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The crazy house is back in business

The crazy house is back in business

Looking forward to the Christmas rally? That's what happened. 19-20 trillion capitalization (almost 22% - from 89 trillion to 108 trillion) of the global stock market was restored from October 12, 2022 to November 24, 2022 due to a decade-long market growth and a sharp weakening of the dollar.

In China and the US, the situation is worse (mainly due to technology companies), while European indices are returning to their all-time highs in par and April levels in dollar terms.

The growth of European indices at par amounted to 14-18%, add to this almost 9% strengthening of the euro.

Over the past 25 years, such an impulse has been only five times. Twice in 2020 in the wake of the post-COVID monetary drug impact with the recovery of indices from the lows in June 2020 and December 2020 and three times during the crisis of 2008-2009 (January 2009, April 2009, August 2009). That, in fact, is all.

All episodes of 22-25% capitalization growth momentum in dollar terms over 1.5 months occurred in the phase of aggressive monetary and fiscal pumping in 2009 and 2020, but there has never been anything like it on the trajectory of aggressive tightening of monetary policy and entering the second stage of the debt crisis.

All this only emphasizes the madness of the markets.

Here is a comparison of the current capitalization with the mid cap from October to December 2021 and the pre-CBO highs.

• USA (S&P 500) - minus 12.3% / minus 15.8%

• USA (DJ Composite) – unchanged compared to October-December 2021 / minus 3.8%

• USA (NASDAQ) - minus 25% / minus 28.3%

• China (Shanghai Composite) - minus 13.7% / minus 16.1%

• Japan (Nikkei 225) - minus 1.4% / minus 4.8%

• Germany (DAX 30) - minus 7.2% / minus 10.8%

• France (CAC 40) - minus 2.8% / minus 9.2%

• UK (FTSE 100) – plus 3.2% / minus 1.9%

• India (SENSEX India) – plus 5.4% / plus 0.8%

• Brazil (BOVESPA) – plus 5.1% / minus 2.2%

• Australia (ASX Australia) - minus 3.2% / minus 6.2%

The UK is above the average levels of October-December 2021, as are India and Brazil, and France, Japan and Australia are a few percent. China has its own history, and in the US, the failure of techs pushed through the NASDAQ and S&P, while the “value” companies are quite consistent with pre-crisis levels.

It must be understood that the levels of capitalization that were recorded in 2021 are in the conditions of the strongest bubble in 100 years with completely disabled feedback in the era of cheap and unlimited liquidity with faith in the “perpetual motion machine”, when you can print without consequences.

Now a new era has come, and phantom pains actualize flashbacks about a serene and irresponsible period of monetary rage.

Reason for growth? One of the reasons, with the exception of technical oversold, extremely negative sentiment in October and seasonality in November-December, is the destruction of the transmission mechanism of the world's central banks.

Excess liquidity has resulted in deposit rates at zero and not rising in line with key rate hikes and bond yields. I described these processes in detail using the example of the United States.

This is pushing liquidity out of money markets and into debt markets (which is why the biggest debt rally in 20 years and declining yields since October) and risk assets (the biggest market rally in 25 years since October).

Is it good or bad? Panic and fury of the world Central Banks will soon begin, because lending is growing, consumption is not decreasing, assets are on the nuclear pump, inflation continues to be a record. Their PrEP does not work, all the laws and regulations flew into the trash.

It will be hot and painful. Again…