Extraordinary state of the financial markets in 2021 – 10 interesting facts
1. #monetarypolicy : The Federal reserve’s balance sheet size has doubled to $8 Trillion since March 2020 flooding the market with cheap money (near 0% interest rate).
2. #Bond Market: 10 Year US Treasury yield (Risk free rate) was less than S&P 500 dividend yield despite soaring equity valuation. Bond prices reflect the lowest interest rates in history.
3. #Equity Market: ~ $1 Trillion of inflow to equities in 2021 exceeds combined inflow of past 20 years according to EPFR data. US stock market is c60% of total world stock market capitalization but US GDP is only c20% of world GDP.
4. #Valuation: S&P 500 is trading @ 25 P/E, +6 points vs 2019. "The market capitalisation of all domestic US public and private equities is now at 280 per cent of gross domestic product, much higher than the previous peak of 190 per cent just before the collapse of the dotcom bubble. And household equity allocations are at an all-time high of 50 per cent according to Paul Singer of Elliott Management".
5: #Inequality: If you do not own real estate or equities, you are certainly left behind in short term. Capitalism is focussed on growing the pie and in the past benefits have trickled down to all strata of society over time. As capitalism has matured the rate and the magnitude of trickle down has significantly reduced. Watch the space in 2022.
6. #China: Equity markets are up in almost all the markets around the world except China. MSCI China equity index is down 20% . Chinese government pursuit of “common prosperity” to address inequality and demographics is adversely impacting equity markets broadly and in particular education, healthcare, real estate and technology sectors valuation. In the short term, China is focussed on dividing the pie, more to come 2022.
7. #Cryptocurrencies: Market cap for cryptocurrencies is worth $2.5 - 3 Trillion depending on the day, Bitcoin and Ethereum accounting for c50% of market cap. According to Professor Raghuram Rajan “If things have value only because they will be pricier down the line, that’s a bubble,”. It is interesting to note that the crypto currency market cap was $200B in March 2020.
8. #Memes: who would have thought Meme coins created as a joke will command extra ordinary valuation? DogeCoin reached peak market cap of $54B, Shiba Inu reached market cap of $41B. There is no shortage of Meme coins and Meme stocks. Meme's were MVP for Metaverse, if you are willing to buy Banano coin in the universe, you will most certainly buy an apartment and furnish it in the Metaverse.
9. #Inflation: Transitory or not, discount store Dollar Tree known for its “Everything’s $1” slogan has raised its prices to $1.25. The main street has declared 25% inflation.
10. What next? if only I knew, life will not be as interesting.
Views are personal and certainly not an investment advice.
follow Guru Padmanabhan
Image Credit: EPFT/BOA
You can read my writings at view all blogs.