Bubble Stock Watch

Published on: September 14th, 2018

Two spigots of global liquidity are being turned off: Central Bank QE and Global FX Reserve Accumulation. Patterns to watch in the bubble stocks as the bathtub drains.


  • km
    ken m.
    15 September 2018 @ 03:50
    Just outstanding, as always! Appreciate your taking the time to explain things so clearly. That is probably not easy for long-time professional experts to do. But, to me, this (along with your very specific recommendations and specific ways to look for confidence in a position) is what makes Macro Insiders worthwhile. One question I have is where default plays into this overall picture. I certainly see the pressure you have mentioned on EM and EM currencies (and have benefited from following your recommendations to be short). But, what if - instead of trying to repay US denominated debt, these countries do what they have done in the past....and simply default. I assume it would hurt EM even further and that US equities would start to feel the pain, but what does that do to your strong dollar assumptions?
    • JB
      Julian B. | Contributor
      19 September 2018 @ 18:05
      Hi Kenneth...have you been reading Russell Napier https://bit.ly/2OBOTev ? He is brilliant and in fact I think in the case of Turkey he might be broadly right. However, ironically the debt most at risk is the local currency debt and not the $ denominated debt. History shows us that when it comes to $ debt, which is usually subject to UK or US law, creditors have a horrible habit of seizing overseas assets planes, boats, ambassadorial residences when debtors try and default. However, together with my concerns about US/Chinese trade (I'll be writing about this next week), I am worried that if Turkey does try and walk away it could really undermine the whole EM story. Short term it would certainly hit EM and yes eventually even US stocks. However, for me all that does is accelerate the $'s strength as cash is repatriated back to the US by investors as they liquidate their holdings.
  • RM
    Richard M.
    15 September 2018 @ 16:08
    Julian, excellent piece. Very thought provoking. One question, as I was looking thru the charts of your selected shorts the issue you have listed as RDIB could not be found. Is there a misprint on the symbol name? Many thanks, Rick.
    • JB
      Julian B. | Contributor
      19 September 2018 @ 18:25
      Hi Rick...its READING INTERNATIONAL B Shares
  • DD
    Donal D.
    18 September 2018 @ 03:37
    Julian, Excellent piece and whilst I had appreciated the implications of QT the impact of Reserve Accumulation was new to me: I have a few questions which hopefully you or one of the other readers can shed some light on: a) You suggest shorting Netflix with a potential 3:1 ratio. Would taking out a long dated put option also be a good alternative?. As of Sept 18th the cost of a $350 June 2019 Put Option is about $45 or $4.5/share. b) You highlight potential concerns with a number of high flying stocks so would you consider going short the NASDAQ using the PSQ ETF? Thanks again for a great piece really enjoy reading your contributions.
    • JB
      Julian B. | Contributor
      19 September 2018 @ 17:49
      Hi DD Re the option, thats not a bad idea at all and you could possibly even lower the sprike to $325. In general what you want to remember is that the "Bust" or sell off phase of a bubble is the least scripted chart wise. Sometimes the drops can be fast ie DDD or slow as with the Nikkei in 1990. So while they all eventually fall you want to give yourself time, which this does. As for the ETF I've never actually used that particular ETF (have any other readers?)
  • AM
    Alonso M.
    20 September 2018 @ 15:49
    I noticed CACC is on Julien's list of symbols. This fits well with Raoul's recent comments on the auto sector. I took a few minutes to read through the company's 2017 annual report. I thought it was quite informative as the first 10 pages or so discuss the company's experience with past cycles. It seems to me CACC has materially grown its full recourse loan book over the last couple of years, which I see as much higher risk than their dealer financing business where they are relatively well protected against loan losses. Has anyone else looked at this? Am I interpreting this correctly?
    • MH
      Marc H.
      26 September 2018 @ 16:28
      In re CACC, Real Vision TV has a video from Max Wolff from four or five months ago where he talks about auto finance, check it out. The gist is if 18 to 19 million units are sold it implies selling to folks with poor credit, and if gas prices go up and wages don't really, and interest rates go up and if you check the quarterly NY Fed Reserve report on auto loan delinquencies you can get an idea if things are happening
  • DB
    Daniel B.
    22 September 2018 @ 04:58
    Hi Julian, I find myself reading your piece for the forth time to find anything relating to the impact CNY oil contracts could have on USD demand. What’s your feel on this situation, are the repatriation of USD and FX reserve flows far greater than the CNY oil contract? My view is that as long as oil (both WTI and Brent) is strong that’s an indicator the demand for CNY contracts are not that big a risk to the dollar bull theory. Does that hypothesis hold merit? Thanks PS: love your’s and Raoul’s work
    • JB
      Julian B. | Contributor
      25 September 2018 @ 19:51
      Hi Daniel Ultimately, the threat to the dollar's dominance posed by CNY denominated oil is considerable but so far its only a very small piece of the pie. It will take many years for the CNY to rival the dollar not least because they need to run a current deficit and open their capital markets. If and when the CNY clears those hurdles then yes we will be on our way to a multipolar reserve system. Short term the biggest risk to the $ from the Chinese would be for them to start unloading their treasury holdings as part of an escalating trade spat.