‘Going Bananas’

There’s a “speculative frenzy sweeping Wall Street and world markets,” an overwrought Bloomberg headline trumpets.

Regular readers know I’m not particularly fond of bombast for the sake of it.

That’s the problem with the media and especially with most market-focused “alternative” portals. The desire to inform, to the extent it’s there at all, is secondary. The first priority is to sensationalize everything.

Read more: Suboptimal Outcomes, MMT And The Financial Tabloid Barons

I’m not suggesting there’s no “speculative frenzy.” Indeed, that’s probably an apt way to describe the situation across many assets. But sensationalist journalism — financial or otherwise — isn’t “journalism.” And it’s part of what’s wrong with the world. It feeds into mass stupidity by pandering to the public’s affinity for hyperbole.

Bloomberg’s piece is just a collection of charts they’ve run in other articles over the past several weeks. The language employed in the course of editorializing around the visuals is cartoonish in the extreme. The article, which carries no byline, includes the following truly impressive list of balderdash:

• Animal spirits
• Running wild
• Even crazier than it seems
• On life-support
• Get thrashed
• The complex world of derivatives
• Rarely ever been so hellbent
• Infamous sign of a market top
• Surfing a wave
• Going bananas

Now that’s a collection of “Boom! Bam! Pow!” that would make any supermarket tabloid blush.

To be sure, Bloomberg highlights some telling visuals, albeit nothing that’s “new,” per se. I’ll take this opportunity to commit a “chart crime,” another mainstay of sensationalist financial content.

The following monstrosity plots Bitcoin’s 2020 surge with a similarly outsized rally in the solar ETF, along with emerging market dollar bonds.

Nonsensical though it may be, the visual does capture a number of dynamics simultaneously.

Ostensibly, Bitcoin’s latest run is in part attributable to devaluation concerns around traditional currencies, as governments spend freely on virus stimulus, enabled by monetary policy. What I would note is that it’s impossible to disentangle that from simple speculation. Signs that institutional investors are warming to the crypto world and adoption across more established payment platforms has helped, but at the end of the day, Bitcoin is just a pure play on the greater fool theory, and thereby a manifestation of the “fear of missing out” acronym.

The rally in the solar ETF is both a product of speculation on expected future economic trends and a bet on political shifts stateside.

As for emerging market debt, it’s the same story: The hunt for yield engendered by developed market central banks is driving investors down the quality ladder and out the risk curve. Globally, the stock of negative-yielding debt sits at more than $18 trillion. More than a quarter of the global investment grade universe and some $3 trillion in corporate debt sports a negative yield.

Meanwhile, call-buying has been a perpetual story du jour in 2020, assuming it makes sense to use the term “du jour” with “perpetual.”

The grab for upside optionality contributed to the late-summer, blow-off top in tech shares, and 2020 was the year the Reddit crowd discovered how to weaponize gamma, and forcibly enlist dealers in an effort to effectively manipulate shares of popular retail favorites into the stratosphere.

Fading all of this could be a suicide mission, especially with central banks determined to keep financial conditions as easy as they’ve ever been.

As discussed here on Saturday, there’s a sense in which all assets are becoming expensive simultaneously, and when juxtaposed against the economic backdrop, it’s tempting to suggest we make have reached something akin to “peak disconnect” between financial assets and the real world.

But generally speaking, the “crazier” things are, the harder it becomes to call a top. That’s what makes ostensible bubbles so vexing.

And while it’s all too easy to lampoon monetary policymakers for suggesting it’s hard to spot bubbles before they burst, consider how many commentators have spent the last dozen years suggesting that everything from stocks to bonds to credit is all an “unsustainable bubble” and a “house of cards.” How much money was lost by folks who believed that rhetoric and sold it all in favor of cash or, more likely, remained underweight risk assets waiting on a crash that never materialized?

Could it all collapse tomorrow making the “speculative frenzy” headlines appear prescient? Well, sure. And that’s the beauty of financial “journalism.” You look smart when reality accidentally aligns with what you wrote. When it doesn’t, there’s nothing to worry about, because you’re totally unaccountable.