Below are some of the most interesting things I came across this week. Click here to subscribe to our free weekly newsletter and get this post delivered to your inbox each Saturday morning.
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John Hussman writes, “With our most reliable stock market valuation measures at the highest extremes in US history, it’s useful for investors to remember that a market crash is nothing but risk-aversion meeting a market that is not priced to tolerate risk.”
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It’s not only equity valuations that have made a new record high, so has equity speculation. “The latest bout of extreme crowding — currently in the 100th percentile — is in high-beta stocks. And this spans both riskier low value alongside speculative growth plays,” notes JP Morgan (via Daily Chartbook).
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This insatiable appetite for speculative endeavors is something we have seen before. “The explosive proliferation of Bitcoin treasury cos. mirrors that of the 1920s investment trusts and both gold rushes stem from a perfect storm of greed: intense investor demand for exposure to a scarce asset creates mNAV premiums that promoters rush to monetize,” writes Be Water.
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In this context, it’s becoming increasingly difficult to argue monetary conditions are, on the whole, restrictive. “Amid all the mounting political pressure on the Federal Reserve to resume cutting interest rates, Chair Jay Powell is already overseeing the loosest financial conditions in the U.S. economy since before the central bank started hiking early in 2022,” reports Reuters.
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As Ray Dalio writes, things may have to get worse on the inflation front before policymakers finally find the resolve to adequately address it: “Judging from the lessons of history and current readings, I think that it is clear that the value of money won’t be defended until the classic weak money/inflation problems become intense.”
