Insights BlogMarket Research

Charts that frighten me

By December 5, 2017No Comments

I thought it could be helpful to break out some specific charts which frighten me.  Everyone seems to be high on the markets but there are cracks if you look in the right places.


The SNB owns about $80 billion in US stocks today (June, 2017) and a guesstimated $20 billion or so in European stocks (this guess comes from my friend Grant Williams, so I will go with it).  They have bought roughly $17 billion worth of US stocks so far this year. And they have no formula; they are just trying to manage their currency.

Switzerland is now the eighth-largest public holder of US stocks. And apparently they are concentrating on the largest of the large-cap stocks. The own 19 million shares of Apple (as of March 31). That is roughly 3% of the current market.


If you were to buy, at random, any government bond, there is a one in three chance you’d lose money if you held onto it until it matured. That is, around a third of all developed-country government debt – or more than $7 trillion.  That means that investors are effectively paying borrowers to lend to them – giving away $100 and a few years later getting back $99. In the euro zone, more than half of all outstanding bonds are priced in this upside-down way, according to Tradeweb.


As highlighted in last month’s update, high yield bonds in Europe yield less than US treasury bonds of similar maturity.


The above chart shows asset allocation to global bonds.  Currently, bond allocations are similar today as they were in 1999 and 2007.

Data from Merrill Lynch shows clients cash and bond allocation is the lowest it’s been (since 2005) on the chart.  Everyone seems to be very long on the market and few expect it to go down.

Natural disasters have picked up significantly in the past 18 years.

M&A multiples are going up and up.

Yes, this chart is outdated since at the time of my writing, bitcoin is approaching $12,000.  Bitcoin is starting to make no sense to me as well as other crypto assets.  Could this be like internet stocks and the internet?  Most internet stocks from the late 90’s are no longer around and were built on vapor while the internet itself was transformative.  I believe in blockchains ability to transform industries but do crypto assets have value?

Italy is selling 2 year bonds at -.40% yield.  You’re essentially guaranteeing yourself a negative return!

Duration in a bond portfolio is very important.  If you don’t know yours, find out!  Or better yet, hire someone who understands what this means.  Essentially, whatever your duration will be your gain or loss in % terms if interest rates rise 1% on bonds with the same maturity.  Sorry if that’s a mouthful but it’s a little complicated.  The columns to the left are for the Bloomberg Aggregate Bond index which is widely followed and indexed.  Currently it has a duration over 7 and yield to worst of just over 1%.  If those bonds yields rise 1%, the prices will go down 7% and you’d receive 1% of income for a 6% loss.  Risk/rewards is highly inverted on some of the bonds.  Low duration and high yield to worst is the key although in this environment it only exists in high yield (at least on the chart above).

Everyone is long on the market.  NYSE margin debt is at an all time high right now while the market as at all time highs.

This is effectively saying that hedge funds are reducing hedges and their net long positions as a % of their investments is increasing.  This would make them more correlated with the market and more susceptible to weak performance if the market turns.

While this is single factor, it does point to an overvalued market relative to GDP.

A similarly scary chart which shows just how fast global equity markets have increased recently.  Global market cap is now approaching $100 trillion from around $65 trillion in early 2015.

Loan growth has been decreasing and something to keep your eye on.  Negative loan growth is usually associated with recessions.


From John Mauldin 11/25

“Anyone questioning whether financial markets are in a bubble should consider what we witnessed in 2017:

• A painting (which may be fake) sold for $450 million.
• Bitcoin (which may be worthless) soared nearly 700% from $952 to ~$8000.
• The Bank of Japan and the European Central Bank bought $2 trillion of assets.
• Global debt rose above $225 trillion to more than 324% of global GDP.
• US corporations sold a record $1.75 trillion in bonds.
• European high-yield bonds traded at a yield under 2%.
• Argentina, a serial defaulter, sold 100-year bonds in an oversubscribed offer.
• Illinois, hopelessly insolvent, sold 3.75% bonds to bondholders fighting for allocations.
• Global stock market capitalization skyrocketed by $15 trillion to over $85 trillion and a record 113% of global GDP.
• The market cap of the FANGs increased by more than $1 trillion.
• S&P 500 volatility dropped to 50-year lows and Treasury volatility to 30-year lows.
• Money-losing Tesla Inc. sold 5% bonds with no covenants as it burned $4+ billion in cash and produced very few cars.
This is a joyless bubble, however. It is accompanied by political divisiveness and social turmoil as the mainstream media hectors the populace with fake news. Immoral behavior that was tolerated for years is finally called to account while a few brave journalists fight against establishment forces to reveal deep corruption at the core of our government (yes, I am speaking of Uranium One and the Obama Justice Department). In 2018, a lot of chickens are going to come home to roost in Washington, D.C., on Wall Street, and in the media centers of New York City and Los Angeles. Icons will be blasted into dust as the tides of cheap money, cronyism, complicity, and stupidity recede. Beware entities with too much debt, too much secrecy, too much hype. Beware false idols. Every bubble destroys its idols, and so shall this one.”



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Jared Toren
CEO & Founder

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