Is This The Greatest Stock Market Rally Of All-Time?

  1. BofA published a great report last week outlining the systemic pessimism that’s pervading nearly all aspects of our society. Below are a few of my favorite charts from the report. This one is great. It shows over 200-years of global banking crises. Why the rise over the last 40-years? The answer is leverage. And that leverage is the result of the long-term debt cycle and financialization of the global economy.

  1. Check these out. The charts show the average monthly “tone” of NYT news content from 1945-2005 (left) and the tone of Summary of World Broadcasts news content from 1979-2010 (right). The y-axis is standard deviations from mean. This is quantitative proof that the media is peddling doom and gloom. The fact that the tone is more bearish now than it was at the depth of WW2 tells you everything you need to know.

  1. There’s a bit of a chicken or egg component to this pessimism. With the proportion of the US population satisfied with the US near all-time lows, is the news just feeding us citizens what we want? Confirming our biases? Or is it forming and shaping those biases? Or, is it a feedback loop of sorts? I don’t know but I do love this quote from economist AC Pigou that’s included in the report. Pigou writes “The dying error of optimism gives birth to an error of pessimism. This new error is born, not an infant, but a giant.” Welcome to the Fourth Turning…

  1. BofA writes in the report that “Equity markets are a low 1.7x the global narrow money supply (in the lowest tertile), cumulative equity fund inflows since 2008 have been USD 425bn, while bond funds have received USD2tn, the percentage of Americans who own equities has fallen from 63% to 55% since 2004… Not exactly a ringing endorsement of optimism, or risk-seeking behavior.” There’s a demographic component to this (growing wave of retiring baby boomers structurally have lower risk preferences i.e., prefer bonds over equities). But with negative real yields, you have to imagine its shifting those preferences much further out the risk curve.
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