‘Obscene’ Wealth Gains And The ‘Natural End To Nihilistic Bull Markets’

“We’ll know if it’s a bubble by the end of Q1,” BofA’s Michael Hartnett wrote, in the latest edition of the bank’s weekly “Flow Show” series.

For several weeks (at least), Hartnett has suggested it might not be a terrible idea to eventually consider “selling the news,” so to speak. He hasn’t used that old saw, instead reiterating a “sell the vaccine” bullet point that cautions on “peak positioning, policy, and profits.”

Needless to say, that call has been early, something he readily admitted this week. “Thus far [it’s] premature,” Hartnett said, noting that the blue wave in Georgia as well as “Powell/Yellen gravy,” gave market participants a “free call option.” (There are plenty of jokes around the idea of “Powell/Yellen gravy” — I’ll refrain.)

The pseudo-famous “Bull & Bear Indicator” is now venturing closer and closer to the danger zone, and Hartnett mentions “frothy prices, greedy positioning, and desperate policymakers” in the course of describing the current conjuncture.

Of course, as I’ve variously mentioned over the past several weeks, calling the top (which is just a less pejorative way of saying “market timing”) is notoriously difficult. It’s even more perilous when risk-free rates are zero (or below) and the liquidity spigots are turned all the way on.

Hartnett underscored as much, while reiterating the socioeconomic consequences of extreme monetary accommodation.

“[The] decade-long backdrop of maximum liquidity and technological disruption has caused maximum inequality and massive social and electoral polarization,” he wrote. The figure below shows that Wall Street is now six times the size of Main Street.

The wealth gains, Hartnett said, are “obscene.”

I can’t say I’d disagree. Outside of the proverbial peasant revolt, there’s never really a “bad” time to be a billionaire, but 2020 was especially kind to the world’s richest people.

So, when does it all come crashing down?

Well, that’s the multi-trillion dollar question.

For his part, Hartnett reminds investors that “extreme asset bubbles [are] the natural end to nihilistic bull markets.”

No, Donny, these men are nihilists. There’s nothing to be afraid of.

Walter Sobchak

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6 thoughts on “‘Obscene’ Wealth Gains And The ‘Natural End To Nihilistic Bull Markets’

  1. I don’t know. Maybe it crashes tomorrow. Maybe it doesn’t.

    There seems to be a sense that this one has to keep going until the next phase in the monetary regime is ready, a regime where the Fed can just deposit money into people’s phones for them to spend. A regime where sovereign debt jubilee is real. There is room to keep it going; the Fed balance sheet is still only $7T.

    Let’s face it, if it blows now, we go into two more depressions. A mental depression that causes people this time to jump out of windows (we do it a different way any longer but with same result) because of the financial depression they are suffering from. Think Case and Deaton applied this time to the upper 40% (but not including the 1%). Pensions broke. Life insurance broke. 401(k) accounts down 60%. Baby Boomers living on the streets, falling prey to all manner of predations.

    We don’t know what the future regime is going to bring. We do know there will be more technological disruption. And, the labor market will ail for a long while, maybe for the rest of our lifetimes. There’s little choice any longer but to keep it going until a new monetary regime is in place, where the debts can be whisked aside, despite the obscenities in the charts.

    That said, seems like there is some consensus that a short and sharp air pocket of 20% later in this quarter wouldn’t be all that bad. As far a a full-on crash that persists, no one wants this. No one would benefit and many of those who are not already suffering would suffer.

  2. No one, especially the politicians (from Bernie to McConnell to Biden), wants the stock market to crash.

    Until there is a better alternative where people/pension funds can invest their money- seems like the “fix” will remain the modus operandi. From what I have read, Wall Street gave lots of money to the Democratic candidates ( a shift from historically donating more to Republicans).
    Kind of surprised the Treasury/Federal Reserve is letting Bitcoin run- but that is probably not on the “top 10 list” of problems…..yet.

    1. Yeah I feel like the idea of worrying about a $1T bubble right now is like worrying about leaving the oven on in your condo while the forest fires are sweeping through the neighborhood.

    2. Hasn’t the practice been to donate to both parties, as well as both candidates in some large-scale elections? I first heard about that in a Microsoft-specific article, and was boggled.

      However, the intention may be to make whoever is elected feel beholden to the donor. This only works if neither candidate is supporting a specific issue against the Wall Street donor.

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