Error: Embedded data could not be displayed.




Is the Greatest Bull Market Ever Finally Ending? (Hint: Follow the Money)

October 17, 2018

The key here is the gains generated by owning US-denominated assets as the USD appreciates.

Is the Greatest Bull Market Ever finally ending? One straightforward approach to is to follow the money, i.e. global capital flows: assets that attract positive global capital flows will continue rising if demand for the assets exceeds supply, and assets that are being liquidated as capital flees the asset class (i.e. negative capital flows) will decline in price.

Global capital flows are difficult to track for a number of reasons. A significant percentage of global mobile capital is held in secretive offshore tax havens and "shadow banking," and tracking global corporate capital flows is not easy. Capital held in precious metals may not be reported, and assets such as enterprises and collectible art may be grossly undervalued for tax purposes.

Toss in shadow holding companies, LLCs with obscure trails of ownership, etc. and a definitive account of global capital flows is ultimately a guesstimate.

Despite the limitations of tracking global wealth, Credit Suisse Research Institute's (CSRI) issued Global Wealth Report 2017 gives us some clues about where capital is flowing in and where it's leaving for safer, higher-yield climes.

The first step in measuring global capital flows is to note that conventional capital is denominated in currencies which fluctuate in relative value. Of the roughly $300 trillion in global assets (Credit Suisse pegs the total in 2017 at $280 trillion, but other estimates range well above $300 trillion), about $8 trillion or so is in precious metals, and a tiny sliver is in cryptocurrencies. (Bitcoin's total market capitalization is currently around $112 billion and Ethereum's market cap is around $21 billion--signal noise in the $300 trillion sloshing around the world seeking safety, low/zero taxes, capital gains and high yields.)

Foreign exchange matters. Say a money manager moves $1 billion out of U.S. Treasuries (denominated in the US dollar, USD) into bonds paying a hefty 15% in annual yield denominated in an emerging market currency.

If that currency loses 20% of its value vis a vis the USD annually, the capital loses 5% of its value / purchasing power despite the hefty yield.

The trick is to arbitrage yields and currencies so borrow in cheap currencies that are declining and buy higher-yielding assets denominated in currencies that are rising in value. For example, if a manager moved $1 billion out of a bond paying 4% in a currency that subsequently lost 30% of its value vis a vis the USD into a US high-yield bond paying 6%, the manager picked up 30% gains in FX and 2% in yield for a total gain of 32%.

For a variety of reasons, yields are rising in the US and the USD is gaining value relative to other currencies. Combine higher yields, relatively predictable safety and an appreciating currency, and the US has been attracting global capital.

These charts from Credit Suisse reflect this capital flow into the US and out of other nations. The phenomenal expansion of wealth in China is put into a different perspective here:with 4 times the population of the US and an economy roughly comparable in size, China's wealth has registered only 20% of the gains accrued by the US.

If global capital was buying empty flats in China, etc., and selling US-based assets, these numbers would be reversed. This suggests mobile capital is leaving China and other nations and moving into US-denominated assets.

Most of the gains in global wealth have accrued to the US and to the top 1%. The wealthier the entity / individual, the greater the rewards and opportunities for moving wealth into tax havens and safe havens such as Switzerland and the US, which is a massive tax haven in its own right.

Here's another snapshot of the global wealth pyramid: since the Pareto Distribution applies to wealth and income, we can guesstimate that roughly 40% of all global wealth is held by the top .2% or so. The top 8% (350 million people) own 85% of all global wealth.

Where is all this money coming from? Largely from debt which has expanded by over $100 trillion since 2001:

Corporations have poured earnings into stock buybacks at a torrid pace:

The net result is a gargantuan inflation in assets while real-economy wages and GDP have stagnated.

As long as US yields and the USD are ticking higher while the US economy continues expanding opportunities for capital to earn relatively safe yields and capital gains, capital will continue to flow into US assets, despite the nose-bleed valuations of assets such as stocks and left / right coast housing.

The key here is the gains generated by owning US-denominated assets as the USD appreciates. A 3% yield in US Treasuries isn't all that great, but add in 10% annual FX gains and you're netting a very healthy 13% annual return in relatively safe and liquid assets.

The greater the sums at risk, the more compelling these attributes become. If you need to protect $25 billion, and you want a liquid market you can exit without crashing the bid and exposure to FX capital gains, then USD-denominated bonds and stocks are an attractive option at this juncture.

Empty flats in China with zero yield and the potential downside of yuan devaluation--not so much.

In summary: follow the money. Smart money is mobile, opaque and constantly on the move seeking safety, tax shelters, yield and capital gains. If mobile capital continues flowing into US assets such that demand exceeds supply, the Bull Market will continue sloshing higher. Once supply exceeds demand and capital starts liquidating US assets, the Bull Market will end, perhaps with a whimper (stagnation) or with a bang (crash). Capital flows will dictate the outcome.


Ridiculously affordable fiction sale: 7 of my 8 novels are now a ridiculously affordable $1.29 (Kindle digital edition)--the first two have never been available digitally until now:

Verona in Spring

For My Daughter

The Adventures of the Consulting Philosopher: The Disappearance of Drake
read the first chapters for free (PDF)

Four Bidding For Love

Claire's Great Adventure

Kama Sutra Cadillac

Of Two Minds

Click here for a brief description of each story


My new mystery The Adventures of the Consulting Philosopher: The Disappearance of Drake is $1.29 (Kindle) or $8.95 (print); read the first chapters for free (PDF)

My book Money and Work Unchained is now $6.95 for the Kindle ebook and $15 for the print edition.

Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.



(Kindle ebook $9.95, print $20 )

This is the most important book I have written. It started when I asked myself a question: when we dream of the future of our society, are we hoping for the right things?

The current conventional-wisdom view of our soon-to-be future is rose-tinted: automation will free millions of people from the drudgery of work, then by taxing the robots doing all the work, we can pay everyone Universal Basic Income (UBI), enabling a life of leisure and artistic pursuit for all. The result: A future of Universal Happiness.

But is this accurate? Is this what UBI is actually capable of doing? More importantly, is this what we want?

And even more importantly: will this “future” be our best future? Will it account for and manage the practicalities of work, money and automation, given the limits of endless growth on a finite planet?

Money and Work Unchained drags the now-popular concept of Universal Basic Income (UBI) from the shadows of Pundit blather into a harsh, illuminating light, and in doing so presents an entirely new view of the future that upends our conventional, foundational, understanding of work and money.

This book lays out a practical pathway that realigns work, money and human fulfillment into a sustainable system that sheds the inequalities and injustices of the status quo in favor of a human-scale way of living.

And – it gives us a future to truly hope for.

Kindle ebook $9.95, print $20)



Recent entries:

Is the Greatest Bull Market Ever Finally Ending? (Hint: Follow the Money) October 17, 2018

How Many Households Qualify as Middle Class? October 15, 2018

Here's Why the Next Recession Will Spiral Into a Depression October 12, 2018

The Distortions of Doom Part 2: The Fatal Flaws of Reserve Currencies October 10, 2018

The Global Distortions of Doom Part 1: Hyper-Indebted Zombie Corporations October 8, 2018

The Dynamics of Decadence October 5, 2018

Pensions Now Depend on Bubbles Never Popping (But All Bubbles Pop) October 3, 2018

The Labor Shortage Is Real October 1, 2018


September 2018     August 2018     July 2018     June 2018     May 2018     April 2018     March 2018     February 2018     January 2018     December 2017     2017 Archives     2016 Archives     2015 Archives           Archives 2005-2017







Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency. All contributors are listed below in acknowledgement of my gratitude.

Thank you, Paul C. ($120), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

 

Thank you, Daniel E. ($6), for your most generous contribution to this site -- I am greatly honored by your steadfast support and readership.


      go to Kindle edition


     


     



Of Two Minds Site Links

home     musings     my books     archives     books/films     policies/disclosures     social media/search     Aphorisms     How to Contribute, Subscribe/Unsubscribe     sites/blogs of interest     original music/songs     Get a Job (book)     contributors       my definition of success       why readers donate/subscribe to Of Two Minds     mobile site (Blogspot)     mobile site (m.oftwominds.com)


HUGE GIANT BIG FAT DISCLAIMER: Nothing on this site should be construed as investment advice or guidance. It is not intended as investment advice or guidance, nor is it offered as such.... (read more)

WHY EMAIL TO THIS SITE IS READ BUT MAY NOT BE ACKNOWLEDGED: Regrettably, I am so sorely pressed for time and energy that I am unable to respond to the vast majority of emails. Please know I read all emails, but I can only devote a very limited number of hours to this blog and all correspondence....



Contributions

Contributors and subscribers enable Of Two Minds to post free content. Without your financial support, the free content would disappear for the simple reason that I cannot keep body and soul together on my meager book sales alone.

Become a patron of my work via patreon.com

How to Contribute, Subscribe/Unsubscribe to Of Two Minds

SPECIAL APPEAL TO READERS OF OFTWOMINDS from longtime correspondent Cheryl A.:

I don't recall exactly how I discovered Of Two Minds in late 2005, but it is hard to express how grateful I am that I did. As a result of the insight I have gained from the information Charles has shared over these past 9 years, I have been able to navigate this turbulent period much more successfully than most of my acquaintances. I'm sure that those of you who visit OTM with any regularity have similarly benefitted in numerous ways.

The addition of the weekly musings has been an extra bonus for supporters that has provided further insight into the markets, as well as the world around us (often providing a much needed smile).

I have no doubt that those who generously contribute to this site recognize the value that it offers. I hope that those of you who visit, but have not yet contributed, will consider doing so. Your support is essential in helping to maintain such an important resource.

Thank you, Cheryl, for this vote of confidence. I can only promise that I will continue to do my best.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--Walt Howard, commenting about CHS on another blog.

"You shine a bright and piercing light out into an ever-darkening world."
Jeremy Beck




Or send coins, stamps or quatloos via mail--please request P.O. Box address.


Contributions in any amount are greatly appreciated.



Subscriptions to the Weekly Musings Reports

Subscribers ($5/mo) and those who have contributed $50 or more annually (or made multiple contributions totalling $50 or more) receive weekly exclusive Musings Reports via email ($50/year is about 96 cents a week).

Each weekly Musings Report offers five features:
1. Exclusive essay on a diverse range of topics
2. Summary of the blog this week
3. Best thing that happened to me this week
4. Market Musings--commentary on the economy & global markets
5. From Left Field (a limited selection of interesting links)

At readers' request, there is also a $10/month subscription option. (Everyone at the $10/month rate has the opportunity to add another person to the Musings email list for free.)

What subscribers are saying about the Musings (Musings samples here):

"What makes you a channel worth paying for? It's actually pretty simple - you possess a clarity of thought that most of us can only dream of, and a perspective that allows you to focus on the truth with laser-like precision." Jim S.

The "unsubscribe" link is for when you find the usual drivel here insufferable.

How to Contribute, Subscribe/Unsubscribe to Of Two Minds

 
 

PayPal and Dwolla members can also subscribe to the weekly Musings Reports with a one-time $50 payment: please email me if you use Dwolla, as Dwolla does not provide me with your email.

Become a $5/month patron of my work via patreon.com





Extra-Special Bonus Aphorisms:

"There is no security on this earth; there is only opportunity."
(Douglas MacArthur)

"We are what we repeatedly do." (Aristotle)

"Do the thing and you shall have the power." (Ralph Waldo Emerson)

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius and a lot of courage to move in the opposite direction." (E.F. Schumacher, via Tom R.)

"He who will not risk cannot win." (John Paul Jones)

"When we drink coffee, ideas march in like the army." (Honore de Balzac)

"Progress is not possible without deviation." (Frank Zappa, via Richard Metzger)

"Victory favors those who take pains." (amat victoria curam)

"The man who has a garden and a library has everything." (Cicero, via Lee Bentley)

"A healthy homecooked family meal and a home garden are revolutionary acts." (CHS)

"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)

"The way of the Tao is reversal" Or "Reversal is the movement of Tao." (Lao Tzu)

"Chance favours the prepared mind." (Louis Pasteur)

"Success consists of going from failure to failure without loss of enthusiasm." (Winston Churchill)

"Where there is ruin, there is hope for treasures." (Rumi)

"The realm of gratitude is boundless." (CHS, 11/25/15)

"History doesn't have a reverse gear." (CHS, 12/22/15)

Smith's Law of Conservation of Risk: Every sustained action has more than one consequence. Some consequences will appear positive for a time before revealing their destructive nature. Some consequences will be intended, some will not. Some will be foreseeable, some will not. Some will be controllable, some will not. Those that are unforeseen and uncontrollable will trigger waves of other unforeseen and uncontrollable consequences. (July 8, 2014)(thanks to Lew G. for retitling the idea.)

Smith's Neofeudalism Principle #1: If the citizenry cannot replace a kleptocratic authoritarian government and/or limit the power of the financial Aristocracy at the ballot box, the nation is a democracy in name only.

The Smith Corollary to Metcalfe's Law (The Network Effect): the value of the network is created not just by the number of connected devices/users but by the value of the information and knowledge shared by users in sub-networks and in the entire network. (CHS, 4/6/16)

My Credo of Liberation: I no longer care if the power centers of our society--the distant, fortified castles of our financial feudal system--are changed by my actions, for I am liberated by the act of resistance. I am no longer complicit in perpetuating fraudulent feudalism and the pathology of concentrated power. I no longer covet signifiers of membership in the Upper Caste that serves the plutocracy. I am liberated from self-destructive consumerist-State financialization and the delusion that debt servitude and obedience to sociopathological Elites serve my self-interests. (Thank you, Klaus-Peter L., for reminding me)

"We've become a culture of excuses rather than solutions: solutions always require sustained effort and discipline." (CHS 4/9/16)

"Fraud as a way of life caters an extravagant banquet of consequences." (CHS 4/14/16)

"Creativity = problem solving = value creation." (CHS 6/4/16)

"Truth is powerful because it is the core dynamic of solving problems." (CHS 7/21/17)

"We live in a system of human emotions that masquerades as a science (economics)." (CHS 1/1/18)

"Always remember, your focus determines your reality." George Lucas

"Diversity is for poor people. Sameness is for the successful." GFB

click here for more Extra-Special Bonus Aphorisms.





Error: Embedded data could not be displayed.
   

Terms of Service:
All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:
Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

PRIVACY NOTICE FOR EEA INDIVIDUALS
This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice.
http://stg.media.investingchannel.com/gdpr-notice/

Regarding Cookies:
This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.

Our Commission Policy:
Though I earn a small commission on Amazon.com books and gift certificates and gold (BullionVault) purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.



   
   
   
    home     email me (no promise of response, sorry, here's why)     mirror site