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Jim Bianco Profile picture
@biancoresearch
Jan 29, 2021 • 6 tweets • 2 min read • Read on X
Thread to explain the mkt

Q: Why is GameStop still trading at $350 when everyone that understands "fundamentals" think this is a $5 dollar stocks?

A: The only "fundamental" that matters, 62M shs short with 50M share float. It is physical impossible to cover this short.

(1/6) Image
This squeeze does not stop until this short is covered

I would GUESS that is when it gets below 25M shares, or 50% of float, and probably much less than that.

Viewed this way, what happened this week it is not that irrational.

(2/6)
Q2: Why is this driving the entire stock market down?

A2: Because the "masters of the universe" are not surrendering their shorts/covering.

So the fear is these shorts will rise so much, leading to losses and inability to meet margin calls. Brokers at risk

(3/6)
Note this is a fear, the financial system is not impaired now.

But it was reckless and irresponsible for the "masters"/brokers/prime brokers/clearinghouses/regulators to allow this to happen. They are now paying the price.

bloomberg.com/news/articles/…

(4/6)
What's Next?

Will the "masters" cover shorts or think they have a giant pay-day ahead when these short stocks collapse? If wrong, margin calls put the financial industry at risk.

Viewed this way, we can see why the S&P is down 2% today and near the lows of 2021.

(5/6)
The "retail revolters" did not get lucky. They saw this vulnerability was allowed to happen and took advantage of it.

(6/6)

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More from @biancoresearch

Jim Bianco Profile picture
Nov 25
1/8
Following @deanbaker and @ezraklein ...

Homeowners will not tolerate a "fix" that will lower prices. So, nothing will get done about affordability.
=
What is housing?

* Affordable shelter?
* Piggy bank that funds retirement?

Both cannot be true at the same time.
2/8
For the 50 years following WWII (box), home price gains kept pace with inflation ("real" prices), making housing affordable.

Starting in the late 90s, housing went into wild boom-bust cycles.

This is when housing started to be viewed as a piggy bank to fund retirement. Image
3/8
400 years of real (inflation-adjusted) home prices in Amsterdam show that housing has remained affordable for centuries.

This view began to break down in the late 1990s, as housing became the piggy bank for retirement. Image
Read 8 tweets
Jim Bianco Profile picture
Nov 16
1/4
I assume Marks is referring to the 1-year forward P/E ratio for the S&P 500, the standard Wall Street valuation metric (which is closer to 25 now, but was 23 a few weeks ago).

Here is a long-term proxy for that ... the Shiller Cyclically Adjusted Price/Earnings (CAPE) ratio back to 1881. It is a 10-year average of P/E/ ratios.

At 40, it is one of the highest readings ever, even higher than 1929.Image
2/4
What does it mean that valuations are this high?

The scatter graph below goes back to 1881.

It shows the NEXT (future) 1-year REAL (after inflation) return of the stock market on the y-axis.

The CAPE on the x-axis.

The red box is the returns when the CAPE is above 34. It's a mixed bag of positive and negative returns.
Restated, valuation is NOT a good timing tool.Image
3/4
But if the y-axis is extended to the NEXT (future) 5-year REAL (after inflation) return, then THERE IS NO EXAMPLE, OVER THE LAST 150 YEARS, OF THE STOCK MARKET BEATING INFLATION OVER THE NEXT 5-YEARS WHEN THE CAPE IS ABOVE 34.

Restated, valuation is an expectation tool. Unless one makes the case that corporate earnings are going to have their most significant surge in history, the stock market is destined to disappoint over the next several years.Image
Read 4 tweets
Jim Bianco Profile picture
Nov 7
1/6
The preliminary November University of Michigan Consumer Sentiment Survey was released this morning (blue). The "current conditions" measure of this survey set a new ALL-TIME LOW.

Before 2020 (COVID), the stock market (red) was the primary driver of the public's economic outlook. These two series moved up and down together. Since COVID, this relationship has completely disconnected.

This leads to some uncomfortable explanations.

Half of the country owns no assets and lives paycheck to paycheck. Have they now moved to being angry at a booming stock market that worsens inequality? Is this why socialists are getting elected? Do they want their agenda to knock the market down? Is a bear market now the goal, not the concern?Image
2/6
Why the anger?

Since the COVID recession ended in April 2020, cumulative price increases (orange) have outpaced cumulative wage increases (blue).

This devastates the bottom 50% of wage earners (and especially the bottom 30%) who own no assets and live paycheck-to-paycheck. They are having to do with less.Image
3/6
For comparison, the opposite happened in the 2010s. The cumulative gain in wages (blue) beat the cumulative rise in prices (orange).

In this scenario, the bottom 50% of wage earners were able to make ends meet and maybe get a little ahead, as their paychecks bought a bit more each year.Image
Read 6 tweets
Jim Bianco Profile picture
Nov 2
1/13

🧵on the stresses in the funding markets, why they are happening, and what it means. Be sure to see the last two posts (12 and 13).

Funding rates are rising relative to the Federal Reserve's administered rates (bottom panel arrow).

This signals stress in funding markets. Image
2/13

Another signal of stress is that the Fed's Standing Repo Facility (SRF) is getting used regularly, a new record on Friday.

If money is too expensive, banks can borrow from the Fed at 4.00%.

Note that only 40 banks are counterparties, no broker/dealers, no hedge funds. LimitedImage
3/13

The Fed sees the stress and is ending Quantitative Tightening (QT) on Dec 1.

This will end Fed balance sheet shrinkage and slow the decline in bank reserves, now at a 5-year low.

Lower bank reserves mean banks have less ability to supply funding to the markets. Image
Read 13 tweets
Jim Bianco Profile picture
Oct 28
1/5
JP Morgan has identified 41 AI-related stocks, 8% of the S&P 500. These stocks now account for 47% of the Index's market capitalization, a new record.

The other 459 stocks, 92% of the S&P 500, are 53% of the Index's market capitalization. Image
2/5
The list of the AI-related stocks Image
3/5
ChatGPT was released on November 29, 2022.

Since this date, these 41 stocks have accounted for 74% of the S&P 500's total increase (blue). The other 25% came from the remaining 459 stocks (orange). Image
Read 5 tweets
Jim Bianco Profile picture
Oct 20
1/5
Over the weekend I posted the thread below noting that liquidity was getting “worrisome.”

On Thursday, SOFR was 4.30%, for a spread over IOR of 12 bps (the widest such spread since March 2020, not shown).

(All this is explained in the reposted thread.)
2/5
This morning Friday’s SOFR was reported at 4.18%, down 12 bps. (SOFR is reported every morning for the previous day.)

So, is the liquidity problem now over? Not exactly.

Here is a version of the last above, but it only shows the last 6 months, and the SOFR/IOR spread in the bottom panel is daily (not a moving average).Image
3/5
See the average in the first (repost) chart above, the SOFR/IOR averaged -8 bps back to 2022. See the chart immediately above, the SOFR/IOR averaged -5 bps.

A “normal” liquidity environment is one where the SOFR/IOR spread is around -8 to -5 bps. See the last five or six weeks, lots of “green bars” (positive SOFR/IOR spread). With some “red bars” interspersed in between. In Wall Street parlance, this spread “random walks” so look to the larger trend, not day to day movements.

What the larger trend shows is this measure of liquidity is still “worrisome.” Not a crisis, but worrisome. And note that over the last few months trend is moving toward larger green bars.
Read 5 tweets

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