is driving a lot of ramping and new investors are the ones getting burnt.
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Probably should have bought another goldie when we pulled back below 1700 US earlier in the month.
 
The Virus Bubble has arrived. How much bigger can it get?

Stock markets are almost as expensive as they have ever been on a range of different measures. The economy is almost as bad as it has ever been on a range of different measures. Take note of the analysts who are contorting themselves trying to reconcile the two and telling you to keep buying. These are probably the same analysts who cheerled the stock market at the peak of the Dot-Com bubble or just before the financial crisis.
Recently I wrote You are being given a rare second chance to sell stocks. This week I'm interested in how much further the Virus Bubble can run before collapsing.
Is the Virus Bubble going to run for years like the tech boom, or is it more like the 2015 China stock market boom and over in a matter of months?

Defining bubbles
First, it is important to know what type of bubble we are dealing with - it is not a typical one. I'm going to look at the current bubble through the lens of James Montier's four flavours for some context:
  1. Fad or mania. These are the "this time it is different" bubbles. The tech-boom, the Japanese bubble, the railroad boom of the 1800s, the South Sea bubble. These are the booms where the excitement over a new paradigm turns irrational. The Virus Bubble is not one of these.
  2. Intrinsic. These are bubbles which assume earnings will grow at an unsustainable rate forever. Financial stocks during the US housing bubble, resource stocks during commodity booms are examples. The Virus Bubble has elements of this - the assumption for many companies that earnings will recover quickly (and in some cases at all) is unrealistic.
  3. Near rational / greater fool. These are the bubbles where investors don't believe the intrinsic value but figure there will be a greater fool prepared to bid the asset price higher. The Dutch tulip bubble is the best example. The Virus Bubble is not one of these.
  4. Informational. These bubbles see investors not act based on their own information. Instead, they are working on information revealed by others. i.e. stock markets are expensive, but if everyone else is buying, then they must know something I don't. The Virus Bubble has elements of this.
What will pop the bubble?
Given the Virus Bubble is a mix of an Intrinsic and an Informational bubble, it gives us clues as to what the demise will be.
Informational bubbles end when other investors start selling, and everyone stampedes for the exit. So, that is no help on timing.
Intrinsic bubbles end once the irrationality of the earnings is acknowledged. My best guess is a mix of bankruptcies and continued weak earnings will eventually do it. It might take six months. It might take six minutes.
A Biden win in the US election, or even the increased threat of one, has the potential to shock the market into a dose of reality with the spectre of higher taxes and wages eating into profits.
In the meantime, the question is how much bigger can the bubble get?
How much bigger can this bubble get
Bubbles rely on new money to keep them inflated or growing. So, as long as new money is flowing, the stock market bubble can keep growing.
This bubble does have a higher hurdle. Many bubbles come with increased profits which are reinvested and help to sustain the bubble. The Virus Bubble is the opposite, it needs new money just to fill the hole that reduced earnings and increased debt are leaving behind. Only after that can it grow.
There are four primary sources bubbles rely on for new money:
  • New investors: people that were previously not invested entering the market help bid prices higher.
  • Increased gearing: investors using debt to increase their investment.
  • Derivatives: increasing use of derivatives is similar to increased gearing.
  • Investors switching asset classes: sometimes the new money is simply investors switching out of one asset class not in a bubble and into the asset class having a bubble.
1. New Investors
Globally there has been a rush of new, generally younger investors into the market:
a01.png

The numbers sound impressive. Robinhood, a popular new US trading platform, has added 3m accounts this year. If you take the top 4 US online brokers, we can find another 3m accounts in the first quarter alone. Australia, at less than a tenth of the size of the US, in a six week period added 280k new and reactivated accounts. UK firms are reporting up to 300% more new accounts in the first three months. It is a global phenomenon.
But these numbers need context. The tech boom in 2000 was also (in part) driven by new retail accounts, peaking at around 19m US households with at least one trading account (noting a different definition of accounts) in 2001. That fell to 17m a few years later where it has remained since.
If we assume 9m new US accounts this year, and 65% already had a household account = 3m new households with accounts. That would put household accounts above the Dot-com boom peak.
Two conclusions: (a) the numbers are significant (b) we have probably seen most of the increase in accounts already.
One more potential thought: Has the increase been bored workers stuck at home? If so, with sport resuming in Europe and Australia, it will be interesting to see if retail trading drops away in those locations.
2. Increased gearing
Many booms involve a significant increase in debt to fuel asset price growth. Given the speed of the market rise, and the number of new accounts, it seems unlikely increased gearing has played a meaningful role in the boom.
a02.png


3. Derivatives
Gearing doesn't just have to be through debt. The other way to get leverage is through derivatives which can increase the return (and the risk) by many multiples of the investment.
While the investor themselves might not be buying the stock, the market makers who are selling the derivatives need to purchase the shares to hedge against losses.
There has been a lot of increased derivative trading.
a03.png


a04.png


4. Switching asset classes
The final way to get more money into a stock market bubble is to transfer money from other asset classes. This comes in two parts:
a) Central Banks
Central banks are encouraging stock investment. By buying government debt, they are hoping to force investors to shuffle up the risk spectrum.
Having said that, governments are also issuing massive amounts of debt.
So, to get investors to switch into equities, central banks need to buy more debt than what governments are issuing - otherwise the opposite will happen.
In context, the US government had about $23 trillion of debt at the start of the year, $25 trillion at the beginning of May.
Over the same timeframe, the US Federal Reserve assets rose from $4 trillion to $7 trillion. US debt will probably increase by about another $4 trillion in 2020. So, if the US Federal Reserve does not also increase its balance sheet by $4 trillion, then money will flow into government bonds from other assets.
Also, corporate debt is rising on the back of lost sales. So, going forward, the Fed will need to increase its balance sheet enough to cover all of the government debt and all of the new corporate debt.
Then, repeat this problem in just about every country globally.
Otherwise, money won't keep flowing into the stock market.
b) Investors
According to the latest Bank of America survey, fund managers agree that the stock market is overvalued:
a05.png

And in April (reported in May) they acted that way:
a06.jpg

But not in May. Fear Of Missing Out (FOMO) took over, and they were buying stocks:
a07.png

And hedge funds now have one of their highest ever weighting to the stock market - which suggests they are unlikely to buy much more.
a08.png


The grain of truth at the heart of the bubble
Keep in mind that all bubbles are built on a grain of truth. That truth here is that central banks and governments "have your back" and will buy anything and everything to keep the stock market high.
I think central banks will continue to bail out corporate debt markets where they can. But already we are seeing cracks with Hertz and several airlines filing for bankruptcy.
The more significant issue is small and medium businesses which (a) make up 50-70% of most economies (b) don't have traded debt that central banks can buy.
The closest bubble?
The closest analogy to the current one is probably the 2015 Chinese stock bubble. The Shanghai composite index rose 60%+ over from February to June 2015. It then crashed back to prior levels over the next three months.
The growth was driven a similar (15-20%) increase in retail trading accounts as we have seen in the US. The narrative was faith in the government and central bank. The end was weak economic data. The differences are there was far more margin lending in the China stock bubble, but greater use of derivatives in the Virus Bubble.
The Upshot
Where does that leave us?
  • There are probably not that many new retail investors to add to the stock market.
  • There is scope to increase margin lending, but no signs of that occurring.
  • Derivative use is already very high, probably can't grow too much more.
  • Hedge funds (in aggregate) are a lot closer to their maximum equity exposure than their minimum. So not much more buying to come there.
  • Fund managers (in aggregate) talk a good game about overvaluation but are actually relatively fully invested and so don't have a lot of scope to buy more equities.
  • Central banks are going to have to run hard just to keep up with government and corporate bond issuance. It is possible central banks do more. They are the bull's best hope for an extended bubble.
The US tech boom took about two years to play out, but was a different type of bubble. The China 2015 Bubble took four months before economic reality sunk in.
I expect the Virus bubble will be closer in timeframe to the China bubble than to the Dot-Com Bubble. But bubbles often last longer than seems reasonable.
It has been a surprisingly raucous party in share markets but the hour is late, and the party seems to be dying down. Some partygoers are trying to find more alcohol to try to keep the share market party going. They may be successful. Regardless of their success in extending the party, given the amount of alcohol already consumed, you will feel a lot better in the morning if you leave the party now.
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https://www.livewiremarkets.com/wires/the-virus-bubble-has-arrived-how-much-bigger-can-it-get
 
The meme level of buying anything BNPL might not be as stupid as it all seems, granted a large percentage of those buying probably haven't looked at a single company release but there's every chance that they'll end up taking more and more a large percentage of market share away from credit cards. Especially among the young.
 
Mofra said:
The appetite for free money will never wane.
DW8 flying in recent times, picked up a teeny parcel ages ago as a bottom drawer stock and hadn't checked it for a while. I'd expect a pull back on a cap raising before the end of the year.

QAN cap raising is interesting timing
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Definitely in my list. Missed on a 1c entry by one day and now waiting for the pull back. Held up better than expected on Thursday I thought!
 
Quixote said:
I don't lend per sae, but you could look at Aave and Compound.

Defi Pulse is a site which acts as a dashboard for the entire space, very useful.
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Looking at Defi Pulse there's a whole stack of coins on there that I don't recognise and none that I do (asides from USDT). How would I go about lending out my cold wallet BTC, XRP or ETH? I'm showing my crypto age here, I've been out of the game for a bit.
 

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On the topic of the huge influx of new investors and brokerage accounts created around the world (US, Australia and UK in particular)

I wonder how many of those new investors were regular sport punters who needed a new fix? I know a few people who created brokerage accounts since March who have little clue about markets, they also so happened to be regular sport punters
 
Deliverance said:
Why so? And I know it's a bit of crystal balling, but how long do you think for?
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Supply and demand. So many more houses will be coming on the market. So many.
investment properties will come on. This alone will clog the market. Not enough buyers and it will be well and truly a buyers market. Enter market collapse.

Won’t go into the obvious. The current situation.
 
maryjames said:
Get ready folks.. housing market is going down down in 2021.
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It depends on what you mean by "down down" but prices are already in decline. Corelogic had national capitals down -0.5% in May and June was at -0.7% recently.

Overall, I think an orderly pullback would be healthy for Australia but the government will have to work to engineer that. What they end up doing is anyone's guess but it will be something.
 
Jimmy_the_Gent said:
It depends on what you mean by "down down" but prices are already in decline. Corelogic had national capitals down -0.5% in May and June was at -0.7% recently.

Overall, I think an orderly pullback would be healthy for Australia but the government will have to work to engineer that. What they end up doing is anyone's guess but it will be something.
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Once the banks stop the freeze on loans. More people will have to sell. Etc the down turn will continue..

Hasn’t really kicked in for mine.

We are in a recession and it’s only going to get worse.
 
maryjames said:
Once the banks stop the freeze on loans. More people will have to sell. Etc the down turn will continue..

Hasn’t really kicked in for mine.

We are in a recession and it’s only going to get worse.
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Cool story, bro.

Come on here shouting the housing market is going to collapse based on essentially nothing?
 
I agree with the theory people are going to struggle once banks want their loans paid after a 6 month deferral. AirBNB type houses will be the first to crumble, been 6-7 months of decimated travel conditions here now in winter when less go away. Way too many house & land packages available at once plus unemployment to rise in September when jobkeeper ends. Awful conditions for housing. International students not coming in is another hurdle for some markets

BUT, the doomsayers have been calling for a housing market crash for 10 years and it's never happened. A broken clock is right every now and then too...
 
maryjames said:
Ummmm. Are you serious? So tell me why the market will go up? Please tell me? I’m well in invested in property.
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You’re the one running the narrative, with no actual facts behind it.

When did I say the market would go up? I understand there will be struggles ahead, however you’re calling a ‘market collapse’ - what does that even mean? A 30% plus reduction in house prices?

Feels very much doomsdayer who calls this every few years and one day you’ll be able to quote your own post and tell us all how you told us so!
 
ThePezDispenser said:
You’re the one running the narrative, with no actual facts behind it.

When did I say the market would go up? I understand there will be struggles ahead, however you’re calling a ‘market collapse’ - what does that even mean? A 30% plus reduction in house prices?

Feels very much doomsdayer who calls this every few years and one day you’ll be able to quote your own post and tell us all how you told us so!
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So many homes will come on to the market and the supply and demand won’t match. Buyers market. Hence prices come down.

No not 30%. If that happen holy s**t . We screwed for a decade.

I’m invested in realestate for along time now. And I’m not confident one bit where we are heading in this game.
Prices already down 1% or 2%.
 
maryjames said:
So many homes will come on to the market and the supply and demand won’t match. Buyers market. Hence prices come down.

No not 30%. If that happen holy sh*t . We screwed for a decade.

I’m invested in realestate for along time now. And I’m not confident one bit where we are heading in this game.
Prices already down 1% or 2%.
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With the fall out from CV still unknown, it's possible we're f*cked for a decade anyway...

September/October we will get a better picture of unemployment then after that bank defaults then after that house prices.
 
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