Wow! Peace for our time, the media reported yesterday.
The stock market celebrated with a 227-point jump in the Dow. Gold slouched away.
We would have thought that every possible stock buyer had already placed his order. Where did the money come from to push the indexes even higher yesterday?
It was borrowed. That’s another record that has been broken lately – margin debt. Never before has so much money been borrowed specifically to buy equities. As a ratio of GDP, margin debt only saw these heights twice before in recent history – in 2000 and in 2007. In plain dollars, total margin debt stood at $481bn at the end of January, 20% higher than it was at the peak of ’07, and nearly 3% of GDP.
Hearts and records break from time to time. But never without some pain. The crying begins immediately after a broken heart. After a record high S&P, on the other hand, it can take some time.
So many records are breaking in the tech sector it sounds as though a beer truck smashed into a recording studio. Facebook set the pace, first with its own public offering. And then, with its purchase of WhatsApp . Who would have thought that a free app – used by young people to send insipid messages to one another – could be worth $19bn?
Now, anything seems possible. Maybe trees really do grow to the sky. Maybe there are silver linings without clouds. Maybe biotech stocks, recently priced at 700 times earnings, and up 16% so far this year, according to the Nasdaq Biotechnology Index, are still bargains. And maybe, just maybe, Janet Yellen knows what the hell she’s doing.
Speaking of earnings, they too are in record territory. Recent earnings reports showed profits at their highest level since 1946 – 30% above the post-war average. Earnings went up about 10% over the last 12 months, while sales went up hardly at all. This, too, must be a record of sorts; for the first time ever US businesses seem to be able to produce immaculate earnings, unsullied by actual sales growth.
Reported on the front pages of both the Wall Street Journal and the Financial Times – the two journals of record for the late, degenerate capitalism of the 21st century – is another record (as per the WSJ): Blowout haul for buyout tycoons.
The nine founders of the four listed US private equity groups took more than $2.5bn between them last year, both papers reported, with Apollo Global Management’s Leon Black alone receiving $546m.
This surely must be a record. More than half a billion in compensation for a single year. And what a business model. Sharp, private equity firms buy lame companies, borrow beaucoup money in their names, and then resell the debt-saturated companies to naïve investors!
Oh, did we forget something? Oh yes – Ben Bernanke and another world record! Without record intervention – including more than $3trn in liquidity from the Fed’s inexhaustible well – poor Mr Black might have found few takers for his stray cats and dogs.
Meanwhile, consumer price inflation has set a record of its own. Not by going up, mind you, but by going nowhere. Bloomberg reported last month: “The personal consumption expenditures price index, minus food and energy, rose 1.2% in 2013 matching 2009 as the smallest gain in 1955.”
Consumers, without the pressure of a rising CPI behind them, have shown little ability to join the party. Instead, they shiver in their rooms and wonder how to pay the electricity bill. As reported in the Wall Street Journal yesterday, they spend more on what they need, not what they want. Spending on health care and fuel rose in January, reported the WSJ, while consumers actually “cut back on discretionary products”.
That makes us think that something else is broken; not a record, but the economy. And with so many things broken, we can’t help but wonder when the whole shebang falls apart.