Bye-Bye Bubble World

Stocks sold off again yesterday. From CNBC:

The S&P 500 and Nasdaq Composite closed lower for a third straight session Tuesday as traders struggled to recover from sharp losses suffered in the previous session and looked ahead to more economic tea leaves coming later in the week.

The Nasdaq Composite shed 0.59% to close at 10,983.78. The S&P 500 lost 0.16%, ending the day at 3,957.63. The Dow Jones Industrial Average notched a marginal gain, closing 3.07 points, or 0.01%, higher at 33,852.53.

Investors are watching for data coming later this week, including JOLTS job openings on Wednesday and November payrolls Friday, for insight into how the economy is performing. They are also waiting for Federal Reserve Chair Jerome Powell’s scheduled speech at the Hutchins Center on Fiscal and Monetary Policy at Brookings on Wednesday for clues into whether the central bank will slow or stop interest rate hikes.

We can’t be 100% sure that the rally is over…but it looks like it. And if that is so, we should expect the stock market to take out October’s low, bringing the Dow back down below 29,000 points. As for the final bottom, our guess is that it won’t come anytime soon.

Not your grandad’s market

This is not that steady, comfortable path of the last four decades, in which stocks would sell-off…but soon come bouncing back and then go on to new highs. This is a longer route. Slower. More difficult. This is the path that has been abandoned for the last 40 years. It’s a much more treacherous trail…with traps that catch-up unsuspecting investors.

By our reckoning, we left the well-trod ‘buy-the-dip’ trail in two steps. First, in July of 2020, the Primary Trend in bonds finally came to an end. Then, the 10-year T-Bond yielded less than six-tenths of 1%. That was it for the bond market. More than 38 years’ of falling yields and rising bond prices had finally reversed. A new, long bear market in bonds had begun.

And it’s unlikely that yields will get anywhere close to those 2020 lows again — not in our lifetimes. Currently, the yield on the 10-year is six times as high — at 3.6%

In the stock market, the bubble top was finally reached 18 months later in December 2021. Then, the Primary Trend — a bull market in stocks that had begun in August 1982 — came to an end. It had taken the Dow from 900 to more than 36,000 in a 39-year period.

Since then, the averages have fallen, bounced, and fallen again. The big losses, naturally enough, came in the ‘tech’ sector. In 2021, no price for Apple, Google, Facebook, or Microsoft seemed too high. But as 2022 developed, trillions of dollars’ worth of capital in these leading stocks just disappeared. Prices fell…far more than the Dow itself.

Leading losers

Facebook (now Meta) was trading at US$334 at the end of last year. Now it is only US$122.

Amazon, similarly, has been cut in half. Nvidia, ditto.

Even the mighty Tesla began the year around US$400 a share. Today’s price? US$179.

Meanwhile, over in the even fluffier crypto world, it’s hard to imagine that Bitcoin [BTC] was at more than US$50,000 a year ago. Now, it’s around US$17,000. But that loss is benign compared to the rest of the crypto scape. Many coins have vanished. Billion-dollar fortunes have gone ‘poof’ overnight. The second largest exchange — FTX — has gone bankrupt. And even coins thought to be ‘stable’, by virtue of their links to other assets, have turned out to be worthless.

Taken as a whole, the crypto universe has lost about 75% of its value. That may seem like a lot. But what amazes us is not that so much has been lost, but that there is anything left. Everybody now knows that most cryptos had no value at all. And everybody now knows that some of the leading crypto celebrities — such as Sam Bankman-Fried — were either total frauds or total incompetents, maybe both. And nobody knows for sure where the next debacle will appear.

Under those conditions, why is anyone still holding cryptos? The whole idea of cryptos as a ‘store of value’ has been discredited. It turned out, there was no value to store. Earning ‘interest’ from your cryptos also turned out to be bogus. If you were lucky, you might participate in some of the speculative gains. But slow, sure, steady interest earnings? From cryptos? They never existed.

But the whole hullabaloo was fun while it lasted. Meme stocks…NFTs…buybacks…stimmy cheques…SPACs…business loans you didn’t have to repay — whee!

Try to recall these things, dear reader. We’re unlikely to ever see them again.

The Bubble World is gone.

We’re going to miss it.


Dan Denning Signature

Bill Bonner,
For The Daily Reckoning Australia

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