Deja vu?

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Interesting chart from ZeroHedge pointing out the similarities in two equity market corrections that we’ve seen in the past – 1929 and 1987 – vs today. Gluskin Sheff Chief Economist Dave Rosenberg tweeted at the start of March 2018,

Hmmm. Let’s see. Tariffs. Sharp bond selloff. Weak dollar policy. Massive twin deficits. New Fed Chairman. Cyclical inflationary pressures. Overvalued stock markets. Heightened volatility. Sounds eerily familiar (from someone who started his career on October 19th, 1987!).”

Several weeks ago CM wrote,

Perhaps the scariest claim in his report is a survey that showed 75% of asset managers have not experienced the tech bubble collapse in 2000. So their only reference point is one where central banks manipulated the outcome in 2007/8. S&P fell around 56% peak to trough.

“…Hickey cites an interview with Paul Tudor Jones who said that the new Fed Chairman Powell has a situation not unlike “General George Custer before the battle of the Little Bighorn” (aka Custer’s Last Stand). He spoke of $1.5 trillion in US Treasuries requiring refinancing this year. CM wrote that $8.4 trillion required refinancing in 4 years. In any event, with the Fed tapering (i.e. selling their bonds) couple with China and Japan feeling less willing to step up to the plate he conservatively sees 10yr rates hit 3.75% (now 2.8%) and 30 years rise above 4.5%. Now if we tally the $65 trillion public, private and corporate (worst average credit ratings in a decade) debt load in America and overlay that with a rising interest rate market things will get nasty. Not to mention the $9 trillion shortfall in public pensions…

Look at the state of delinquencies in consumer debt among all commercial banks. $36.4 billion or 1% of the $3.854 trillion in outstanding consumer debt, ex mortgages and student debt.

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Last week CM wrote on the blow up in credit card delinquency,

The St Louis Fed shows delinquency rates on credit cards among the smaller banks (above). Presumably the smaller banks have to chase less credit worthy customers because they lack the ultimate battleship marketing cannons of the bigger financial instititutions. We’re back at times worse than the highest levels seen during GFC. Among all banks, we are still away off the $40bn of delinqient credit card debts we’re back at levels higher than those before Lehman’s brought financial markets to a grinding halt.

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It looks as though index options look dirt cheap relative to other asset classes. Out of the money short dated put options are trading at cents in the dollar. CM has invested in these products in recent months. With a market looking sicker by the day, risk on has yet to rattle cages of the option markets. A lot of cheap pick up in buying put options providing an easy way to short the market. Gold is also waking up.

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