Juggling Dynamite

This segment is a worthwhile discussion on global credit markets, credit creation, what they are telling us about the global economy and why China cannot sustain global demand this time.

Economist Danielle DiMartino Booth does a virtual interview with Alfonso Peccatiello. Alfonso Peccatiello is a former Head of a $20 bn Investment Portfolio at a large bank and a passionate global macro investor. Here is a direct video link.

Below is Lacy Hunt’s chart of the U.S. loan to deposit ratio since 1973 (courtesy of John Mauldin) with the start of past recessions (marked with red dots) and the cyclical trough in credit creation (in blue), an average of 47 months later.  The latest reading in loans to deposits is the lowest of the last 50 years and has seen no recovery since the 2020 recession began 24 months ago.  This historically informative indicator suggests that while the 2020 recession was interrupted by pandemic emergency support, the downturn continues as credit cliffs follow credit highs.

Some informed insight on Putin and his thinking on Ukraine.

In an interview for the upcoming FRONTLINE documentary “Putin’s Road to War,” journalist Julia Ioffe discusses Vladimir Putin’s invasion of Ukraine — and why she believes the Russian leader is now “more dangerous than he’s ever been at any point in the last 22 years.” “What he has opened up with this invasion is unthinkable,” Ioffe tells FRONTLINE. “And because he is losing and because the sanctions and the Ukrainians are humiliating him, because he is backed into a corner, he is the most dangerous he has ever been, because it is now existential for him.” Julia Ioffe is an American journalist who was born in Russia. She is a writer for and founding partner of the media company Puck. She previously reported on politics and world affairs for The Atlantic. This interview was conducted by FRONTLINE’s Mike Wiser on March 3, 2022. It has been edited for clarity and length.  Here is a direct video link.

A new generation of would-be investors is learning the hard way that even world-changing companies and technologies tend to be horrible investments when bought at too high a price multiple.

Today, another tech-bubble 2.0-darling Netflix is fathoming a 52 week low, -52% from its recent November high, and below its March 15, 2020, closing low of $336, with no bottom yet likely.  See Netflix hits lowest point since March 2020–when the pandemic started.

Hong Kong’s Hang Seng index retested its March 2020 low in February and failed to hold there.  Dropping a further 14% since then the index is back to where it was in 2006 and just 6% above its January 2000 cycle peak (shown below since 1983).

This is typical of how secular bears move: from extreme over-valuation and speculative peaks, it’s common for stocks and stock indices to give back all their prior cycle gains.

As this happens, stock pickers and funds who looked brilliant during the inflation phase are routinely denounced and fired as frauds and failures in the give-back.  2021 ‘Star-fund’ Cathie Wood’s Ark Innovation ETF is one high-profile example.  After leaping 164% during COVID-mania, the fund’s -60% since February 2021 has deleted all progress since the fall of 2019 (as shown below).  Like bugs to a light, those attracted to the fund in 2021 are worse for the experience.
In truth, Wood and other price-indiscriminate buyers do the same thing throughout: passively riding risk up and down, they have no plan to capture lasting value.

In the weeks and months ahead, other high beta sectors like commodities, corporate credit and financials are also due to retest their 2020 lows.  Only then will we have a sense of where this bear market may ultimately bottom.

The give-back phase will catch most off guard, but it was always our base-case scenario.