National Post (Latest Edition)

Epic bubbles fun to trade

But eventually they will pop

- David Rosenberg

It is difficult to believe we could have experience­d such human misery and see the Nasdaq soar 44 per cent in 2020 and the S& P 500 by 16 per cent.

T he Nasdaq has now enjoyed a 94- per- cent twoyear surge, something that last happened in 1998- 99. Take that for what it’s worth, but do remember that 2000 ushered in a completely different environmen­t altogether and the same commentary then is in vogue today, which includes all the reasons why we are in a new era and stock prices can never go down.

As was the case then, memories are very short. This is the most speculativ­e and momentum- driven market on record. Tesla Inc. rose 743 per cent in 2020. Bitcoin soared 305 per cent. More than 200 special-purpose acquisitio­ns companies ( SPACS) raised more than US$ 80 billion. This is pure speculatio­n.

There is US$ 21 billion sitting in exchange- traded funds that only track momentum, the most in at least a decade. This was a year in which average daily trading volume in the options market topped 30 million — by far a record and topping the 19 million shares that traded hands in 2019.

What happened in December has to be described as nothing but obscene. The country entered the third wave of the pandemic. More than 100,000 new cases per day were recorded in the final month of the year, totalling 6.3 million new cases, or about one- third of the total since the crisis started. A monthly record for cases as well as for hospitaliz­ations (125,379 to close out the year — this number was less than 50,000 in October and was never above 100,000 until December came). The number of deaths in December totalled 77,572 and the seven-day average spiked to an all-time high of 2,659.

How do the markets respond? The S&P 500 jumped 3.7 per cent and the small-cap Russell 2000 surged 8.5 per cent. Liquidity! The Fed! More fiscal juice! Nearly US$ 18 trillion of bonds with a negative yield and three-quarters of global investment-grade debt trading below one per cent! TINA! Money has to find a home somewhere!

Good grief. What a world. What do you think a Martian would say if he landed on planet Earth to see how many people made a killing in the markets as the coronaviru­s made a killing in terms of 350,000 deaths, more than doubling all the U. S. fatalities in the First World War ( 116,000) and more than the Second World War (nearly 292,000)?

Then again, the market is not a measure of morality. That is for sure. But just remember what happened to Gordon Gekko at the end of Wall Street; or, in real life, Chuck Prince, former chairman and chief executive of Citigroup, by the end of 2007. The bear market in rational thinking, that was the true hallmark in 2020, can’t last indefinite­ly. Just one man’s opinion.

A year that saw the market rip also saw utilities drop three per cent and residentia­l real estate investment trusts and energy stocks collapse more than 20 per cent. The things you actually need — a roof over your head and what goes with it such as water and electricit­y — sagged as most of the parts of the market (perhaps outside of delivery services, health care, food products and cloud computing) that you don’t need in your daily life soared (sports betting, electric cars, bed and breakfast rentals).

Of the 13 million doses of Moderna and Pfizer vaccines that have been shipped in the United States, just four million have so far been administer­ed. Logistic problems abound, especially at the state level. At this rate, there is little chance we end up achieving herd immunity by the end of the second quarter, as the markets are discountin­g.

At the same time, investors can rest assured that Joe Biden is going to continue to push hard for another big stimulus plan — what else can we expect when the president- elect calls the current Us$900-billion fiscal boost a “down payment.”

If you’re looking for currencies and assets you may want to be exposed to, check out those countries that handled the coronaviru­s the most effectivel­y. They should have their economies spring out of the gates more rapidly than other jurisdicti­ons. In Asia, we are talking about Taiwan, Hong Kong and South Korea. Throw in New Zealand, too, as the kiwi has ripped in recent months. And in Europe, the two standouts are Denmark and Finland.

But everything seems to be rallying, indeed, from equities and bonds to gold and commoditie­s. Don’t see a bubble? Just look at the action in SPACS ( the booming IPO alternativ­e of going public), otherwise known as “blank-cheque companies.” Dealogic data show that these vehicles raised a record US$82.1 billion in 2020, up more than five-fold from US$13.5 billion in 2019.

This is a financial bubble of epic proportion­s and these are fun to trade, but bubbles get popped eventually and everyone seems to think they’ll get out in time.


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