The Rave
Doug Nolan
Bitcoin traded this week to $99,978, ending the week with 2024 gains of 132%.
Since the election, Bitcoin has surged 43%, with Ethereum up 39%, Ripple 215%, Cardano 240%, Solana 54%, and Dogecoin 144%.
Bloomberg’s monitor page has expanded to include pricing for 58 crypto currencies.
The small cap Russell 2000 rose 4.5% this week, boosting November returns to 9.7%.
The KBW Bank Index has a month-to-date return of 13.0%, with the Broker/Dealers returning 13.6%.
The Banks and Broker/Dealers have returned 47.4% and 53.9% y-t-d.
The NYSE Financial Index gained 1.8% this week, pushing November and 2024 returns to 7.3% and 30.7%.
Investment-grade spreads ended the week at 78, up four bps from last week’s 26-year low.
High yield spreads were only five bps higher than last week’s 17-year (June 2007) low.
High yield CDS prices dropped 10 this week to 300 bps, near lows back to (pre-Fed rate hikes) December 2021.
November 18 – Bloomberg (Olivia Raimonde and Brian Smith):
“High-grade corporate bond sales in the US this year have climbed to the second-highest level on record as companies rush to take advantage of relatively affordable borrowing costs before the year ends.
Blue-chip companies have sold $1.417 trillion of high-grade bonds in the US this year…
That volume surpasses 2021’s $1.411 trillion, before the Federal Reserve raised interest rates to tame inflation.
The record for issuance was $1.75 trillion in 2020, when the US central bank cut rates back to zero to help stimulate the economy during the pandemic.”
November 21 – Bloomberg (Aashna Shah and Lily Meier):
“State and local governments have sold more debt this year than ever before, borrowing roughly $460 billion since January.
That tally of long-term sales already surpasses the prior annual record of more than $457 billion in 2021, a year when benchmark tax-exempt rates were below 1%...”
November 19 – Bloomberg (Jeannine Amodeo):
“Monday’s record volume of US leveraged loan launches only slowed some Tuesday, with another 14 transactions emerging to put the two-day total at $48 billion.”
November 22 – Bloomberg (Kevin Kingsbury):
“The US leveraged loan market has yet to start slowing down during what’s already a record year as the holiday season approaches, logging its fourth week ever of launches topping $50 billion…
Seven of the 10 biggest days… dating to 2013 have occurred in 2024.”
November 22 – Bloomberg (Charles Williams and Immanual John Milton):
“About $184.7 billion of bonds backed by buyout loans have been issued this year, setting an annual issuance record for the third time since 2018.
Sales of collateralized loan obligations, which package leveraged loans into bonds, have climbed past the $183.8 billion record set in 2021...
Before that, the level to beat was $130.4 billion, in 2018.”
November 20 – Bloomberg (Charles Williams):
“Five auto ABS deals and a whole-business securitization from Wingstop priced Tuesday, putting this year’s new issues at approximately $328.9 billion, compared with $273.2 billion at this time in 2023.”
As should be expected when financial conditions remain so loose, the economy maintains a formidable head of steam.
The S&P Global Services PMI Index (preliminary November data) was up two to a stronger-than-expected 57, the highest reading since March 2022.
While the Manufacturing PMI was little changed at 48.8, the Composite PMI rose to the highest level since May 2022.
“The prospect of lower interest rates and a more pro-business approach from the incoming administration has fueled greater optimism, in turn helping drive output and order book inflows higher,” Chris Williamson, chief business economist at S&P Global Market Intelligence.
November 22 – Wall Street Journal (Harriet Torry):
“Republicans are feeling a lot perkier about the economy now that Donald Trump is on his way to the White House…
The index of consumer sentiment in Republican households climbed more than 15 points in November, according to data released… by the University of Michigan.
In Democratic households, the same index fell by over 10 points.”
Historic times.
Keep in mind that Non-Financial Debt (NFD) expanded at a seasonally adjusted and annualized rate (SAAR) of $3.522 TN during Q2 (latest data).
Prior to the pandemic year 2020, 2007 held the annual record for NFD growth at $2.534 TN.
The federal deficit ended fiscal year 2024 at $1.83 TN, approaching 7% of GDP.
Moreover, the “private Credit” boom has gained powerful momentum, pitting scores of new age financial operators against traditional banks.
And the banking industry has argued they’re hamstrung in this Credit arms race by an oppressive regulatory environment.
November 22 – Bloomberg (Max Abelson and Hannah Levitt):
“You wouldn’t have known JPMorgan… had just reported its best quarter by the way Jamie Dimon talked about his competition in July 2023.
‘They’re dancing in the streets,’ the chief executive officer said, referring to hedge funds and private equity firms that were piling into the lending business as banks like his faced higher capital requirements.
When Donald Trump won a return to the White House, it was the financiers’ turn to boogie.
‘A lot of bankers, they’re, like, dancing in the street,’ Dimon told CEOs at a global summit on Nov. 14.
‘They’ve had successive years and years of regulations, a lot of which stymied credit.’”
Bankers on The Street doing the Trump Dance.
November 17 – Bloomberg (James Crombie):
“Credit’s big shift to private markets is poised to accelerate under the next US administration.
That will keep public bond and loan supply tight, distort traditional measures of corporate stress and push debt risk deeper into the shadows.
Private credit’s jog to $1.6 trillion happened with surprising speed and the run to $40 trillion by piling on asset-based finance is expected to be swifter.
The likely volatility, buyout boom, inflation, economic uncertainty and lax regulation expected from a second Trump administration hastens the move…
Loose regulation is anticipated from the next US regime, playing to the strengths of private debt managers hoping to ‘democratize’ the investor base with as little friction as possible.
Scant oversight gives shadow financial intermediaries free reign to build leverage and juice returns.”
“Private Credit,” DeFi, hedge funds, private equity – all together on The Street doing the Trump Dance, elated to have another billion-dollar hedge fund operator dancing for Trump at Treasury.
One would typically expect a push to loosen the regulatory environment in an economic environment constrained by sluggish Credit growth.
Today’s backdrop is instead one of a proliferation of enterprising financial institutions and attendant lending excess.
The banks, in particular, clamor for regulatory relief to more effectively compete against the scores of enterprising non-banks – including “private Credit.”
This is all late-super cycle super-crazy.
Historic Bubbles in government debt, (subprime) “private Credit,” stock market speculation, a crypto mania, a manic AI arms race…
Now the loaded partygoers are offered a little remedy ahead of the epic Trump Dance blowout.
Updating William McChesney Martin: It’s the job of the Federal Reserve to remove the punchbowl way before partiers feel that doubling up on ecstasy for an all-night rave makes for an enlightened experience.
November 18 – Bloomberg (Neil Callanan, Gillian Tan, Tasos Vossos, Carmen Arroyo and Immanual John Milton):
“At a dinner hosted by some of Morgan Stanley’s top bankers in New York last month, one topic dominated the table talk: the fortunes to be made from the frenzy around artificial intelligence.
In the room were many of the marquee names of private capital.
Apollo Global Management Inc., Ares Management Corp., Blackstone Inc., HPS Investment Partners, KKR & Co. and Oaktree Capital were all invited, the very same firms who’ve recently emerged as a serious threat to Wall Street banks’ long reign over the lucrative world of corporate finance.
But on the night in question Morgan Stanley was preaching unity…
So massive is the demand for investment dollars to build the scaffolding for the latest digital revolution, it argued, that there’s no need to compete over who gets to do the lending.
Bankers and private financiers should instead be ready to combine their forces — and their firepower.”
It's a Credit Bubble Maxim that when money and Credit are readily available, they will indeed be spent in earnest.
This late-cycle wedding of ultra-easy finance and an open-ended global “AI” arms race will be a most costly affair.
It’s difficult to believe Treasuries will remain comfortable with the unfolding bash.
But unlike stocks and crypto, bonds have a lot on their mind (i.e., Trump, supply, inflation, WWIII…).
November 21 – Financial Times (Ben Hall):
“Ever since its full-scale invasion of Ukraine in February 2022, Russia has tried to deter the west from supplying Kyiv with ever more potent weaponry by threatening retaliation and escalation of the war.
On each occasion — the supply of short-range missiles, tanks, F-16 fighter jets, longer-range missiles — Moscow’s bluff has been called.
This week the Kremlin finally followed through on its threat.
Some 72 hours after the US gave permission to Kyiv to use long-range US, UK and French missiles on targets inside Russia, Moscow hit back with a strike on Ukraine of the likes we have not seen before — the first combat use of what Kyiv called a nuclear-capable intercontinental ballistic missile.”
After three years of war, recurring Putin threats, and an unwavering market boom, it’s only natural that Ukraine War developments would be ignored.
But Putin introducing a new Mach 10 (8,000 mph) ballistic missile with nuclear Multiple Independently Targetable Reentry Vehicle (MIRV) warhead capability into Russia’s war effort is noteworthy.
November 21 – Reuters (Guy Faulconbridge):
“Vladimir Putin's hypersonic missile carried a simple message to the West over Ukraine: back off, and if you don’t, Russia reserves the right to hit U.S. and British military facilities.
Russia fired a new intermediate-range hypersonic ballistic missile known as ‘Oreshnik’, or Hazel Tree, at Ukraine… in what Putin said was a direct response to strikes on Russia by Ukrainian forces with U.S. and British missiles.”
Arguably grave geopolitical developments, yet stocks don’t miss a beat.
It’s tempting to conclude that equities just couldn’t care less.
But perhaps it is more that acute risks globally help keep a lid on market yields – the perceived primary dance party risk.
International yields were lower this week, with notable safe haven buying pushing German bund yields down 11 bps to a five-week low of 2.24%.
Peripheral European bond spreads increased, with French spreads back near the widest level in 12 years.
With geopolitical and economic gloom seemingly on the verge of enveloping Europe, the euro currency fell 1.2% - trading Friday at a near two-year low.
The “core” Dollar Index gained 0.8% to a two-year high.
While risk markets enjoyed a booming week, troubling global developments were instrumental in the four bps decline in 10-year Treasury yields.
Our central bank has checked out.
Financial conditions are precariously loose, leaving it to the bond market to impose some discipline.
The bottom line is that this is absolutely the wrong time for conditions to loosen further.
Timing couldn’t be worse for stoking the Credit Bubble – for feeding the equities, AI, and crypto manias.
It’s Citigroup’s Chuck Prince “still dancing” in the summer of 2007 – only way more egregious.
To see such a raving dance party as the world slides further into instability, violence, and turmoil – well, things just sink deeper into the worst-case scenario.
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