What were they thinking?

This FT story reports that the market capitalisation of Tesla Motors has overtaken Toyota Motors.

The electric carmaker’s shares have climbed fivefold during the past year, from $230 about 12 months ago to $1,100 on Wednesday, taking the company’s market capitalisation to $205bn. Toyota, the world’s second-largest single carmaker measured by output with annual production of more than 10m vehicles, was worth about $200bn on Wednesday after its Japan-listed shares fell 1.5 per cent to ¥6,656 ($61).

The stock market treats Tesla as a technology company. Not that technology companies can, forever, defy market valuation. You should check out two of Jesse Felder’s blog posts, here and here. The first one links to “what were you thinking?” – a comment attributed to Scott McNealy, founder of Sun Micro Systems who was speaking on his own company’s valuation at the height of the dotcom boom.

Scott McNealy’s remarks are particularly relevant in these times:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking? [Link]

The second one links to his comment and a chart on the valuation of Nasdaq 100 stock index together with a chart of continuous jobless claims in the United States.

Nvidia has a market capitalisation of USD257.79bn compared to Intel’s USD252.05bn. Nvidia trades at 75 times earnings and has gone up eight-fold in the last five years and is up 72% this year! [Link]. Take that.

Well, such lofty (or, unsustainable or insane) optimism is not confined to single stocks. The top five stocks in S&P 500 represent a quarter of the index’ market capitalisation, first time in more than fifty years, according to this tweet by LizAnn Sonders, CIO of Charles Schwab.

The forward P/E of Nasdaq Composite index is nearing 40 times – highest since 2002 [Link] and the S&P 500 Information Technology Index is at its highest relative to the overall S&P 500 index, first time since pre-bust in 2000 [Link]. If you are not still convinced, Nasdaq 100 is trading above the Russell 2000 index for the first time since, well, April 2000! [Link]. Well, don’t you have enough warnings?

Much of the resilience one sees in US retail sales, etc., is linked to the stimulus cheques. Even then, nearly a third of Americans missed their housing payment in July. More than fifty million Americans filed for initial jobless claims in five months. [Link].

This long (or, big and free) read in Financial Times tells us that the bottom 90% of the American population has been spending (net) rather than saving (net). Further, in general, Americans’ share of non-housing debt as a % of their disposable income is at its highest in nearly two decades. This, at a time, when disposable income, is dependent entirely on government stimulus cheques.

This long article (free to read) is an eye-opener as to how the millennials feel . Millennials are those born between 1981 and 1996, according to the article. Not just how they feel but what they are enduring. One can understand how they feel about both the candidates for the American Presidential election in November 2020. It is a lot harder for Trump to persuade them to vote for him. They are not his natural constituency. It is relatively far less difficult for Biden to persuade them. All that he has to do is to pick a good VP candidate that they can relate to. He will be home. But, that is a digression. Let us come back to what it means for the American economy.

These millennials, Generation X and Generation Z – are hurting from the two recessions that have come within a decade of each other with huge job losses. One would not see it looking at asset prices. If anything, it has made their relative poverty even harsher. Homes have become more unaffordable for them. Student loan arrears are a big burden. The inflation in University tuition fees have been nothing short of criminal. That is one display of ‘malevolent incompetence’ – a phrase that Martin Wolf used to describe the American President. It should be applied to the administrators in American Universities and colleges.

The second set of folks to whom that phrase applies is the central bank chiefs at the Federal Reserve. At least two of the several charts in that long FT article show up the effects of monetary policy of the Federal Reserve. They have boosted the wealth of the wealthy and the elderly leaving the millennials (also the X-ers) and the Generation Z in the lurch. They have resorted to day trading in stocks and trading in the stocks of companies that have declared bankruptcy. One of them committed suicide.

Check out this tweet by Jim Bianco:

This podcast talked to a 19-yr UT student and a 24 yr frustrated sports gambler about pandemic day trading. My favorite part … the 19-year feel he is a “middle aged” trader because he knows a lot of 15/16 yr old gamers trading on their parents account. [Link]

I have not yet listened to the full podcast.

This article in Reuters tells us that American businesses are not rushing to rehire workers. Of course, it does talk about the rebound in American manufacturing activity, as reflected in the diffusion indices. That reveals a basic misunderstanding of how diffusion indices work. When everyone reports a contraction in activity as happened in March, the diffusion index plunges, as it did. Then, in the following month, if the respondents report a pick-up in activity over the ‘plunged’ previous month, the diffusion index would rise above 50. That does not mean that the economy is expanding. It is doing better than it did in the previous month, on net. Activity could be far below the pre-Covid levels. For example, despite the big jump in payrolls in May and in June, it is at least 15 million lower than the pre-Covid levels.

That is why expectation that corporate earnings would return to 2019 levels – when the economic expansion was peaking (or had just peaked) – seems like a pipe dream, prompting one to ask, as Scott McNeely did, ‘what were you thinking?’. But, back to the real economy.

Let us assume that they will continue to arrive into people’s mailboxes well into the third quarter. Quite what it does to the US fiscal deficit does not require much math. It will blow through the roof. With Americans not saving enough and being able to fund their government (it does make sense for the government to spend when the private sector is not), the US Treasury will eventually turn to the Federal Reserve to finance its deficit.

Then, let us say that it keeps the stimulus cheques flowing to American households. They will ramp up their spending. The sum of the two would send American current account deficit rising sharply. It does not augur well for the US dollar at all. Alternatively, other countries will have to ramp up their ‘money printing’ or also resort to monetisation.

Does not sound like a recipe for continued trust in fiat money. The stock market is oblivious of these risks.

It was very timely that I came across an article by Edward Chancellor (ht: Aru Arumugam) in Reuters. The article captures the tragedy that we are living through in financial markets thanks to central banks (hint: not about Covid) in a funny way. Please do read it. The title of the article is ‘Wall Street is firmly in wonderland’. I am not sure if the Street and investors are the only ones in wonderland. What about central bankers and their cheerleaders in mainstream media? They too are in la la land.

Risk management becomes a meaningful concept only if we are aware of risks. The signal disservice of the Federal Reserve and its counterparts elsewhere in the developed world has been to make investors around the world learn to ignore risks and forget the pricing to risk. It may not be malevolent incompetence but criminal incompetence, for sure.

UK Productivity in structural decline

Those were the final lines of a blog post on the structural productivity decline in the UK in the ‘Bank Underground’ blog.

Improving the economy’s supply potential is likely to require structural policies that are beyond their scope. [Link]

What follows is a comment I left on the blog post:

True, in theory. But, when monetary policy has one permanent foot on the accelerator (of liquidity) and keeps interest rates depressed, it is no longer feasible for monetary policymakers to argue that theirs is a cyclical aggregate demand management tool. Monetary policy has become a structural policy tool and monetary policymakers have also not pushed back on becoming or being the only game in town. Deep down, they welcomed it while they pretended to be wearing an uneasy crown.

Therefore, given theirs has become a structural policy tool for all practical purposes, they bear a large share of the blame for the structural decline in productivity.

In the United States, the share of zombie companies (firms that do not earn enough to service their debt) has risen to nearly a fifth of all companies in the last two decades [Link] – the period that has coincided with unprecedented monetary policy accommodation that has prevailed for most of those two decades.

The same must be true for the UK too and the Bank of England would do well to reflect on its role in the rise and perpetuation of zombie businesses in the UK and the structural decline in productivity in the country.

Is the world falling apart?

Mr. Martin Wolf has an article in FT with the header, “The world falls apart as the US withdraws”.

It is not clear if the world is falling apart or if some people’s world is falling apart. Even if ‘THE WORLD’ is falling apart, it is also a bit of a leap to assume (rather than establish) that the United States of America is the cause.

Mr. Wolf leaves us in no doubt as to what he thinks of the American President:

It was also due to the character of the malevolent incompetent who runs it.

Pity that we don’t get to read M. Wolf’s views on the incumbent of the other country that he discusses extensively in his article. If my memory serves me correct, the American President has not made systematic efforts to make enemies of many nations as China under Mr. Xi Jinping has done in recent months.

That Mr. Wolf can write such stuff about the American President without worrying about the consequences for himself or his newspaper in America but that he cannot even contemplate for  a second a similar characterisation of the Chinese leadership, let alone stating it in print, points to all that is wrong about his analysis of those responsible for the world falling apart.

Professor Jabin Jacob’s piece (ht Gulzar Natarajan) in ‘Indian Express’ is a good antidote or complement to Martin Wolf’s perspective.

What follows is a slightly modified version of my comments on the article I had left at the FT site.

Mr. Martin Wolf is knowledgeable, experienced and erudite enough to know that his last paragraph is a non-sequitur.

Western values, by definition, cannot be universal. It will be good to remember Samuel Huntington who wrote that civilisations may like to modernise themselves but not necessarily westernise themselves.

To wish China to prosper without it trampling upon other societies and their values (not ‘corroding’) is to ignore the choices that the current regime in China has made. FT’s owner and sister newspaper,  ‘Nikkei Asia Review’ has a weekly column called ‘China up close’ and that provides a better perspective on what to expect from China and why.

Harvard-Harris monthly poll of Americans is available online for anyone wanting to and willing to face up to facts rather than cling to their pet beliefs on what constitutes anarchy and what constitutes chaotic governance and who is responsible for both. The June 2020 poll is out and the survey was conducted in the third week of May.

See https://harvardharrispoll.com/wp-content/uploads/2020/07/HHP_June2020_Topline_RegisteredVoters.pdf

Empires expand, thrive and then shrivel, regardless of the entreaties or bleating of experts, elites and regardless of institutions and values, etc., Sometimes, they are causal factors.

Sir John Glubb’s ‘Fate of Empires’ published in 1977 (http://people.uncw.edu/kozloffm/glubb.pdf) provides a very good perspective and helps us understand much of what is going on in America and that has very little to do with the personality of the current incumbent in the White House.

On August 22, 2007, in these pages, Mr. David Walker wrote about the risk of America going the American way (‘America risks the fate of Rome’ – https://www.ft.com/content/f98a1f4e-4fef-11dc-a6b0-0000779fd2ac). Before Mr. Trump became President in January 2016, there were eight years. Mr. Walker was the Head of the Government Accountability Office in the United States of America.

Mr. Wolf’s analysis would have been both richer and credible if he had taken into account those eight years.

George Pendle reviewed Cullen Murphy’s book in FT in May 2007. The book was titled, ‘Are We Rome? The Fall of an Empire and the Fate of America’.

In that review, Pindle quotes the author:

Asserting with Livy that an empire remains powerful ”so long as its subjects rejoice in it,” his cure is to promote assimilation, foster cosmopolitanism, and somehow regain an uncynical faith in strong government. He suggests that national service would resuscitate the patriotism of the early American (and Roman) republic, and bring the citizenry back in touch with the military. It is a classical solution – unfashionable, impractical, yet undeniably sane. [Link]

Are Americans being allowed to or are still able to rejoice in America?

[Postscript: This actually reminds me that much as I had recommended Sir John Glubb’s classic paper far and wide in the last two months, I am yet to do a proper blog post on it. Such a shame, really.]

A few major questions answered

What was surprising was that despite palpable damage to significant parts of the Indian economy, GDP growth in 2017-18 was estimated at 8.2% – the highest since 2012-13. Unfortunately, this was an optical (or more correctly, a statistical) illusion.

Apart from agriculture, Indian GDP estimates are primarily based on data from the organised sector, which is extrapolated to cover the informal and SME sectors as well. Since, as has been already explained, the formal sector actually gained at the expense of the informal and the small, this procedure grossly overestimated the growth rate. Thus, while the higher production of corporates got recorded, the presumptive negative growth of the SME sector was completely ignored.

While there is no data to directly estimate the extent of GDP overestimation, two corroborative datasets suggest the damage was significant.

Employment data from the Periodic Labour Force Survey (PLFS) for 2017-18 indicated that the unemployment rate was 3 percentage points higher than normal. Similarly, household consumption data indicated that per capita monthly consumption expenditure was 2% lower than in 2011-12.

An important footnote in his paper as to how agriculture is reckoned with in GDP estimation is this:

In the case of agriculture, the GDP estimates measure only production, and not income of farmers or losses arising from increased wastage.

This is an extract from the five parts that Dr. Pronab Sen wrote for ‘Ideas for India’. All the five parts are consolidated into a paper and can be downloaded from here. The portion I have extracted solves the riddle (for me) of how India could report a real GDP growth of 8.3% in 2016-17, despite demonetisation.

What this shows is that when shocks affect all sectors equally, then the approximation mechanisms and formulae adopted by statistical agencies (for example, using growth or contraction in the formal sector to gauge the fluctuations in activity in the informal sector) do hold. However, when the shock is idiosyncratic (that is, it affects only one sector – like demonetisation did – for the informal sector that is largely or fully cash-based), then the approximation mechanisms break down and they end up giving misleading results.

That is what happened with the real GDP growth estimation in 2016-17. In a way, the statistical system ends up doing a big disservice to policymakers, for it sends the wrong signal about the health and dynamism of the economy.

(2) The second long-standing puzzle is on China’s growth model that favoured investment in heavy industries, manufacturing and exports as opposed to private consumption. Andrew Batson, in his blog, reviewing the book, ‘Building for oil’ by Hou Li, writes:

The oil produced by Daqing helped save China from major energy shortages during the 1960s. It also restored Mao’s confidence in his idiosyncratic approach to economic development, based on mass mobilization rather than orthodox planning, political enthusiasm rather than material incentives, and heavy industry and defense over agriculture and consumer goods. …

….The discovery of oil, then, probably helped push China back toward industrialization campaigns at a juncture when otherwise it would have moved toward a more balanced and consumer-oriented strategy.  [Link]

So, there we go! A vital clue as to how and why China chose heavy-industry-led industrialisation.

(3) Looks like Andrew Batson is on his summer-reading spree. In another recent post, he has reviewed another book, ‘Mao’s Third Front: The Militarization of Cold War China’. Very interesting and not at all surprising that it was United States’ decision to do business with China and cease being (or being perceived as) a military threat to China that paved the way for China being able to focus on ‘normal’ or ‘civilian’ economic development from the 1980s onward:

A big reason why China under Mao systematically failed to develop the economy was because Mao was, mostly, not really trying to develop the economy. He was instead obsessed with political campaigns against real and imagined enemies inside and outside the country. And although Mao was paranoid, he did have enemies. Meyskens reminds us that the Cold War was only really cold from the perspective of the US, which carefully avoided direct conflict with the Soviet Union; from China’s perspective, it was pretty hot…..

…… It is therefore impossible to separate China’s later successful economic development from changes in the international environment. If China’s leaders had continued to feel threatened militarily by both the US and Soviet Union, they may not have been able to focus on civilian economic development rather than military preparations. Meyskens suggests that the turning point for China’s economic development came with Richard Nixon’s visit in 1972, and the subsequent commitment by both sides to avoid military conflict. Soon after, the Third Front campaign was downgraded in importance, and planners began to direct more resources to light industry and consumption rather than defense and heavy industry…..

…. Deng’s project of enlisting the US as a de facto partner of China against the Soviet Union was thus the necessary international condition for domestic economic reform and the opening to foreign trade. [Link]

Andrew Batson is right in his conclusion. That the United States of America no longer sees itself as having to favour or not be an obstacle to China’s rise is well established. The speed and intensity with which it is pursued may vary depending on the personalities and political parties in power in the United States.

This also explains, at least in part, China’s recent aggression against India.

Monthly Harvard-Harris Poll – June 2020

Once in a while, self-styled pundits and experts would do well to pay attention to ‘Vox Populi’. In 2018, I found the Harvard-Harris poll quite reliable to gauge the mood of the public with respect to the Mueller probe into Russian meddling ostensibly with a view to helping President Trump win the elections.

The public was not buying the spin/spiel from mainstream media in America and their friendly counterparts from the country with whom America claims (or, claimed?) to have a special relationship.

Readers should check out the stories here, here and here. They are by Kimberley A. Strassel of the Wall Street Journal.

Anyway, the June 2020 Harvard-Harris Poll was conducted in the third week of May. You can always visit the website of Harvard-Harris poll and click on the full survey results to see how national and representative the poll is. It is representative.

In the June edition, Americans appear to give a better rating to Biden over Trump. The gap looks sizeable. But, on many issues that Biden and his party stand for or have taken a wavering stance , the American public are not aligned with him and his party. Check out the responses on the Police or on de-funding the Police.

I doubt if the race for who occupies the White House from January 2021 is over yet. Not by a long mile. But, the mainstream media deluded itself in June 2016 (on Brexit referendum), in November 2016 (US Presidential elections) and on the UK elections again last year. It lost face, credibility and much else. It is at it again. They have learnt nothing, forgotten nothing and remember nothing.

They are a testimony to the falsehood of the theory of rational expectations: that intelligent people do not make systematic errors. So, that they keep doing so, proves what?

Pl. find here a file with the most important and interesting (in my personal view, that is) highlights (other than the ratings of those polled on Trump and Biden) of the June 2020 Harvard-Harris poll.

Has the Quad failed to rally behind India and is Europe wiser now?

Gideon Rachman writes that India has picked a side and that it is going to drop the high-wire balancing act between the United States and China. In my view, India has been hedging its China risks rather slowly (too slowly in some view) and imperceptibly (again, there are harsher ways of putting this) over the years. The recent stand-off and loss of lives might push India over the edge.

Gideon Rachman thinks that a Biden administration might be willing to extend a security alliance to India more than a re-elected Trump. Interesting. I hope he is right although I am not sure he will be.

Some think that the rest of the Quad had been somewhat reticent in condemning China for its aggression. Well, Mike Pompeo issued a statement. US media (esp. WSJ) has featured an Edit and at least two articles on this issue. USA Today has a good piece on how China’s Western Command actually planned the attack.

A former Under-Secretary of Defence in the US Government wrote this piece for FT. His piece is a call for the Quad countries to get closer.

If the rest of the Quad countries did not react officially to the border clashes, it can also be said that India had not reacted to recent China aggression (non-military, of course) against Australia. Of course, there is a difference. There is loss of lives for India. Not so for Australia. So, as a former diplomat put it, more noise from the three remaining Quad countries would be welcome.

Trump had offered to mediate. I wonder why. His government is suing China’s mask manufacturer and has named four more Chinese news organisations as foreign missions because they are not disseminating new but peddling propaganda. Quite. So, not sure what is the underlying message of his offer to mediate.

[Parenthetically, it has to be mentioned that the Wall Street Journal broke a story on how some 1300 medical suppliers to the United States used a bogus address]

In the meantime, this note from the Observer Research Foundation on why India voted with America against the issuance of new SDR by the International Monetary Fund is interesting. If true, it reflects strategic thinking on India’s part.

I do not go along with much hand-wringing over India’s handling of the diplomatic fallout and over India’s official communication on the bloody border clash. It is not as though India has handed over the narrative to China. By now, even Germany (if not the officialdom) seems to have wisened up to China.

Fabian Zuleeg, chief executive of the European Policy Centre, notes a significant shift in the mood among EU businesses, including in Germany, where exporters remain particularly reliant on the Chinese economy. Previously, there was an expectation that misbehaviour in China would be corrected over time, he explains. Not any more.

“There is a recognition that is not going to happen, and if the EU wants to insist on a level playing field in its variety of forms it will have to take strong action,” he notes. [Link]

It may be too soon to conclude thus. Interested readers should check out the tweets of Christopher Balding on a regular basis (@Baldingsworld).

In sum, I am not sure I would characterise India’s handling of the matter as disastrous. Far from it, in my view. But, then I am no diplomat nor foreign service man nor a security analyst.

Trump and Biden on China

A journalist by name Dake Kang put up the following tweet by Peter Martin of Bloomberg who had tweeted his article. I have not read that article.

“If Biden is elected, I think this could be more dangerous for China, because he will work with allies to target China, whereas Trump is destroying U.S. alliances,” said Zhou Xiaoming, a former Chinese trade negotiator and former deputy representative in Geneva.” [Link]

These four tweets in response by Chris Balding are worth reflecting on:

This cliched talking point makes two assumption and why it is used by China and DC Engagers. 1. There is scant evidence that the Biden administration would continue to confront and challenge China. Many take money from China, including Biden, and spearheaded the … 1/n [Link]

… The infamous Open Letter. Major mistake to believe Biden would continue the general direction. 2. Working with allies is only a viable strategy if they are won to our point if view. Most of Europe with regards to China is a waste of time diplomatically as they will not 2/n … [Link]

… put their plants in Xinjiang at risk. An ally confronting China is only valuable if they are willing to incur costs to stand up for values. No evidence of that in China. 3. While Trump is not building alliances, absolutely winning policy battles that bring Europe into 3/n … [Link]

… Closet policy alignment with the US. Europe may not like the methods but US winning the battle on Huawei and more to come. Almost no alliance building taking place but the battles is being won with more taking place. Finally, you should be smart enough to know CCP disinformation [Link]

While you are at it, you must follow his tweets on the feckless Europe (mainly Germany) when it comes to dealing with China.

This tweet by Jojje Olsson is sharp:

As a European, I feel there is something sad with this article, that in between the lines reads: “You can run concentration camps, swallow Hong Kong, attack Taiwan and occupy the South China Sea, as long as German companies are granted good market access”. [Link]


The surreal story of Hertz and US stock markets

From Ben Hunt of Epsilon Theory:

Hertz has more than $19 billion in long-term debt, against a market cap that was (at its 2019 peak!) about $2.1 billion. Now there’s a stub for you.

Source: The Hertz Story Isn’t What You Think | Epsilon Theory

The market capitalisation as of June 16th market close was USD277 million dollars.

(2) While you are at it, read his comment on the BLS undercounting the unemployed (I had blogged on it) and how it was done throughout the first term of the Obama Presidency and that it stopped with his re-election. He draws an equivalence between what happened to the post-Covid BLS data and the Obama-era episode. I am not so sure.

(3) Read John Authers at ‘Points of Return’ in Bloomberg on how the Federal Reserve came right on cue at 2 PM on Monday afternoon to repeat its old announcement that it would buy a broad basket of corporate bonds That was when the S&P 500 index was hovering at or below its 200-day MA. At one level, it is cynical manipulation that is setting new highs every day. At another level, it is protecting asset values at many pension funds, endowment and insurance companies that serve the Main Street too.

Take your pick. The problem with the less-cynical interpretation is that it is one of horizon. It works until it does not. It helps the incumbent Fed chairperson to kick the can down the road. To their credit, from Greenspan onwards, they had successfully managed to do that. I doubt the game can go on for ever. Let us see.

(4) Finally, read this story in FT (a long one, if you have access) on how the legendary Warren Buffett had lost his touch. Well, in general, I am neutral, at best, on the old man for various reasons. If you scour my blog posts over the years, you would know why. But, my sympathies are with him. It is a sign of the times that such a story runs now when the market is directly being dictated to by Fed policy actions and announcements with nary a  concern for either corporate fundamentals or economic fundamentals or political reality. Sooner or later, this story should prove to be a classic contrarian indicator.

My money would be on Warren Buffett and not on Dave Portnoy

The Intelligent Economist award

Prateek Agarwal who maintains the ‘Intelligent Economist’ website and who diligently scours the internet for useful economics blogs has picked this blog site for the second year in a row to feature in his 100 top economics blog sites. You can see it here. I am very happy about it.

The citation reads as follows:

Written by economist Anantha Nageswaran, The Gold Standard Blog focuses on Indian economics and financial markets, as well as international economics with a focus on the Indian economy. This is a great blog for anyone wanting a unique perspective on the economics of India or insight on how the Indian economy relates to the global economy. 

Of course, this blog covers as much international stuff as it examines issues pertaining to India, if not more.

Lately, I have not covered much of the goings-on in the Indian economy. Largely because I think far more epoch-making and civilisationally important things are occuring outside.

I have finished reading ‘The Fourth Turning’ by Neil Howe and William Strauss. Learnt that William Strauss had passed away earlier in the millennium due to pancreatic cancer. The book was published in 1997.

I also recently finished reading George Friedman’s ‘The storm before the calm’. George Friedman writes that the book has been in the making for five years. It was published this year. In his view, the institutional cycle (80-years) and the social-economic cycle (50-year cycle) converge this decade in America to make it tumultuous and turbulent. He predicts a happy ending.

His institutional cycle coincides with the Saeculum that Howe and Strauss present and discuss. Howe and Strauss predicate a happy ending upon competent and far-sighted leadership being there to guide the nation during this decade.

To get a sense of what Fourth Turning is about, you can read my Mint column here or listen to this conversation Neil Howe has with Grant Williams. Time usefully spent.

Then, this classic paper by Sir John Glubb is possibly one of the best readings you could do in this lockdown. Many of the points that Sir John Glubb makes are highly worthy of separate discussion and they accord well with the concluding remarks that Howe and Strauss make in their book.

So, you can see that, in this post too, I am discussing matters other than India. I should make amends in a separate post. There is plenty to write about, these days. But, before that, there is plenty to read and reflect upon. The latter always takes priority.

Macau and Vegas are closed. So….

A casino or stock market? Retail buying frenzy goes wild (Reuters)

Thyagaraju Adinarayan, John McCrank


LONDON/NEW YORK (Reuters) – A raft of small cap stocks has soared by hundreds of millions of dollars in value in recent weeks as frenzied retail traders piled in to a blistering stocks rally.

Increased savings, stimulus checks from the government, and ultra-low interest rates due to the coronavirus pandemic have led to a flood of money into the markets from punters, leading to chaotic trades via mobile phone apps.

A little-known Chinese online real estate company’s American depositary shares (ADSs) jumped as much as 1,250% on Tuesday before closing 400% higher. The reason cited widely on social media was a part of its name, FANGDD Network (DUO.O).

“In my 20 years of experience I’ve never seen retail traders push stocks around like they’re doing right now,” said Dennis Dick, a trader with Bright Trading LLC. “When the retail rush comes into something, it can really move.”

Chasing the so-called FANG stocks (Facebook, Amazon, Netflix and Google-owner Alphabet), which powered the Nasdaq 100 .NDX above 10,000 points for the first time ever, investors also bought FANGDD at pricey levels, traders say.

At least three London-based traders said the surge was down to “Robinhood” traders – Robinhood is a popular stock trading app that greets visitors to its website with the motto “It’s Time to Do Money.”

Robinhood’s website said at noon on Wednesday 9,417 of its users owned FANGDD, up from 4,002 shortly after the market opened. By midday the stock was down around 50%. A Robinhood spokeswoman was not immediately available for comment.

“This is what you get when the markets are powering ahead and investors will latch onto anything that has a name that linking to tech stocks,” said Jawaid Afsar, a trader at Securequity Ltd.

Online brokerages, including Charles Schwab Corp (SCHW.N) and TD Ameritrade (AMTD.O), saw a surge in new accounts going back to October, when most adopted Robinhood’s commission-free trading model. New accounts and average daily trading levels spiked in March when markets were whipsawed by volatility caused by the coronavirus pandemic.

In further evidence that retail investors are giving a helping hand to the global equities rally, Refinitiv’s chief executive, David Craig, recently wrote on Twitter that the usage stats on their Eikon terminal showed the number of private investors retrieving equities data was up 124% in the final week of May vs. the 2019 average.

Pointing to U.S. savings surging to $6.2 trillion in April from $1.4 trillion in February, Goldman Sachs (GS.N) said many indicators have started to show an increase in retail investor activity.

FANGDD issued a statement on Wednesday warning investors the trading price of its ADSs “could be subject to significant volatility for various reasons that are out of the company’s control.”

FANGDD, which reported $517 million in revenue last year, now has a market capitalisation of around $3.76 billion.

The moves in FANGDD are reminiscent of recent years in which punters chased any company with “cannabis” or “blockchain” in its name. The chaotic trading in FANGDD wasn’t a one-off.

Last week, a similar euphoria was seen in bankrupt or soon-to-be-bankrupt stocks with Hertz (HTZ.N), Chesapeake (CHK.N), Whiting (WLL.N) and JC Penney rising 300% to 500% before pulling back a bit, leaving seasoned traders scratching their heads.

Data from Robintrack, a site that tracks activity on the Robinhood app, showed Hertz was topping the leaderboard for highest changes in popularity among retail traders.

In another mysterious move, Rainbow Rangers producer Genius Brands (GNUS.O) shares soared 300% between June 1 and 3 before giving up half of those gains to settle at around $4.

“It is frightening to see the complete absence of any common sense,” said a Germany-based trader who has been trading U.S. equities for close to two decades. “Las Vegas and Macau are closed, and it shows here.” [Link]

From an article Jim Bianco wrote for Bloomberg:

Dave Portnoy, the founder of the website Barstool Sports who recently took up day trading, recently explained it best:

“It took me a while to figure out that the stock market isn’t connected to the economy,” he said. “I tell people there are two rules to investing: Stocks only go up, and if you have any problems, see rule No. 1.”

If markets no longer have moorings to the economy, then investment money lacks consequences and purposely acts aggressively to a point that seems reckless. This further enhances its impact on markets. [Link]

Jesse Felder’s blog post, ‘One for the ages’ is indeed one for the ages. Do not miss it and  you must watch this video. It is unbelievable.

This is just a matter of inconvenient detail:

Even as the U.S. economy begins to flicker back to life, even as job cuts slow and some laid-off people are called back to work, the scope of the devastation left by the viral pandemic has grown distressingly clear to millions who’d hoped for a quick return to their jobs: They may not be going back anytime soon. [Link]

With everything happening in that country, it is truly ‘Fourth Turning’ in all its ‘fury’ and ‘glory’