Update (1230ET):

Adani Enterprises pulled its $2.4 billion follow-on public offer (FPO) of shares after US short-seller Hindenburg Research unleashed a short attack on the Indian company. 

Adani Enterprises said the company’s board decided not to go ahead with its FPO due to the “unprecedented situation and the current market volatility.” 

The company said their book-running managers would refund investor proceeds held in escrow — one of those investors was Abu Dhabi’s royal family. 

The board “felt that going ahead with the issue will not be morally correct.” 

“Our balance sheet is very healthy with strong cashflows and secure assets, and we have an impeccable track record of service our debt,” the company stated. 

Earlier today, Adani Enterprises shares crashed by 28% as a crisis in confidence plagues Gautam Adani’s corporate empire. 

Pershing Square’s Bill Ackman has been highly critical of Adani Enterprises since Hindenburg released their report one week ago. This morning, the billionaire tweeted:

“I would not find it surprising if the @AdaniOnline offering was rigged with affiliated buyers in addition to some real institutional participants like ADIHC. This would explain the low retail participation and today’s price decline.”

I would not find it surprising if the @AdaniOnline offering was rigged with affiliated buyers in addition to some real institutional participants like ADIHC. This would explain the low retail participation and today’s price decline.

— Bill Ackman (@BillAckman) February 1, 2023

We noted earlier that Credit Suisse designated a zero lending value for bonds sold by Adani Ports and Special Economic Zone, Adani Green Energy, and Adani Electricity Mumbai. 

Things appear to be materially worsening for Adani. He also lost Asia’s richest person status. 

*   *   * 

Turmoil remerged in the Adani group Wednesday after a top Swiss bank stopped accepting bonds from companies tied to Gautam Adani’s corporate empire for margin loans. 

Bloomberg reported Credit Suisse Group AG halted the acceptable of bonds of Adani’s companies as collateral for margin for banking clients. This news led to further declines in Adani shares and dollar bonds. 

The Swiss lender’s private banking arm has assigned a zero lending value for notes sold by Adani Ports and Special Economic Zone, Adani Green Energy and Adani Electricity Mumbai Ltd., according to people familiar with the matter, who asked not to be identified discussing private information. It had previously offered a lending value of about 75% for the Adani Ports notes, one of the people said.

When a private bank cuts lending value to zero, clients typically have to top up with cash or another form of collateral and if they fail to do so, their securities can be liquidated. –Bloomberg 

Shares of Adani Enterprises crashed, closing down by more than 28%. Market cap losses across all Adani companies hit $93 billion since US short-seller Hindenburg Research accused it of corporate fraud one week ago. 

Hindenburg’s allegations sparked a crisis of confidence for Adani despite Adani Enterprises completing a $2.5 billion follow-on stock sale Tuesday, which briefly calmed investors. 

“Caution on Adani group stocks has increased after the news on action taken by Credit Suisse. 

“This can put a financing hurdle for the group’s further growth,” said Sameer Kalra, founder of Target Investing in Mumbai. 

Dollar bonds of Adani Group also plunged. 

Peter Garnry, head of equity strategy at Saxo Bank A/S, said the problem now is “the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later.”

Garnry added: “This is potentially a bigger problem for Indian equities which have done so well during the pandemic as China pursued its zero Covid policy. The long-term ramifications could be quite negative.”

The worsening rout in Adani weighed on India’s broader equity benchmarks. 

The contagion has been quick, and so has the wipeout of Adani’s personal wealth, plummeting by $44 billion to about $72 billion in one week, according to the latest Bloomberg data. 

Adani is no longer the richest person in Asia. 

Via SchiffGold.com,

Gold demand grew by 18% to 4,741 tons in 2022, the highest demand in 11 years, according to data compiled by the World Gold Council.

Massive central bank purchases coupled with strong retail investor buying and slowing outflows from ETFs drove overall demand higher.

Gold demand last year was on par with 2011, “a time of exceptional investment demand,” according to the WGC.

Central banks bought 1,136 tons of gold last year. It was the second-highest level of net purchases on record dating back to 1950. It was the 13th straight year of net central bank gold purchases.

Central banks added 417 tons of gold to their reserves in Q4, bringing the total in H2 to 862 tons. This was due to a combination of reported buying by central banks in Turkey, India, Uzbekistan, and many other emerging markets, along with an estimate for significant unreported buying. Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

Meanwhile, the Chinese central bank officially waded back into the gold market after going silent in 2019. The People’s Bank of China reported 62-ton purchases in both November and December, raising its total gold reserves to over 2,000 tons for the first time.

According to the World Gold Council, there are two main drivers behind central bank gold buying — its performance during times of crisis and its role as a long-term store of value.

It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace.”

Investment demand for gold was also strong in 2022, totaling 1,107 tons, a 10% increase year-on-year.

Gold bar and gold coin demand grew by 2%, building on strong demand in 2021. In total, global investors bought 1, 217 tons of gold bars and coins.

The second half of the year was particularly strong for bar and coin buying, charting two successive quarters of demand of around 340 tons for the first time since 2013.

According to the WGC, “The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases.”

Investors in the West had a particularly strong appetite for gold and broke an annual record. Combined US and European purchases of gold bars and coins hit 427 tons. That exceeded the previous record of 416 tons set in 2011.

Institutional investors who primarily buy and sell paper were not as bullish on gold last year. Despite rampant price inflation, they bought into the narrative that the Federal Reserve was going to win the inflation fight. They sold gold every time the Fed hiked rates. As a result, gold ETFs charted outflows of 110 tons. That was an improvement over the 189-ton outflow in 2021.

The World Gold Council summed up the dueling narratives in the investment market.

As well as underlying support from geopolitics, gold investment was impacted by a combination of multidecade high inflation, especially in Western markets, and the resultant aggressive rate hikes by the Fed and other central banks. Bar and coin investors focused on the former and sought the safety of gold as a hedge against inflation. In contrast, gold ETF investors reduced their holdings, especially in the second half, focusing on gold’s rising opportunity cost as central banks across the globe imposed hefty rate hikes and the US dollar surged.”

Gold jewelry demand softened in 2022, falling 3% to 2,086 tons. Rising gold prices in the fourth quarter drug down demand.

Demand for gold in technology saw a sharp Q4 drop, driving a full-year decline of 7%. According to the WGC, “deteriorating global economic conditions hampered demand for consumer electronics.”

Gold used in the electronics sector fell 18% y-o-y to 58 tons during the final quarter of the year. According to the World Gold Council, it was the largest quarterly y-o-y fall in the sector since 2009 – a direct consequence of the unprecedented combination of challenges the industry is currently facing.

The gold supply was up modestly, rising 2% on the year, with mine production inching up 1% to a four-year high of 3,612 tons. Even with the rebound in mine output, it still hasn’t recovered to the 2018 record.

Now that the COVID-19 production disruptions and widespread China safety stoppages of 2021 have reversed, this lack of production growth gives further credence to claims that gold production is close to plateauing.”

Here’s how the World Gold Council summed up gold’s performance in 2022.

Gold’s diverse uses, in jewelry, technology and by central banks and investors, mean different sectors of the gold market rise to prominence at different points in the global economic cycle. This diversity of demand and self-balancing nature of the gold market underpin gold’s robust qualities as an investment asset.”

You can read the full World Gold Council 2022 Demand Trends Report HERE.

A growing number of Democrats have admitted to the Washington Post that they are “worried” about the prospect of Kamala Harris running for president – or even Vice President again, in 2024.

After interviewing more than “a dozen Democratic leaders in key states,” the Post‘s Cleve R. Wootson found prominent party members quietly panicking over Harris’ political future based on her dismal display as VP.

“Harris’s tenure has been underwhelming, they said, marked by struggles as a communicator and at times near-invisibility, leaving many rank-and-file Democrats unpersuaded that she has the force, charisma and skill to mount a winning presidential campaign,” writes Wootson.

Within the party, they add, the vice presidency has often been a steppingstone to the presidential nomination. Every sitting or former vice president who has sought the Democratic nomination since 1972 has gotten it.

Still, Biden is the only one of those who went on to capture the White House. Walter Mondale lost to Ronald Reagan in 1984, and Al Gore fell short against George W. Bush in 2000.

Harris’s critics also question her basic political skills on the national stage. In 2016, she won her Senate seat against weak opposition, they say. In 2019, her presidential run ended before a single ballot was cast, doomed by an uneven performance on the campaign trail, weak support, faltering resources and turmoil among her advisers. -WaPo

We would submit that her constant cackling and transparently fake persona aren’t helping.

Kamala Harris really said she was listening to 2Pac and Snoop when she smoked weed in college. This woman graduated college in 1986 😂😂😂 these people will lie for no reason pic.twitter.com/efx6SuhK6o

— Neon Boudeaux (@Carnage45__) February 12, 2019

The report comes days after Sen. Elizabeth Warren (D-MA) sent clear smoke signals that she’s not happy about the prospect of Harris running next year.

“I really want to defer to what makes Biden comfortable on his team,” Warren said on Friday. “I’ve known Kamala for a long time. I like Kamala. I knew her back when she was an attorney general and I was still teaching and we worked on the housing crisis together, so we go way back. But they need — they have to be a team, and my sense is they are — I don’t mean that by suggesting I think there are any problems. I think they are.“

WATCH: Elizabeth Warren Says ‘Yes’ Biden Should Run Again — But REFUSES To Say Kamala Harris Should Be His VP https://t.co/v8dMffGUir pic.twitter.com/WD8iOkuFpA

— Tommy moderna-vaX-Topher (@tommyxtopher) January 28, 2023

Warren then issued a statement on Sunday ‘clarifying’ her position, that “I fully support the president’s and vice president’s re-election together, and never intended to imply otherwise.”

The Post suggests that concerns over Harris’ electability fall into two categories; America is two racist and sexist to elect a woman of color as president, or that “Harris herself lacks the political skills to win a national race.”

“And given the increasingly hard-edge tone of the Republican Party, they add, few Democrats are willing to roll the dice,” writes Wootsen.

Critics have also slammed Harris for her hands-off approach to just about everything, including an awkward 2021 interview with NBC‘s Lester Holt in which “she awkwardly downplayed the urgency of visiting the U.S.-Mexico border.”

According to Wootsen, “That moment sparked a debate among senior members of the vice president’s team about whether such interviews hurt more than they help, Harris’s advisers said privately. For months afterward, Harris treated such interviews warily, arguably depriving her of a wider audience and a bigger impact.”

Authored by Steve Watson via Summit News,

Belarusian tennis star Victoria Azarenka has called out sports reporters for continually asking players questions about the Russia/Ukraine conflict, noting “I don’t know what you guys want us to do about it.”

Azarenka was speaking during a press conference after a recent match at the Australian open, when she lost patience with journalists asking question after question about pro-Russia protests by some at the event, and accused the reporters of continuously “dragging players into” political issues.

“I don’t know what you guys want us to do about it,” Azarenka asserted, adding “Like talk about it? I don’t know what’s the goal here that it’s continuously brought up.”

The former world number one continued, “These incidents that, in my opinion, have nothing to do with players, but somehow you keep dragging players into it. So what’s the goal here?”

“I think you should ask yourself that question, not me,” she sternly added.

Azarenka also stated that whatever she says will be twisted by the reporters to suit their own narrative anyway, so why should she bother.

“Whatever the answer I’m going to give it to you right now, it’s going to be turned whichever way you want to turn it to,” the tennis star urged, adding “So does it bother me? What bothers me is there’s real things that’s going on in the world. And I don’t know. Are you a politician? Are you? Are you covering politics?” she rhetorically asked the sports reporter.

“I’m an athlete,” Azarenka further proclaimed, adding “and you’re asking me about things that maybe somebody says are in my control, but I don’t believe that. So I don’t know what you want me to answer. And if it’s a provocative question, then, you know, you can spin the story however you want.”

“Obviously it’s a topic you want to continue to bring up and up and up again,” Azarenka charged, telling the reporters “I don’t know what you want me to say.”

Watch:

Tennis star Victoria Azarenka is sick of Left wing journos asking her about Russia:

“Whatever the answer I’m going to give to you right now, it’s going to be turned whichever way you want to turn it.”

pic.twitter.com/S5y4pUzu1E

— Citizen Free Press (@CitizenFreePres) January 31, 2023

Azarenka is correct, there is a sustained effort by reporters, even non-politics reporters to involve sports personalities in narratives centered around the ‘current thing’ they obsessively use to sell newspapers and garner clicks.

Novak Djokovic has been repeatedly subject to such treatment, with tennis officials also guilty of dragging politics into the sport.

*  *  *

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Authored by Michael Lebowitz via RealInvestmentAdvice.com,

On October 12, 1987, a week before Black Monday, the Wall Street Journal warned of the potential for significant market turmoil. Per the article: The use of portfolio insurance “could snowball into a stunning rout for stocks.” Today, we are increasingly alarmed that another trading tool similar to portfolio insurance could set markets up for a bout of turmoil. 

The quote above and a detailed analysis of Black Monday can be found in a Federal Reserve white paper entitled A Brief history of the 1987 Stock Market Crash.

Despite the growing risk to foster market turmoil, 0DTE is a term few investors have heard of.

0DTE stands for zero days to options expiration. These are put-and-call options on individual stocks and indexes that expire within 24 hours. 0DTE options may seem like speculative YOLO (you only live once) bets at first glance. However, when one appreciates how brokers hedge options, they then grasp the potential for these options to generate significant volatility in individual stocks and the market. 

Before exploring 0DTE options, it’s worth briefly discussing portfolio insurance’s role in Black Monday 1987.

1987 Portfolio Insurance

One of our first reactions to hearing of the recent popularity of 0DTE trades was to recall Black Monday and the 22.6% crash of the Dow Jones Industrial Average on October 19, 1987. There are several causes for the turmoil, but the factor that significantly amplified the decline was portfolio insurance.

At the time, institutional investors were buying portfolio insurance from Wall Street brokers to help protect against losses. During market declines, the brokers’ computer algorithms would automatically sell S&P 500 futures contracts short. As the market sold off further, the algorithms would sell more contracts.

As the programs sold, they pushed markets lower, necessitating more portfolio insurance-related selling. Selling begat selling, and a correction turned into an avalanche of panic.

The following quote is from a Wall Street Journal article rehashing the turmoil:

The strategy backfired, probably because too many institutions were doing the same thing at more or less the same time. They pushed stock prices into free fall and individual investors under the bus.

0DTE Options

The popularity of 0DTE options is rising precipitously. As the graph below shows, half of the volume of options on S&P 500 futures are 0DTE. That dwarfs the 5-10% share existing before the pandemic.

Individual and institutional investors are using options that have a very short time until expiry for speculative and hedging purposes. It is also likely investors may be using 0DTE options to manipulate markets. Regardless of the objectives, 0DTE options have a similar feature as portfolio insurance; they can significantly intensify market moves.

To reiterate the WSJ quote: “The strategy backfired, probably because too many institutions were doing the same thing at more or less the same time.” Sound familiar?

How Manipulation Creates Significant Instability

To help better appreciate the risk of 0DTE options, we walk through a hypothetical example using Tesla stock. This case uses data from the early afternoon on January 25, 2023. After the close that day, Tesla reported its quarterly earnings.

Hypothetical hedge Fund ABC owns 100,000 shares of Tesla stock (TSLA). TSLA was trading for $144, which meant ABC had a $14,400,000 investment in TSLA. With earnings due shortly, ABC wanted a low-cost trade to juice their returns if earnings were better than expected.

One such way is 0DTE options. To do so, they could buy calls with a $160 strike that expired in a day. At the time, the price per 0DTE call was $1.36. Each call option controls 100 shares. If they chose, buying 1,000 calls would give them the right to purchase 100,000 shares at $160. The options cost was $136,000 or about 1% of their total Tesla investment. If TSLA shares flopped on earnings, they would lose 1% on the options. If the stock rose, they would likely sell the options and could easily double or triple their return. More importantly, their calls could force significantly more buying if the stock rose.

Delta Hedging Begets Delta Hedging

As frequently occurs, ABC indirectly buys calls from a Wall Street dealer. Most dealers run managed books meaning they have limited risk-taking tolerance. Accordingly, they often hedge their risks. In this case, the dealer’s risk is an increase in the price of Tesla.

Dealers use a hedging method called delta hedging. An option’s delta estimates how much an option’s value may change for a $1 move up or down in the underlying security. The delta at the time of the trade was .15. For each $1 that TSLA shares rose, the options would increase by 15 cents. The delta increases toward 1.0 as the price approaches the strike price and falls toward zero as the price declines.

The dealer might initially delta-hedge the calls in our scenario by buying 15,000 shares (.15*100,000). As the price rises or falls, the number of shares they own will change according to the delta. The table below approximates the delta for Tesla shares on that day for a range of prices.

If the hedge fund is right and Tesla has excellent earnings, the stock will jump and force the dealer to buy more Tesla. The further it rises, the more shares they must buy. As the dealer and other dealers increase their hedges, the buying pressure on Tesla shares increases and pushes the delta higher. Buying begets buying.

Options on The Market

The Tesla 0DTE example pertains to the movement of one stock. While Tesla’s price may be more volatile than it would have been without 0DTE options, its effect on the broad market is limited.

More concerning, investors are buying 0DTE calls and puts on the S&P 500 and other indexes. Often such options are purchased in advance of potentially market-moving events. Recently, CPI, Fed meetings, and employment reports have drawn sizeable interest from 0DTE traders.

Suppose 0DTE volume is large enough, and options buyers are betting on the same directional market move. In that case, the environment becomes ripe for significant market instability if dealers are forced to aggressively delta hedge. Adding strength to such an event, investors become irrational when markets fall precipitously. A considerable downward move could trigger other investors to panic sell. Selling could beget selling, and a few percent loss could quickly turn into a severe decline.

Summary

If you take one thing away from this article, it is that for every option, there is likely a bank/dealer on the other side of the trade. Risk management protocols force dealers to buy or sell up to 100 shares of the stock or index for each option. It takes little money for a hedge fund to manipulate stock or index prices and, therefore, little money to create market turmoil.

Unlike portfolio insurance, delta hedging is limited as the delta can only go to one or zero. However, a heavy dose of delta hedging could cause panic selling among other market players. Fear can beget fear!  

Closing Note

When we calculated the TSLA 0DTE example, Tesla closed the day at $144.43 just minutes before the company reported its Q4 earnings. Its shares shot 10% higher the next day on the most volume in six months.

0DTE certainly helped TSLA shareholders!

After rebounding in December, ADP’s employment report was expected to show slowing in January but the actual print was a major disappoint with only 106k jobs added (compared to 180k expected and an upwardly revised 253k in December).

Source: Bloomberg

That is the weakest job growth since January 2021, and biggest miss since August…

Source: Bloomberg

Under the hood the data is not pretty…

However, Nela Richardson, ADP Chief Economist blames it on the weather, noting that employment was soft during our Jan. 12 reference week as the U.S. was hit with extreme weather. California was coping with record floods and back-to-back storms delivered ice and snow to the central and eastern U.S.

“In January, we saw the impact of weather-related disruptions on employment during our reference week. Hiring was stronger during other weeks of the month, in line with the strength we saw late last year.”

We can’t help but call ‘bullshit’ on this excuse… 

• Despite the massive layoffs from big-tech, ADP reports that LARGE COMANIES WERE THE ONLY ONES TO ADD JOBS in January!

• Despite the massive layoffs from big-tech, ADP reports that INFORMATION FIRMS ADDED 5k jobs.

• Despite homebuilder confidence and stock prices soaring, ADP reports that CONSTRUCTION JOBS CRASHED.

• The MidWest saw the largest number of job losses… did the weather cause professional sunbathers to suddenly become unemployed?

Of course, this downbeat headline is great for ADP – if BLS comes in weak they can cheer their forecast; if BLS comes in strong, they can blame ‘weather’.

On the wage front, ADP reports that pay growth for job stayers held at 7.3 percent for the second month, with most industries little changed. One outlier was the information sector, where pay growth decelerated from 7 percent to 6.6 percent. For job changers, pay growth accelerated to 15.4 percent.

Finally, as a reminder, it is the labor market data that has materially supported the ‘strong’ macro argument among market participants, dominating the weakness in ‘soft’ survey and industrial data in recent weeks…

Source: Bloomberg

Is the job market just lagging the rest? Or, is it all too smoothed and ‘adjusted’ to be of any use at all? For sure, this kind of ‘strength’ is not what The Fed wants to see after hiking rates by 450bps.

According to Bloomberg, work is underway to refloat the LNG carrier “Grace Emilia” after it ran aground in Egypt’s Suez Canal during a northbound transit. 

Otto Jervell, managing director at shipping agency Leth Agencies, said Grace Emilia could be refloated within a few hours. 

The LNG carrier entered the Suez Canal early Wednesday morning. There was no explanation for why the vessel ran aground in Little Bitter Lake. 

Recall this is the second grounding incident in less than a month. On Jan. 10, bulk carrier “Glory,” carrying grain from Ukraine to China, suffered “equipment failure” and went aground. The vessel was quickly refloated. 

Here’s what some on Twitter are saying about Grace Emilia: 

It appears Bahamas-flag LNG tanker Grace Emilia is having an issue northbound in Suez.

She has tugs alongside in Small Bitter Lake. The last of northbound convoy is passing her & southbound is anchoring in the Great Bitter Lake.

They will probably tow her north into the lake. pic.twitter.com/KGSHOlOCgg

— Sal Mercogliano (WGOW Shipping) 🚢⚓🐪🚒🏴‍☠️ (@mercoglianos) February 1, 2023

The three blue dots with Grace Emilia are tugs. https://t.co/KxImQ6vvTY pic.twitter.com/OvaILzLBER

— Pacific Orient 🇧🇲 🇲🇭 🇳🇴 🇬🇷 (@PacificOrient88) February 1, 2023

US stock index futures slipped on Wednesday – after a frenzied late rally into Tuesday’s month-end thanks to a monstrous, $6 billion in Market on Close buy orders – but were off session lows as investors awaited the Fed’s policy decision after a stellar start to the year for stocks amid speculation the central bank will signal a slowdown in the pace of rate hikes.

Futures on the S&P 500 were 0.2% lower, trading around 4083, while Nasdaq 100 futs popped into the green as of 745am ET, with both underlying indexes surging more than 1% on Tuesday. The Nasdaq soared more than 10% in January in a furious short-covering rebound unseen in more than two decades. An index of global stocks excluding the US is making history with a gain of 8.6% last month — the best start to a year on record. Elsewhere, European and Asian stocks rose, the 10-year Treasury yield fell about three basis points and the dollar index dipped before the Fed statement, where it’s forecast to unveil a 25 basis point rate increase.

Among notable movers in premarket trading, Electronic Arts Inc. after the video game maker cut its full-year forecast and announced a six-week delay in the release of its next Star Wars game. Chipmaker AMD rose after the chipmaker gave a sales forecast that was better than feared, helped by gains in the server market. Perennial loser Snap plunged as the social media company gave a weaker-than-expected forecast, saying changes to its advertising products may be “disruptive” to its business. Shares of other companies that get a bulk of their revenue from online advertising, including Meta and Pinterest also dropped. Bank stocks were also lower in premarket trading Wednesday as traders await the Federal Reserve’s interest rate decision. JPMorgan is planning to launch a digital bank in Germany as its second international consumer outpost. Meanwhile, some users of bankrupt crypto lender Celsius Network’s Custody program will be able to withdraw 94% of their eligible assets, according to a court filing. Here are some other notable premarket movers.

• Peloton jumped 8% after it reported improved cash flow and a narrower net loss in the latest quarter, leading Chief Executive Officer Barry McCarthy to say that questions about the viability of the business have been “put to bed.”
• Chinese stocks listed in the US rise in premarket trading, poised to end three days of declines, with Baidu and electric-vehicle stocks leading the way. Li Auto (LI US) +6%, XPeng (XPEV US) +4.1%, Baidu (BIDU US) +7.9%, Alibaba (BABA US) +1.5%, Pinduoduo (PDD US) +2.6%, Bilibili (BILI US) +3.1%
• Western Digital shares slide 4.5% after its revenue forecast for the third quarter fell short of estimates. Analysts blamed weakness in the NAND flash market and PC demand, though some were hopeful that the data-storage device maker could weather the storm.
• Electronic Arts shares fall 11% after the video-game company cut its full-year forecast and announced a six-week delay in the release of its next Star Wars game.
• Match Group slides 8.7% after the dating services firm gave guidance for 1Q23 showing little fundamental business improvement is expected near-term.
• Keep an eye on Rocket Pharmaceuticals (RCKT US) stock as Morgan Stanley initiates coverage with an overweight recommendation, saying the biotech is a leader in gene therapy with a robust cardiovascular pipeline and a hematology pipeline providing near-term revenue.

Today’s key event is the FOMC decision due at 2pm (preview here). Economists widely expect the central bank to raise rates by 25 basis points at the conclusion of its two-day meeting Wednesday. Chair Jerome Powell is likely to keep further hikes on the table while leaning against bets they will cut rates later this year.

“Powell will certainly sound satisfied about the falling inflation and slowing wages, but he will likely point out that inflation remains high, risks to inflation remain to the upside and that the job is not done yet,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “He will surely push back the expectation of any rate cut this year” and a hawkish statement could further weigh on stocks, she said.

Wage cost data that undershot forecasts, a cooling housing market dwindling consumer confidence suggest the Fed’s rate hikes over the past year have begun to curtail inflation, but still-loose financial conditions are complicating the central bank’s task.

“The question is will the Fed emphasize a pause or push back against the easing being priced in for this year and the next,” said Steve Donzé, deputy head of investment at Pictet Asset Management in Tokyo. “The market is worried about this, because a lot of this rally was helped by softer yields and the dollar and if the Fed starts to fight the easing that’s priced in it will have consequences for the yield curve and equities.”

Powell will also try to push back against easing financial conditions which are now as loose as they were in Jun 2022 when Fed Funds were 1.75%.

Focus is also on company earnings, with analysts expecting the first quarterly drop in US profits since 2020. Investors can no longer count on some crucial tailwinds that helped spur a remarkable two-decade stretch of earnings growth, according to Bank of America.

In Europe, the Stoxx Europe 600 index pared most of its early gain after a report showed inflation in the euro area slowed more than economists’ expectations in January. The the core measure remained sticky, however, suggesting heated debate to come at the European Central Bank over how much more interest rates must rise. The central bank is expected to lift its policy rate by 50 basis points on Thursday. Here are some of the biggest European movers:

• GSK shares turned lower after gaining as much as 1.5% as its quarterly sales and profit both topped expectations, driven by a strong performance in the vaccines division and HIV drug portfolio
• ABB shares rise as much as 1.3% after the Swiss automation company’s EV-charging business raised additional funds from minority investors
• Husqvarna rises as much as 7% as the Swedish lawn care and outdoor equipment firm’s organic sales growth, particularly for its robotic products, led to an outperformance in 4Q
• BBVA shares advance as much as 2.5% after it reported earnings which Jefferies described as solid. Analysts also noted the upbeat outlook for 2023
• Virgin Money UK shares gain as much as 1.2% after the bank forecast net interest margin for the full year of 1.85% to 1.9%, in an update seen as “neutral” by Morgan Stanley
• Darktrace shares rise as much as 6%, recovering from a two-day 17% slump, after the cybersecurity firm announced plans to buy back shares
• Vodafone shares decline as much as 3.3% in early trading, after the telecom operator reported a further slowdown in service revenue growth in core markets including Germany and Spain
• SEB falls as much as 4.4% after Trygg-Stiftelsen sold 75m shares in the bank at a price of SEK120 apiece, representing a 4.9% discount versus Tuesday’s close
• Novartis dips as much as 1.9% after the Swiss drugmaker’s quarterly sales were a touch behind expectations due to a miss for psoriasis treatment Cosentyx

“Headline inflation continues to fall across the eurozone but core inflation, which strips out food and energy, flatlined,” said John Leiper, Chief Investment Officer at Titan Asset Management. “Price pressure, particularly in the services sector, will remain elevated for some time. Given the economy is holding up far better than predicted we expect the ECB to hike interest rates again on Thursday by a widely anticipated 50 basis points.”

Earlier in the session, Asian stocks rose ahead of the Federal Reserve’s interest-rate decision, as signs of cooling US inflation boosted risk appetite in the region. The MSCI Asia Pacific Index rose as much as 0.8%, driven by technology and consumer discretionary shares. Benchmarks in Hong Kong as well as the tech-heavy markets of South Korea and Taiwan all gained about 1%, while India declined. All eyes were on the Fed meeting later Wednesday, with markets expecting a 25-basis-point rate hike. Investors betting on a downshift in tightening were cheered by data showing slower growth in US employment costs, adding to signs of moderating inflation. 

“Wall Street is slowly growing confident that this week’s Fed rate hike might end up being the last one in this tightening cycle,” said Edward Moya, senior market analyst at Oanda. “The economy is weakening and that is fueling Fed rate cut bets at the end of the year.” India’s benchmarks erased early gains driven by a budget boost, as a selloff among Adani group’s stocks accelerated in afternoon trading.

In India, Adani Group stocks resumed their selloff after the share sale by the Indian conglomerate’s flagship firm failed to turn sentiment from Hindenburg Research’s fraud allegations. In one bright spot for the group, nearly all dollar bonds issued by Adani companies extended gains into a second day.

Japanese stocks closed mixed ahead of the Federal Reserve meeting later Wednesday and as investors weighed domestic company results. The Topix fell 0.2% to close at 1,972.23, while the Nikkei advanced 0.1% to 27,346.88. Lasertec contributed the most to the Topix decline, falling 14% after the chip-equipment maker reported quarterly profit that missed analyst estimates and trimmed its order outlook. Out of 2,164 stocks in the index, 935 rose and 1,134 fell, while 95 were unchanged. “There is a consensus that the FOMC may end interest-rate hikes in March,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management. “After that, we would want to see the impact on the economy”.

Australian stocks rose with the S&P/ASX 200 index 0.3% higher to close at 7,501.70, boosted by gains in mining stocks and banks, as investors await the Federal Reserve’s policy meeting.  Flight Centre was the top performer, surging 8% after the travel agency successfully completed a A$180 million placement to buy UK-based luxury travel brand Scott Dunn and provided a trading update.  In New Zealand, the S&P/NZX 50 index rose 1% to 12,090.93.

In FX, the Bloomberg Dollar Spot Index eased 0.1% ahead of the Fed policy decision later on Wednesday where it’s expected to raise rates by 25 basis points. The greenback was steady to weaker against its most Group-of-10 peers, with Scandinavian currencies topping the G-10 leaderboard. The Treasury curve bull flattened, with the 10-year yield dropping by about 4bps.

• The euro inched up toward $1.09 though options suggest a move above $1.10 after the Fed and the ECB is unlikely. Euro-zone bonds pared an advance after core-CPI for the region came in higher than estimated in January, while the headline number eased more than forecast.
• The pound underperformed most of its Group-of-10 peers, trading little changed against a the US dollar. Domestic focus remains on Thursday’s BOE decision.
• New Zealand’s dollar was steady while short-maturity bonds gained and traders trimmed bets on a rate hike at the RBNZ’s February meeting after employment data missed estimates.

Treasury yields are slightly lower across the curve, with gilts outperforming over the early London session across the belly of the curve. US yields are richer by up to 2.5bp across the long end of the curve, which is outperforming slightly, flattening 2s10s, 5s30s spreads by 1.8bp and 0.5bp; 10-year yields around 3.485%, outperforming bunds by 3bp in the sector — the front end and belly of the UK curve is outperforming over the early London session. Fed-dated swaps market is pricing in around 27bp of rate hike premium for Wednesday’s decision and 47bp over the Feb. and March meetings; policy peak is priced at around 4.92% by the June meeting. The US session focus is on manufacturing data in the morning, before attention shifts to the Federal Reserve’s interest-rate decision at 2 p.m. in Washington and Chair Jerome Powell’s press conference 30 minutes later.    

In commodities, crude futures are little changed, with WTI trading near $79.00. Spot gold falls roughly 0.1% to trade near $1,926

Looking to the day ahead now, and the main highlight will be the Fed’s latest policy decision as well as Chair Powell’s press conference. Otherwise, data releases include the flash CPI release for the Euro Area in January, as well as the unemployment rate for December. Alongside that, there’s the global manufacturing PMIs for January and in the US we’ve got the ISM manufacturing print for January, the ADP’s report of private payrolls, and the JOLTS job openings for December. Finally, earnings releases today include Meta.

Market snapshot

• S&P 500 futures down 0.2% to 4,084
• MXAP up 0.7% to 169.15
• MXAPJ up 1.0% to 554.79
• Nikkei little changed at 27,346.88
• Topix down 0.2% to 1,972.23
• Hang Seng Index up 1.1% to 22,072.18
• Shanghai Composite up 0.9% to 3,284.92
• Sensex little changed at 59,576.27
• Australia S&P/ASX 200 up 0.3% to 7,501.66
• Kospi up 1.0% to 2,449.80
• STOXX Europe 600 up 0.2% to 454.03
• Gold spot down 0.2% to $1,923.98
• U.S. Dollar Index down 0.12% to 101.97
• German 10Y yield little changed at 2.26%
• Euro up 0.2% to $1.0880
• Brent Futures little changed at $85.38/bbl

Top overnight News from Bloomberg

The EU risks missing a March target to agree on a reform of its debt-limit rules in the face of resistance from countries including Germany, a prospect that may force member states into abrupt and potentially painful budgetary adjustments

For bond investors looking to bet big on a rally this year, signs of distress in the world’s highly-leveraged housing markets are only adding to their conviction. Places like the UK, New Zealand and Sweden — where house prices are slumping and mortgage payments are rocketing — are high on their watchlist

Shaky property markets across much of the world pose another risk to the global economy as higher interest rates erode household finances and threaten to exacerbate falling prices

Swathes of office staff have been forced to work from home Wednesday as widespread industrial action closes schools and cripples Britain’s rail network. As many as 475,000 union members are on strike

Chinese President Xi Jinping called for enhanced efforts to boost consumption in order to realize a virtuous economic cycle, as the world’s second largest economy gradually recovers from Covid Zero

A surge in Chinese spending last month has spurred more optimism about the country’s economic rebound, though weakness among manufacturers and sales of cars and homes still suggest the recovery isn’t yet on sure footing

Asia’s manufacturers are improving at the start of the year as the region becomes more optimistic about the boost from China’s reopening, while activity in the euro area shows the downturn is softening as cost pressures ease

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded higher after the positive lead from Wall St where stocks advanced into month-end and which was facilitated by the softer Employment Cost growth in the US, although gains were capped by the approaching FOMC rate decision and after disappointing Chinese Caixin Manufacturing PMI data. ASX 200 was led higher by strength in the mining and materials sectors after a rebound in commodity prices and with an upgrade in the Final Australian Manufacturing PMI also conducive for risk appetite. Nikkei 225 briefly climbed above 27,500 but closed off its highs amid a deluge of earnings releases and after Japan’s manufacturing activity was confirmed to have declined for a 3rd consecutive month. Hang Seng and Shanghai Comp. were positive albeit with momentum restricted after Chinese Caixin Manufacturing PMI missed forecasts and printed a 6th consecutive month in contraction territory which was in contrast to the recent rebound seen in China’s official PMIs.

Top Asian News

• US Defence Secretary Austin’s visit to Manila is expected to bring a deal on expanded US access to bases in the Philippines, according to a senior Philippines official cited by Reuters.
• China’s President Xi says the need to coordinate expansion of domestic demand with deepening supply-side structural reforms, via State Media.
• China securities regulator CSRC has released draft rules for IPO registration system reform for 1st February.
• Tiny Radioactive Device Found in Australia After Desert Hunt
• Modi Aims to Please All With $550 Billion India Budget
• Gold Steadies as Traders Await Fed Meeting for Rate Outlook
• China Lifts Southeast Asia Factories as Europe Downturn Softens
• Insurers Top Losers as India Budget Seeks to Tighten Tax Rules
• Adani Rout Passes $90 Billion as Stock Sale Fails to Stem Doubt

European bourses are little changed overall but with a modest positive bias, Euro Stoxx 50 +0.2%, ahead of data points and the FOMC. Sectors are predominantly in the green, but with the overall breadth narrow and no overarching theme in play despite numerous large cap earnings in the European morning; click here and here for details. Stateside, futures are a touch softer after yesterday’s strength, ES -0.4%, with after-market updates weighing ahead of data and the Fed’s policy announcement/press conference. Advanced Micro Devices, Inc. (AMD) – Q4 sales and profits topped expectations, but warns of revenue decline in Q1. +3.3% in pre-market trade  Tesla (TSLA) intends to increase the Shanghai plant’s average weekly output to nearly 20k vehicles for Feb and March, according to an internal memo cited by Reuters.

Top European News

• UK and EU reached a customs agreement which could pave the way for an end of post-Brexit wrangling over Northern Ireland, according to The Times.
• Officials in Brussels have reportedly dismissed claims of a compromise deal on the ECJs role in the N. Ireland Protocol, via BBC’s Parker citing sources; Parker adds, “A precise timeline isn’t clear but one official says negotiators are in the “tunnel”.”.”Regardless any compromise of that kind would also represent a significant UK concession, as well as an EU one.” (re. the ECJ).
• RTE’s Connelly, on reports of an EU/UK deal on the NI protocol, says there is “Nothing new. Talks ongoing. Progress (is) being made but no sign of anything imminent.”, citing a source.

FX

• The DXY is subdued and holding modestly below the 102.00 mark with slightly softer US yields vs global peers and the pre-FOMC risk tone exerting modest pressure on the USD.
• EUR and AUD are the current outperformers despite a fleeting dip in EUR/USD following EZ Flash CPI while AUD is benefiting from soft New Zealand labour data and a subsequent paring in RBNZ rate expectations; EUR/USD just shy of 1.09 while AUD/USD resides near 0.708.
• CAD remains near 1.33 pre-data while Cable has extended above the 1.23 mark irrespective of a pushback on reporting of an EU/UK compromise.
• SEK and NOK have benefitted somewhat from their respective PMIs, though EUR upside caps gains, while the INR has slipped post-budget.
• PBoC set USD/CNY mid-point at 6.7492 vs exp. 6.7499 (prev. 6.7604)

Fixed Income

• EGBs are firmer but well off initial best levels, with Bunds below 137.00 after more than paring a knee-jerk spike on the EZ Flash CPI release, where once again the headline cooled but core remains firmer.
• Gilts are faring better than their German peer post-supply, with the 2033 Green Gilt better received than the 2033 Bund, which required a hefty retention.
• USTs are marginally outperforming and towards the top-end of 114.17+ to 114.30 parameters with yields lower as such and action most pronounced at the long-end of the curve.

Commodities

• Crude benchmarks have seen some modest two-way action throughout the morning, though the benchmarks are in relatively narrow ranges and near the unchanged mark overall.
• Action which comes ahead of the OPEC+ JMMC event, which is not a decision-making meeting, and other risk events throughout the session.
• US Energy Inventory Data (bbls): Crude +6.3mln (exp. +0.4mln), Cushing +2.7mln, Gasoline +2.7mln (exp. +1.4mln), Distillate +1.5mln (exp. -1.3mln).
• OPEC+ JMMC has been pushed back one hour to 13:00GMT/08:00EST, according to Energy Intel.
• Spot gold is little changed around the USD 1925/oz mark, given the broader tentative pre-FOMC price action. Base metals are softer following the miss in China’s Caixin PMI release.

Geopolitics

• US is readying a USD 2.2bln weapons package for Ukraine which includes longer-range rockets for the first time, according to two officials cited by Reuters.
• Russian Kremlin says that potential US supplies of long-range missiles to Ukraine would escalate tensions but would not stop Russia from achieving its goals; as bad as the present situation is, Russia believes the START treaty is very important; no current plans to hold talks between Russian President Putin and US President Biden, according to Sky News Arabia.
• Belarusian servicemen have begun full independent operation of the Iskander missile system, according to the defence ministry.

US Event Calendar

• 07:00: Jan. MBA Mortgage Applications -9.0%, prior 7.0%
• 08:15: Jan. ADP Employment Change, est. 180,000, prior 235,000
• 09:45: Jan. S&P Global US Manufacturing PMI, est. 46.8, prior 46.8
• 10:00: Dec. Construction Spending MoM, est. 0%, prior 0.2%
• 10:00: Dec. JOLTs Job Openings, est. 10.3m, prior 10.5m
• 10:00: Jan. ISM Manufacturing, est. 48.0, prior 48.4
  • New Orders, prior 45.2, revised 45.1
  • Employment, prior 51.4, revised 50.8
  • Prices Paid, est. 40.4, prior 39.4

Central Banks

• 14:00: Feb. FOMC Rate Decision (Lower Bound est. 4.50%, prior 4.25%; Upper Bound est. 4.75%, prior 4.50%)
• 14:00: Feb. Interest on Reserve Balances R, est. 4.65%, prior 4.40%

DB’s Jim Reid concludes the overnight wrap

After a very positive January, the start of February today marks a pivotal three days for markets that have the potential to decisively set the tone for the weeks ahead. That begins this morning with the flash CPI release from the Euro Area for January, before we have the Fed’s latest policy decision and Chair Powell’s press conference tonight. Then tomorrow we’ve got more policy decisions from the ECB and the BoE, an array of major earnings including Apple, Amazon and Alphabet, followed up by the US jobs report for January on Friday.

The last time we had a big round of central bank meetings like this in December, the rate hikes themselves were much as expected, but the hawkish rhetoric alongside them led to a big selloff. Nevertheless, the mood going into this round is much more optimistic, with the S&P 500 (+1.46%) closing at a 2-month high after the US Employment Cost Index numbers showed labour costs grew by less-than-expected, whilst the French CPI release also came in much as expected (unlike the Spanish print the previous day). So all eyes are now on the Fed to see whether they maintain their hawkish tone of recent meetings, or whether there might be any signals of a potential pause at future meetings.

When it comes to the Fed’s decision today, a 25bps rate hike is now widely expected by both markets and economists, and anything other than that would be a massive shock. It would also mark the first “normal” sized hike since March 2022 when this hiking cycle began, before they embarked on a series of supersized hikes to swiftly get the policy rate into restrictive territory. Given that the 25bps move is anticipated, the main focus today will instead be on any changes to forward guidance, both in the statement and from Fed Chair Powell’s press conference.

In their preview (link here), our US economists write that the statement is likely to keep the reference to “ongoing” rate hikes. Their view is that although the FOMC might be inclined to adjust this language as it moves closer to a pause, doing so now has little upside and risks widening the existing gap between market expectations and a more hawkish Fed. In terms of market expectations, futures are currently pricing in one more 25bps hike after today’s move, but only a one-in-three of another move after that. Indeed, terminal rate pricing points to just +58.3bps of further hikes, so closer to 50bps than 75bps. Futures are also indicating that the Fed will start cutting by year-end, which is contrary to the last FOMC minutes in December, where it said that “no participants” thought it would be appropriate to start cutting rates in 2023.

Ahead of the decision, there was some good news from their perspective in the latest ECI numbers for Q4. That’s closely followed by the Fed and showed an increase in employment costs of +1.0% (vs. +1.1% expected), which is the slowest quarterly increase in a year and added to the signs that wage growth is moderating. Nevertheless, if you wanted a more negative perspective, it’s still running above levels consistent with their target, and is above what we saw throughout the entirety of the 2010s. So as with the inflation figures, the Fed still have a way to travel before they can be comfortable about reaching their target, even if we’ve come off the highs from early 2022.

This optimism on the inflation side got added support from the French CPI numbers yesterday, with the EU-harmonised print at +7.0% as expected. That was a bit higher than the +6.7% in December, but the good news from an investor perspective was that it didn’t exceed expectations, unlike the Spanish print on Monday. All eyes will now be on the release for the Euro Area as a whole at 10:00 London time, and particularly on core inflation which hit a record 5.2% in December.

With all that to look forward to, markets staged a decent rally yesterday and the S&P 500 was up +1.46% to recover from its slump on Monday. The moves were part of a broad-based advance, with all 24 industry groups gaining on the day, led by autos (+4.32%), transports (+3.19%), retail (+2.24%), and materials (+2.22%). The worst performing industries were more defensive sectors, but even they advanced on the day as well. Meanwhile, the small-cap stocks in the Russell 2000 (+2.45%) were a particular outperformer as they closed at a 5-month high. The performance in Europe was rather weaker, with the STOXX 600 down -0.26%, but they hadn’t experienced the late selloff after the previous day’s close either.

Sovereign bonds also rallied ahead of the various meetings, with yields on 10yr Treasuries seeing a decline of -3.0bps decline to 3.507%, with yields remaining fairly stable overnight. That was echoed in Europe as well, where there were slightly larger moves in yields for 10yr bunds (-3.2bps), OATs (-3.4bps) and BTPs (-4.4bps). Those moves followed a small decline in terminal rate pricing for the Fed down -1.3bps on the day, while expectations for the ECB were basically unchanged (-0.6bps).

Overnight in Asia, that positive mood has continued with the major indices recovering after the previous day’s losses. Currently, the KOSPI (+0.72%) is leading gains with the Shanghai Comp (+0.29%), Hang Seng (+0.27%), CSI 300 (+0.25%) and the Nikkei (+0.09%), posting smaller advances. That’s also in spite of overnight data showing that Chinese manufacturing activity shrank more than expected in January, with the Caixin manufacturing PMI at 49.2 (vs. 49.8 expected), even if that was up from the 49.0 reading in December. Outside of Asia, the picture is a bit less positive as well, with futures on the S&P 500 (-0.28%) and the NASDAQ 100 (-0.39%) in negative territory ahead of the Fed’s decision today.

Looking at yesterday’s other data, the Euro Area economy unexpectedly grew by +0.1% in Q4 (vs. -0.1% expected), so avoiding a recession for the time being. That said, plenty of countries still saw a quarterly contraction, including Germany (-0.2%), Italy (-0.1%), Sweden (-0.6%) and Austria (-0.7%). Otherwise, UK mortgage approvals fell more than expected to 35.6k in December (vs. 45.0k expected), which is their lowest level since May 2020 when the economy was affected by the Covid-19 pandemic.

To the day ahead now, and the main highlight will be the Fed’s latest policy decision as well as Chair Powell’s press conference. Otherwise, data releases include the flash CPI release for the Euro Area in January, as well as the unemployment rate for December. Alongside that, there’s the global manufacturing PMIs for January and in the US we’ve got the ISM manufacturing print for January, the ADP’s report of private payrolls, and the JOLTS job openings for December. Finally, earnings releases today include Meta.

Authored by Charles Hugh Smith via OfTwoMinds blog,

Should bubble symmetry play out in the S&P 500, we can anticipate a steep 45% drop to pre-bubble levels, followed by another leg down as the speculative frenzy is slowly extinguished.

Bubble symmetry is, well, interesting. The dot-com stock market bubble circa 1995-2003 offers a classic example of bubble symmetry, though there are many others as well. The key feature of bubble symmetry is the entire bubble retraces in roughly the same time frame as it took to soar to absurd heights.

Nobody could see bubble symmetry coming, of course. At the peak and for some time after, bubbles are viewed as the natural order of markets and so they should continue expanding forever.

Alas, the natural order of markets is mean reversion and the collapse of whatever is unsustainable. This includes speculative manias, credit bubbles, asset bubbles and projections of endless expansion of margins, profits, sales, consumption, tax revenues and everything else under the sun.

There’s a well-worn psychological path in the collapse of bubbles. This path more or less tracks the Kubler-Ross phases of denial, anger, bargaining, depression and acceptance, though the momentum of speculative frenzy demands extended displays of hubris and over-confidence, i.e. the first wobble “must be the bottom.”

There’s also repeated spikes of false hope that “the bottom is in” and the bubble is starting to reflate.

This pattern repeats until the speculative fever finally breaks and all those betting on a resumption of the bubble mania finally give up.

This process often takes about the same length of time that it took for the bubble mania to become ubiquitous. If it took about 2.5 years for the bubble to expand, it takes about 2.5 years for the bubble to pop and the market to return to its pre-bubble level.

Once again we hear reasonable-sounding claims being used to support predictions of a never-ending rise in stock valuations.

What hasn’t changed is humans are still running Wetware 1.0 which has default settings for extremes of emotion, particularly manic euphoria, running with the herd (a.k.a. FOMO, fear of missing out) and panic / fear.

Despite all the assurances to the contrary, all bubbles pop because they are based in human emotions. We attempt to rationalize them by invoking the real world, but the reality is speculative manias are manifestations of human emotions and the feedback of running in a herd of social animals.

With all this in mind, let’s consider the current bubbles in stocks and housing. Should bubble symmetry play out in the S&P 500, we can anticipate a steep 45% drop to pre-bubble levels, followed by another leg down as the speculative frenzy is slowly extinguished.

Housing is notoriously “sticky” when it comes to price declines, as sellers show remarkable tenacity in the denial phase. The last few greater fools buying on the first modest decline spur the hopes of sellers that the flood of mania-driven buyers is about to resume, but manias don’t last nor do they resume.

If bubble symmetry plays out, we can anticipate a relatively steep drop of about 30% to pre-mania levels, followed by a longer decline to pre-Bubble #1 and Bubble #2 levels, a roughly 60% drop from bubble heights.

Such declines are of course “impossible.” There are always endless reasons why bubbles can’t possibly pop and why 60% declines are impossible, even as history tells us that 60% declines are inevitable, and in the bigger picture, rather modest. It’s the 90% declines that really hurt.

*  *  *

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