The Everything Bubble.
[THREAD] ๐งต
[THREAD] ๐งต
"Stocks only go up"
"Cash is trash"
"Housing is always a safe investment"
These type of statements have become increasingly accepted, but why?
Well, its rather simple, we're living through the biggest asset bubble of all time. The Everything Bubble.
1/n
"Cash is trash"
"Housing is always a safe investment"
These type of statements have become increasingly accepted, but why?
Well, its rather simple, we're living through the biggest asset bubble of all time. The Everything Bubble.
1/n
The Fed Funds Rate, the interest rate set by the Federal Reserve, has been in a secular downtrend since 1981.
What does this mean?
The cost of capital has continued to go lower and lower, lowering debt servicing costs and raising asset prices in process.
2/n
What does this mean?
The cost of capital has continued to go lower and lower, lowering debt servicing costs and raising asset prices in process.
2/n
"Stocks only go up"
An entire generation has never lived through a prolonged bear market in equities as a result of ever easier monetary policy and liquidity injections, among other factors (such as globalization and demographics).
3/n
An entire generation has never lived through a prolonged bear market in equities as a result of ever easier monetary policy and liquidity injections, among other factors (such as globalization and demographics).
3/n
One of the biggest drivers of the equity boom over the last decade in particular has been share buybacks.
How have these buybacks been financed you ask?
You guessed it: Debt, and a whole lot of it.
4/n
How have these buybacks been financed you ask?
You guessed it: Debt, and a whole lot of it.
4/n
Total corporate debt has continued to pile up by the trillion at the same time that yields on high yield corporate bonds continue to trend lower and lower.
In March of 2020, the Fed actually began to buy corporate debt through an SPV with the Treasury to ease the market.
5/n
In March of 2020, the Fed actually began to buy corporate debt through an SPV with the Treasury to ease the market.
5/n
The constant intervention by the Fed has enabled corporations that should have failed to stay alive, and an increasing zombification of the economy.
For Non-Financial Corporates, debt as a percentage of cashflow has never been higher, despite record low interest rates.
6/n
For Non-Financial Corporates, debt as a percentage of cashflow has never been higher, despite record low interest rates.
6/n
The actions taken by the Fed and other global central banks have acted as a massive volatility suppression scheme.
Here is the $VIX and high yield corporate bond spreads.
Volatility suppression.
7/n
Here is the $VIX and high yield corporate bond spreads.
Volatility suppression.
7/n
Stock buybacks & the passive indexation of financial markets are 2nd order effects of the 40 year paradigm of evermore easy monetary policy.
Both stock buybacks and passive investing are both implicitly short volatility strategies:
- Buying on margin & buying at any price.
8/n
Both stock buybacks and passive investing are both implicitly short volatility strategies:
- Buying on margin & buying at any price.
8/n
What about Public Debt?
U.S. Federal Govt Debt is on pace for $30 trillion, with no end in sight.
Federal Debt/GDP has passed 160%
The Federal Deficit also touched record lows as % of GDP in 2020.
Spot a trend?
9/n
U.S. Federal Govt Debt is on pace for $30 trillion, with no end in sight.
Federal Debt/GDP has passed 160%
The Federal Deficit also touched record lows as % of GDP in 2020.
Spot a trend?
9/n
While this thread is focusing mainly on U.S. statistics, this is a global phenomena.
Check out yields on various government 10-year bonds globally:
10/n
Check out yields on various government 10-year bonds globally:
10/n
The assets of Fed+ECB+BOJ is set to surpass $24 trillion shortly.
With rates pegged at 0%, Central Banks have turned to quantitative easing to stimulate markets.
11/n
With rates pegged at 0%, Central Banks have turned to quantitative easing to stimulate markets.
11/n
TLDR: DEBT DEBT DEBT
The driving force behind the price of every asset in the world is MOAR debt. Total U.S. debt to GDP just surpassed 400% in the U.S.
So... how does this end??
12/n
The driving force behind the price of every asset in the world is MOAR debt. Total U.S. debt to GDP just surpassed 400% in the U.S.
So... how does this end??
12/n
The debt cannot be repaid in real terms, so govts and central banks are attempting to inflate it away.
During past long-term debt cycles on a gold standard, the credit expansion would collapse down back onto gold... but as you know, we are in a pure fiat currency regime.
13/n
During past long-term debt cycles on a gold standard, the credit expansion would collapse down back onto gold... but as you know, we are in a pure fiat currency regime.
13/n
With pure fiat currency, money is created through lending and conversely destroyed through repayment or default.
If the global debt bubble is allowed to unwind, everything goes to zero all the way down.
Everything.
14/n
If the global debt bubble is allowed to unwind, everything goes to zero all the way down.
Everything.
14/n
$BTC is a digital bearer asset, with a fixed supply, production cost, & an inelastic supply issuance. If you wish to acquire $BTC, that necessitates proof of work.
Either convince a holder to exchange w/ you or provide energy resources & computational power to acquire some.
16/n
Either convince a holder to exchange w/ you or provide energy resources & computational power to acquire some.
16/n
Proof of work (PoW) combined the difficulty adjustment is the invention that combined the physical world with the digital world.
It is what enables digital scarcity to actually be, well... scarce!
17/n
It is what enables digital scarcity to actually be, well... scarce!
17/n
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END./
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The Deep Dive covers macro and #Bitcoin markets, with on-chain and derivatives data.
Hit my DMs if you'd like a code for a trial period.
END./
members.bitcoinmagazine.com
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