Excellent Set of Tweets on Bonds, Crashes, Cannabis, Lumber by Charlie Bilello

Normally when I do "Tweets of the Day" they are from different people. Here is a set of Tweets from Charlie Bilello.

Cannabis

Movie Pass

Total Returns

Crash Course on Crash Courses

Lumber Part 1

Lumber Part 2

Crypto vs Fiat 2018

Hank Paulson Lies

Credit Spreads

Mish Comments

  1. I confess. This idea was not mine. Rather I picked the idea up from Lindzon Lindzon @howardlindzon.
  2. I believe Bilello's Tweet on credit spreads is the key. As long as junk companies can get cheap junk financing, it is highly unlikely there will be the crash that many have called for.
  3. I am positive the market is insanely overvalued, but that does not imply a "crash" as we saw from 2007-2009. Nor have I called for a crash. I define a crash as a 30% or greater decline in a year.
  4. My favored scenario, and the most painful one, is not a crash but rather a slow bleed over 5-10 years that takes the S&P 500 50%-65% lower.
  5. When does it start? Sorry, I don't know. My crystal ball refuses to say. All my crystal ball is willing to say is that credit spreads will looking nothing like they do today at the end of it all.

Mike "Mish" Shedock

Comments
No. 1-9
Sechel
Sechel

re: HMNY (helios & matheson). never seen a company trade with a negative enterprise value before. theoretically this should be a screaming buy ... unless

Sechel
Sechel

I felt the same way about internet stocks back during the tech bubble and about Facebook and Amazon initially yet the market saw potential . I stopped trying to figure this out and just avoid stocks like Tilray as I clearly don't understand it.. Or perhaps because I do. When Kodak went up after them embraced the bitcoin model it flew up, but a month later it crashed back. That time I was right..

Deter_Naturalist
Deter_Naturalist

I might add a couple observations:

  1. The Fed's asset base is largely treasuries and debt denominated in dollars, which means that the Fed's reserves are "IOU-federal reserve notes." How funny is that?
  2. Debt-enabled spending is the engine of economic growth these past 30-plus years. Economic growth yields savings, which are cycled back into demand for debt instruments. How does one spell Ponzi System?
Deter_Naturalist
Deter_Naturalist

If interest rates rise enough, one would surely imagine a Minsky Moment can't be far off. But for now, low spreads to junk are a sign the Punch Bowl was spiked again. Keep dancing, the music is playing.

How much debt is too much? It's not the payments that are the problem, it's the vulnerability of the entire edifice to a collapse in underlying capital value of the debt itself. We err by thinking of $250-$500 trillion in debt like it's some sort of car loan we can just wait out, paying the vig monthly. On the contrary, the looming disaster is capital value collapse when this long period of collective insanity WRT debt finally ends.

The cause of excess debt is low spreads and low rates, both functions of pathological trust and optimism. Unfortunately, debt is sticky, each dollar of it is someone's asset/expected future cash flow. People build their expectations (and their lives) around those, the same as manufacturers build plants and equipment to serve demand. If that demand is fake/false/temporary, but the plant consumes capital that cannot be repurposed, capital consumption (destruction) ensues.

Realist
Realist

I expect continued slow economic growth of 2% per year on average. As a result, overall markets should continue to rise, with individual sectors all over the place. All provided a black swan event (such as a full-blown trade war) does not occur.

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