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The Greatest Bubble in Human History - Those Chronicles of Idiocy
The capital of all US government enterprises (financial + non-financial sectors) reached 60 trillion, adding 18 trillion since October 27 (the moment when the process of irreversible escalation of madness began).
What will happen to Article 18 in a year? In the nearly 5.5 years from the beginning of 1995 until the peak of the bubble in March 2000 (the bubble lasted until August 00 and collapsed by half by October 2), the accumulated capitalized profit was 11 trillion won at par value. This was slightly more. or about 19.5 trillion. 1 trillion dollars in 2024 prices.
Now (less than a year later), the total growth in capitalization is 1.6 times higher than during the dot-com bubble of 1995-2000, and in real terms (adjusted for inflation) it is about the same, but 5.5 times lower in 2024. hour.
Taking inflation into account, the bubble in 2024 will be at least five times more aggressive than in 1995-2000. The effect of scale + the effect of stupidity.
▪️From the low on October 27, 2023 to the high on October 14, 2024, the market rose by 43.1%. Has this happened before? No, at least not since 1962 (depth of availability of intraday min/max statistics).
The closest similarities are the market growth in 1997 (38.9%), followed by 1980 (34.1%), 1963 (34%), 1987 (32.9%), 2021 (31%), 1975 (30.7%), followed by 2009 (29%). Looking back, the current 43.1% is a completely unimaginable level compared to the same period.
▪️On a rolling comparison, has the market ever risen 43.1% over 241 trading sessions? Yes, that has only happened twice in the 21st century. By March 21, the recovery from Covid had peaked at 70.8% from its March 20 low, and by February 10, the recovery from the mass collapse had peaked at 63.8%. 2008-2009.
During the late 1990s bubble, there were two spikes above 43% over 241 trading days. These were March 1998 (49.3%) and July 1997 (46.6%). The market then stagnated for six months, continuing to rise in early 1998, but falling 22.5% in the fall of 1998.
In August 1987, the market rose 45.1% in 241 days to reach a record high, and then fell 36% in October 1987. Before that, there was a strong recovery (63%) in July 1983, but after 12 years of oblivion, it reached a record low.
In fact, in half a century there have only been six instances of gains greater than 43% over a 241-day period, and three of those involved market recoveries from major crashes. 1983 - 12 years of oblivion before that, 2009 - 58% crash, 2020 - 35% crash.
In 1987, the market recovered (without a bubble) to compensate for extremely low multiples amid the rise of mutual funds and investment funds.
There was a bubble in the market in 1997 and 1998, but even then it was relatively cheap. It used to be only 110-120% of GDP, and now it exceeds 200%.
If we lower the momentum allowance for growth from 43% to 35% per year on a rolling basis, this 120-year market rally would occur under three scenarios: • A rebound in the form of low multiples compensation (the growth momentum of the 70s and 80s) when the market was extremely oversold for more than a decade. • A strong V-shaped recovery in the economy and corporate finances, like in 2020 and 2009, on the back of monetary stimulus.
What does it take to grow a market by more than 35% per year? A strong previous downtrend, low multiples, a V-shaped recovery, and/or monetary stimulus. Which of these exist today? Nothing!
In October 2023, the market has corrected by only 11% and is on a high base, multiples are at record levels, the economy is stagnating, risks are the highest since 2008, and there is no stimulus yet.
Barring a corrective recovery, only twice in history have markets grown 35% in a single year at high multiples: in 1928-29 and in August 1999, at the peak of the bubble. That's it, but even more aggressively now!
I have only considered the most pronounced deviations. These may include: • Historically very low volatility, while parabolic advances have been realized against a backdrop of increased volatility, as was the case in 1927-1929 and 1997-1999. • Lack of hedging. The CALL/PUT options balance is heavily skewed toward CALL and dozens of other indicators.