2024 Year in Review
Doug Nolan
“Bubbles are self-reinforcing, but inevitably unsustainable inflations.”
“Asset and speculative Bubbles are invariably fueled by underlying Credit expansion.”
“The most systemically dangerous Bubbles are fueled by extraordinary monetary inflations - the expansion of perceived safe and liquid money-like debt instruments that enjoy insatiable demand.”
“Credit inflation/expansion manifests in various forms of inflation, including higher consumer and producer prices, asset inflation and speculative Bubbles, over- and mal-investment, and over-consumption with resulting trade and Current Account Deficits. “
“Things turn ‘crazy’ at the end of cycles.”
“Rapidly expanding growth of debt of deteriorating quality coupled with speculative Bubbles ensures systemic risk rises exponentially during late cycle ‘terminal phase excess’.”
The “periphery and core” and speculative dynamics analytical framework is invaluable in Bubble analysis.
2024 was in so many ways an incredible year.
I’ve been at this macro analysis thing for going on four decades.
There have been remarkable years: Wildly unstable and speculative markets culminating in 1987’s “Black Monday” stock market crash.
1998, with booming markets narrowly dodging calamity with the Russia and LTCM collapses, was also extraordinary.
And, of course, unnerving 2008 was nothing short of phenomenal.
But from a Bubble analysis perspective, 2024 is unrivaled.
Bubbles don’t do equilibrium.
They burst, or their inflation accelerates.
Especially late in the cycle, extending “terminal phase excess” ensures a highly destabilizing intensification of inflation dynamics (increasing the likelihood of a crash scenario).
December 30 – Wall Street Journal (Jack Pitcher):
“Investors plowed more than $1 trillion into U.S.-based exchange-traded funds in 2024, shattering the previous record set three years ago…
The rebound from last year’s lackluster flows marked a broad embrace of U.S. assets in a year in which the S&P 500 gained around 25%...
Total assets in U.S.-based ETFs reached a record $10.6 trillion at the end of November, according to… ETFGI data, an increase of more than 30% from the start of 2024.
‘Investors clearly had their confidence back this year,’ said Brian Hartigan, Invesco’s head of ETFs and index investments.
‘The mood was risk-on’… Invesco’s QQQ, which tracks the tech-heavy Nasdaq-100 Index, followed, attracting more than $27 billion of fresh cash through mid-December.
It was an eye-popping figure after QQQ brought in $7.3 billion in 2023…”
“Money” everywhere – with individuals, institutions and, definitely, the leveraged speculating community – all playing aggressively with the house’s “money.”
The Federal Reserve concluded its short and sweet “tightening” cycle in July 2023.
The Fed then commenced easing this past September, despite ongoing loose financial conditions.
And our central bank somehow believed it was sound policy to get started with a “shock and awe” 50 bps – having fallen prey to Wall Street’s “Fed is behind the curve (again)” propaganda.
It will be debated for decades, if not generations.
To be sure, future historical revisionists will be hard at work, as Milton Friedman and Ben Bernanke were for their revisionist view of Fed “tightening” precipitating the 1929 crash and Great Depression.
The Powell Fed committed a historic error in easing monetary policy despite loose conditions and conspicuous speculative excess, including manias in AI, stocks more generally and crypto.
Neglecting its overarching responsibility to safeguard system stability was a dereliction of duty.
For the record: The Fed slashed rates by 50 bps on September 18th.
The S&P500 had returned 19.3% y-t-d at the close of September 17th trading (following a 2022 return of 26.3%).
The Nasdaq100 (NDX) had returned 16.2% by the 17th, the KBW Bank Index 19.7%, and the NYSE Broker/Dealer Index (XBD) 24.0%.
Nvidia enjoyed a 133% y-t-d gain, while bitcoin was up 41%.
Investment-grade spreads to Treasuries were down to 94 bps, from the 136 bps at the start of the Fed’s tightening cycle (3/16/22) and versus the 152 bps 20-year average.
At 312 bps, high yield spreads were near lows since early-2022, and down 74 bps since the start of tightening (20-yr avg. 499bps).
Debt issuance was booming.
Gold was up 24.6% y-t-d, somewhat lagging Silver’s 29.0% advance.
“But make no doubt about it, we’re hundreds of basis points above the neutral rate.”
Chicago Fed President Austan Goolsbee, September 23, 2024
“We, therefore, don’t know what the [the Trump administration’s] effects on the economy would be, specifically whether and to what extent those policies would matter for the achievement of our goal variables, maximum employment, and price stability.
We don’t guess, we don’t speculate, and we don’t assume.”
Chair Powell, November 7, 2024
Cutting rates again on November 7th, the Fed disregarded highly speculative markets which turned only more manic post-election.
On November 6th, the S&P500 had returned 25.7%, the NDX 24.3%, the Banks 44.6%, and the Broker/Dealers 49.9%.
2024 gains had surged to 194% for Nvidia and 79% for bitcoin.
Investment-grade spreads had collapsed to 77 bps, with high-yield spreads down to 265 bps – both multi-year lows.
Year-to-date gains had increased to 28.9% for Gold and 31.0% for Silver.
“I believe the evidence is strong that policy continues to be significantly restrictive, and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard.”
Fed Governor Christopher Waller, December 2, 2024
“I expect it will be appropriate to continue to move to a more neutral policy setting over time.”
New York Fed President John Williams, December 2, 2024
The Fed had slashed rates a full 100 bps in just three months, with its misguided December 18th cut.
At the close of trading on the 17th, the SPX had returned 28.6%, the NDX 31.8%, the Banks 40.1%, and the Broker/Dealers 49.4%.
At 76 bps, investment-grade spreads were just off lows back to February 2007, with high yield spreads at 270 bps, not much off lows back to October 2007.
JPMorgan CDS prices (40.5) were near lows since September 2021.
Nvidia y-t-d gains were up to 163%, just ahead of bitcoin’s 150%.
Gold and Silver ended the 17th with 2024 gains of 28.3%.
Q3 GDP accelerated slightly to 3.1%, while the Current Account Deficit ballooned to a quarterly record of $311 billion.
Non-Financial Debt (NFD - from the Fed’s Z.1) expanded at a seasonally adjusted and annualized (SAAR) $3.342 TN in Q1, $3.471 TN in Q2, and $3.642 TN during Q3.
For perspective, NFD expanded $2.534 TN in 2007 - an annual record that held all the way to pandemic 2020’s historic $6.797 TN.
As of September 30th, Treasuries had inflated $1.965 TN, or 7.6%, over the past year; $3.970 TN, or 16.8%, over two years; and $10.957 TN, or 66%, over 19 quarters.
Total (Debt and Equities) Securities inflated $24.447 TN, or 19.0%, over the previous year, and $58.714 TN, or 62%, over 20 quarters – to a record $153.181 TN.
Total Securities ended Q3 at 522% of GDP, dwarfing cycle peaks 375% (Q3 2007) and 357% (Q1 2000).
Household Net Worth (Assets less Liabilities) inflated $17.277 TN, or 11.4%, in the 12 months ended September 30th - to a record $168.8 TN.
Net Worth inflated $49,873 TN over 17 quarters, or 42%.
Household Net Worth ended September at 575% of GDP, above previous cycle peaks 488% (Q1 2007) and 444% (Q1 2000).
December 27 – Financial Times (Harriet Clarfelt):
“Global corporate debt sales soared to a record $8tn this year, as companies took advantage of red-hot demand from investors to accelerate their borrowing plans.
Issuance of corporate bonds and leveraged loans climbed by more than a third from 2023 to $7.93tn, according to LSEG data…”
According to SIFMA, total 2024 U.S. corporate (“investment grade/high yield, nonconvertible/convertible, callable/noncallable and fixed rate/floating rate”) issuance surged 30.2% to $1.957 TN.
December 30 – Wall Street Journal (Kristin Broughton):
“Investment-grade companies issued $1.662 trillion in debt this year through Dec. 10, up 27% from the same period a year earlier and the most since 2020, according to… Dealogic.
Excluding financial institutions, companies issued $917.7 billion in debt, up 27% from a year earlier.”
January 2 – Bloomberg:
“BofA Securities was the top arranger of US leveraged loans in 2024 as the value of deals rose 122%. Companies borrowed $2.22 trillion of loans vs. $1 trillion in 2023.”
December 31 - Bond Buyer:
“The muni market saw $507.585 billion of debt issued in 2024, up 31.8% from $385.061 in 2023.
This surpasses the previous record of $484.601 billion in 2020...”
It was yet another year of extraordinary Credit Bubble expansion further inflating asset prices, epic speculative Bubbles, and perceived wealth.
The year was further notable for the momentous inflation of perceived safe and liquid money-like instruments.
Treasuries dominated system Credit growth, while the historic expansion of money market fund assets (MMFA) ran unabated.
MMFA expanded $873 billion, or 14.6%, in 2024.
Even more remarkable, MMFA ballooned at a blistering 27% pace during the final 22 weeks of the year, a period where the Fed aggressively loosened policy.
MMFA expanded an incredible $2.289 TN, or 50%, since the Fed began “tightening” in March 2022 – and $3.214 TN, or 88%, since the start of the pandemic (February 2020).
The highly levered Treasury “basis trade” had reportedly surged to a record $1.15 TN (from Bloomberg) by early November.
A number of major hedge funds finance levered Treasury holdings in the “repo” market, playing the tiny spread between cash bonds and their Treasury future short positions.
This expansion of “repo” leverage generates new market liquidity intermediated through the money market fund complex, resulting in an expansion of MMFA.
Not only does “basis trade” speculation boost system liquidity, but Wall Street alchemy also transforms riskier long-duration Treasuries into perceived safe money fund deposits.
Total system “Repo” Assets inflated $678 billion, or 30% annualized, during the six months ended September 30th - to $7.395 TN.
Broker/Dealer Assets surged $341 billion, or 26.3% annualized, during Q3 to a record $5.526 TN (one-year growth of $769 billion, or 16.2%).
Core CPI (y-o-y) ended 2023 at 3.9%, down from 5.7% to close 2022.
Core CPI had declined to 3.3% by June 30th, 2024 – only to then flatline during the second half to end the year (November) at 3.3%.
Considering the Credit and monetary backdrop, it’s no surprise that inflation improvement stalled meaningfully above the Fed’s 2% target.
Fed officials, including the Chair, have lauded the much-improved inflation backdrop, while admitting that elevated prices remain an ongoing burden for many.
This, however, misses crucial Credit Bubble analysis: While inflation has moderated, late-cycle excesses only deepen the deleterious effects of inflationism.
December 31 – Bloomberg (Dylan Sloan and Jack Witzig):
“The world’s 500 richest people got vastly richer in 2024, with Elon Musk, Mark Zuckerberg and Jensen Huang leading the group of billionaires to a new milestone: A combined $10 trillion net worth.
An indomitable rally in US technology stocks played a key role in turbocharging the trio’s wealth, as well as the fortunes of Larry Ellison, Jeff Bezos, Michael Dell and Google co- founders Larry Page and Sergey Brin.
The eight tech titans alone gained more than $600 billion this year, 43% of the $1.5 trillion increase among the 500 richest people tracked by the Bloomberg Billionaires Index.”
Prices for most necessities continued to inflate, while Bubble-induced inequality went to new extremes in 2024.
Paraphrasing the great economist Charles Kindleberger, nothing causes more angst than watching your neighbor get rich.
The year saw manic pursuit of hot stocks (i.e., Nvidia, MicroStrategy), sectors (i.e., tech, financials, utilities), themes (AI), and asset classes (i.e., stocks, crypto, high yield).
WSJ’s Gunjan Banerji:
“More Men Are Addicted to the ‘Crack Cocaine’ of the Stock Market.”
Meanwhile, a new generation of home buyers confronts highly inflated prices, a lack of inventory, and elevated mortgage rates.
Fortunate homeowners celebrate their 2 and 3% mortgages, while others bemoaned the inequity of their much higher rates and monthly payments.
December 30 – Associated Press (Jill Lawless):
“When voters around the globe had their say in 2024, their message was often: ‘You’re fired.’
Some 70 countries that are home to half the world’s population held elections this year, and in many incumbents were punished.
From India and the United States to Japan, France and Britain, voters tired of economic disruption and global instability rejected sitting governments — and sometimes turned to disruptive outsiders.
The rocky democratic landscape just seemed to get bumpier as a dramatic year careened toward its end, with mass protests in Mozambique and Georgia, an election annulled in Romania and an attempt to impose martial law in South Korea.
Cas Mudde, a professor of international affairs at the University of Georgia…, summed up 2024 in Prospect magazine as ‘a great year for the far right, a terrible year for incumbents and a troublesome year for democracy around the world.’”
December 29 – Financial Times (John Burn-Murdoch):
“It was heralded as the year of democracy.
With more than one and a half billion ballots cast in elections across 73 countries, 2024 offered a rare opportunity to take the social and political temperature of almost half of the world’s population.
The results are now in, and they have delivered a damning verdict on holders of public office.
The incumbent in every one of the 12 developed western countries that held national elections in 2024 lost vote share at the polls, the first time this has ever happened in almost 120 years of modern democracy.
In Asia, even the hegemonic governments of India and Japan were not spared the ill wind.
Incumbent or otherwise, centrists were frequently the losers as voters threw in their lot behind radical parties of either flank.
The populist right in particular surged forward, fuelled in significant part by a rightward shift among young men.”
The year 2024 was noteworthy for the unprecedented global impact of inflationism on elections and democracy.
January 3 – Bloomberg (Shawn Donnan, Nazmul Ahasan, and Alexandre Tanzi):
“Donald Trump’s November election victory has often been explained as a reflection of anger about post-pandemic price increases for everything from groceries to housing.
But inflation was only part of the economic story.
Trump won in the places that have seen the slowest growth since the pandemic…
Kamala Harris won by a landslide the counties that are the biggest components of the US economy — places that have on average roared back from the pandemic recession.
She took 83 of the 100 largest counties by real GDP…
That split largely reflects the urban-rural economic divide in America that has also become a political one…
Trump won 1,308 of the 1,463 counties that have a greater reliance on manufacturing than the US as a whole…
Across the US, almost 30 million people live in the 650 counties with local economies that had not recovered to their pre-pandemic real GDP...
Trump won 576 of them.
On average, those slow-recovery counties that went for Trump had economies that were still 6.6% smaller at the end of 2023 than at the end of 2019…”
2024: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of light, it was the season of darkness, it was the spring of hope, it was the winter of despair.”
Charles Dickens, A Tale of Two Cities
A Tale of One Historic Global Bubble’s Late-Cycle Excess: Exuberance and epic market “wealth” creation.
Despair at the wretchedness and destructive nature of humans at war.
The hope for exciting new technologies, but with agony for the consequences of historic manias and speculative Bubbles.
A society becoming increasingly relaxed with gambling, drug use and violence.
Assassination attempts on Donald Trump – and the cold-blooded murder of UnitedHealthcare CEO Brian Thompson.
And a concerning many were okay with it all.
Bubbles are mechanisms of wealth redistribution and destruction – with detrimental consequences for social and geopolitical stability.
Boom periods engender perceptions of an expanding global pie.
Cooperation, integration, and alliances are viewed as mutually beneficial.
But late in the cycle perceptions shift.
Many see the pie stagnant or shrinking.
A zero-sum game mentality dominates.
Insecurity, animosity, disintegration, fraught alliances, and conflict take hold.
Societies became only more fractured in 2024 – at home and abroad.
The world further fragmented.
The sordid anti-U.S. alliance – Russia, China, Iran, and North Korea – became more single-minded.
Kim Jong Un supported Putin’s despicable war on Ukraine with thousands of missiles and troops.
An emboldened Israel wreaked bloody havoc on Hamas and Hezbollah, while blunting Iran’s military capabilities.
In December, the five-decade span of the Assad regime collapsed in a few short days.
Everything seemed more tenuous and fragile as the year “progressed.”
And the more the world appeared increasingly unhinged, the greater the clarity of “core” “American exceptionalism.”
Credit Bubble maxim: When money and Credit are readily available, they will be spent.
AI is the proverbial spending black hole, with late-nineties Internet infrastructure and Bubble-period housing construction minuscule in comparison.
For AI to take over the world, it will require untold Trillions – semiconductors, computers, data centers, software development, cooling equipment, energy infrastructure, etc.
Companies everywhere will need major AI investment programs – at least the public companies that would prefer their stocks not tank.
In any other market environment, no thoughtful analyst would harbor the illusion that markets would be willing and able to finance such a historic spending boom in the face of nebulous prospects.
In manic market year 2024, anyone questioning whether this wasn’t perfectly rational was summarily tarred and feathered.
An aged, inadequate, and vulnerable power grid won’t be allowed to get in the way.
And might as well move full speed ahead with crypto mining.
National Centers for Environmental Information:
“In 2024 (as of 11/1), there have been 24 confirmed weather/climate disaster events with losses exceeding $1 billion each to affect United States.
These events included 17 severe storm events, 4 tropical cyclone events, 1 wildfire event, and 2 winter storm events.
Overall, these events resulted in the deaths of 418 people and had significant economic effects on the areas impacted.
The 1980–2023 annual average is 8.5 events (CPI-adjusted); the annual average for the most recent 5 years (2019–2023) is 20.4 events (CPI-adjusted).”
In a year where climate change and weather disasters wreaked such havoc around the globe, the political winds whirled oddly.
“Drill, baby, drill!” “New green scam.”
When people feel betrayed by the system and are working so hard to make ends meet, the future of humanity slips down the priority list.
Donald Trump’s decisive victory put an exclamation point on an extraordinary year.
Democracy at work, with an asterisk.
To have the world's richest individual chip in at least $277 million to finance a populist movement isn’t exactly how the founding fathers envisioned our elections.
Tesla’s stock skyrocketed 50% in Q4, pushing market capitalization above $1.4 TN (vehicle sales flat y-o-y), with an emboldened Elon ready to impose his will on Washington and the world.
While U.S. exceptionalism was glorified at home in the “core”, instability attained momentum globally – at the “periphery.”
“King dollar” took few prisoners.
For the year, the Argentine peso declined 21.6%, the Brazilian real 21.4%, the Russian ruble 21.2%, the Mexican peso 18.5%, the Turkish lira 16.5%, the Hungarian forint 12.6%, the Colombian peso 12.5%, and the South Korean won 12.5%.
“Developed” currencies were not immune.
The New Zealand dollar fell 11.5%, Norwegian krone 10.7%, Japanese yen 10.3%, Australian dollar 9.2%, the Swedish krona 9.0%, the Canadian dollar 7.9%, the Swiss franc 7.3%, and the euro 6.2%.
A “funny” thing occurred as the Fed began its easing cycle: U.S. and global yields surged higher.
Ten-year Treasury yields, closing September 17th at 3.65%, ended the year 92 bps higher at 4.57%.
EM bonds were taken out to the woodshed.
For the quarter, spikes in dollar-denominated yields included Panama 177 bps, Brazil 137 bps, Mexico 99 bps, Peru 87 bps, Chile 85 bps, Indonesia 83 bps, Philippines 75 bps, Saudi Arabia 71 bps, and Turkey 58 bps.
The spike in local currency bond yields was even more dramatic: Brazil 272 bps, Colombia 177 bps, Mexico 109 bps, Turkey 87 bps, Chile 85 bps, Romania 78 bps, Poland 64 bps, Indonesia 54 bps, and the Czech Republic 42 bps.
Any decent summary of 2024 markets must include mention of August 5th instability.
An intense bout of de-risking/deleveraging was at the cusp of erupting.
A disorderly yen rally (7% in four sessions) triggered “yen carry trade” unwind angst.
At intraday lows, the Nasdaq100 and KBW Bank Index were down at least 5%, following the Nikkei 225’s 12% drop and the 9% fall in South Korea’s Kospi Index.
Bitcoin had intraday losses of almost 14%.
The VIX index spiked 42 points to an intraday high of 65.73, with the highest close (38.57) since October 2020.
What others saw as a false alarm, I view as a harbinger of “risk off” de-leveraging.
An initial crack hastily patched.
Bank of Japan Deputy Governor Shinichi Uchida:
“I believe that the bank needs to maintain monetary easing with the current policy interest rate for the time being…
There is extreme volatility taking place in financial markets, so we need to be more cautious…”
In Jackson Hole a couple weeks later, dovish Chair Powell delivered the news markets had clamored for: “The time has come for policy to adjust.
The direction of travel is clear…”
I understand why the less-than-secure Fed was keen to avoid the fallout from “breaking” things.
There will never be a good time for deflating a historic Bubble.
But to stoke “terminal phase excess” and extend the cycle comes with monumental risks.
For those who believe my analysis of 2024 is way too doomy and gloomy, I suspect my forthcoming “Issues 2025” will fall short in brightening the mood.
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