Home » Economy » And That’s a GOOD Thing??

And That’s a GOOD Thing??

by John Rubino on July 28, 2014 · 19 comments

The past year has seen a long list of “XYZ is at its highest level since XXX” announcements. Some notable examples:

NASDAQ tech stocks are back to 1999 levels

The number of initial public offereings, including companies with no earnings, is back to 1999 levels

Junk bond yields are even lower than in 2007

Junk bond issuance is higher than in 2007

Margin debt is back to 2007 levels

Corporate debt is rising faster than in 2007

Stock prices are higher than in 2007

Most recently, US mergers and acquisition activity is back to 2007 levels:

What the M&A surge says about the stock market

NEW YORK (MarketWatch) — Merger Monday is now often followed by Merger Tuesday, and investors are cheering a long-awaited resurgence in corporate mergers and acquisitions. But is the pickup something for market bulls to celebrate, or does it herald the end of the rally?

“You worry a little bit that M&A activity tends to pick up as the market matures, and not in the early stages of a bull cycle,” said Mitch Schlesinger, managing director at FBB Capital Partners in Bethesda, Md.

The pickup doesn’t necessarily signal the end of the recovery or of the bull market, but “you do want to put it in the context of a fairly slower-growth environment where people are either buying growth, or they are consolidating industries because of slow growth,” he said, in a phone interview.

Topping $1 trillion
There have been 5,844 targeted U.S. M&A transactions in the year-to-date valued at $1.04 trillion (see chart above), according to Dealogic. This marks the first year deal volume has topped $1 trillion over that period since 2007. Volume over the same stretch last year totaled $597.8 billion.

Big-time first-half deals include AT&T’s agreement to purchase satellite-television provider DirecTV and Medtronic’s pact to purchase fellow medical-equipment maker Covidien for $43 billion.

While surging M&A activity can belie nervousness over the growth environment, it also reflects diminishing unease over potential economic and political pitfalls.

“Everyone we talk to is looking forward, not behind. We’re two more years beyond the ‘08-’09 recession. Not that people have forgotten about it, but they’re more concerned about growth targets than they are about another [round of] financial instability,” said Robert Rubino, head of corporate finance and capital markets at RBS Citizens in Boston, in a phone interview.

Some of the links included here are to articles that, like MarketWatch on M&A, take a cautious approach to such records. But the vast bulk of the reporting in the mainstream media is positive, celebrating the new records as a sign of economic progress without asking the obvious question: “If we’re at 1999 or 2007 levels, what subsequently happened back then?” In each and every case noted here, the answer is “chaos.” Overstretched markets and excessive debt led to crises that nearly crippled the global financial system.

This time the milestones are a combination of 1999 and 2007, which implies a more-broad-based financial bubble than occurred in either of those previous periods.

At the risk of repeating the same tired complaint, if the media’s job is to sense patterns and give today’s news some historical context, you’d think the tone of most reporting would be, rather than “Yippee, we’re growing,” “Ooops, here we go again.”

  • fallingman

    John. Thanks for what you do.
    Yeah, it really is the case that the lesson we learn from hsirtoty is that we don;t learn from history.

    • fallingman

      Actually, there’s not much to learn from hsirtoty.
      Sorry for the typo.

  • Bill Johns

    What always surprises me is how 4 little words can totally discredit the work of folks like Grantham, Hussman, you, Mish, Tenebrarum, so many others and 500 years of economic history. Those 4 words? “This Time Is Different.”

    • whateverdude

      Check out the hit job against Marc Faber from the fine f**ks over at CNBC


      “Three years of Marc Faber’s calls for doom and gloom”

      This time really IS different – CNBC has spoken!!

  • http://dailyreckoning.com/ Daily Reckoning

    “The past year has seen a long list of ‘XYZ is at its highest level since XXX’ announcements.”

    Your list that follows is great. But you forgot one important one:

    “Ignorance is at its highest level since bliss was invented.”

    This comment from Robert Rubino in the MarketWatch article you quote says it all: “Everyone we talk to is looking forward, not behind.”

    Exactly! What good is history if you can’t willfully doom yourself to repeat it.

  • Chris

    Derivatives allowed the housing market to carry on for an extended period even though NINJA loans were made and a substantial amount of mortgages were unrepayable. The same goes for unrepayable sovereign debts. Derivatives are keeping these debts from blowing up. The day of reckoning for the bond market will arrive. Ask John Paulson about his purchase of Credit Default Swap (CDS) and how long it took for him to prove that he was right. He was hounded by his investors then and now he is having the same problem betting against the US bond market. Unbearable inflation will cause the financial system to collapse as Fed is not at all interested in fighting it. Inflation cannot be ignored. Inflation rate is like a thermometer in a nuclear reactor. You do not tamper with it to suit your needs.

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  • Bruce C

    The problem is timing. As irrational as things have become this stuff may go on for another year or two. I even read an article the other day that predicted at least another dozen years.

    As someone else said, these bubble markets force you to either feel cynical on their ways up, or foolish on their ways down.

    • pipefit9

      If you use GAAP accounting, as opposed to the phony baloney accounting used by Congress, you would know that the USA Federal Govt. has been running an ANNUAL deficit of about $6.5 trillion for a few years now. That’s right, about 40% of GDP.

      If deficits of this magnitude were sustainable, politicians would have figured that out long ago. So they are not. I would guess that we will get the precursor to hyperinflation within a year.

      Contrast this with Japan, where everybody has been dead wrong for 10 or 15 years. Over there, they really do owe it to themselves. Here (USA), it is a vastly different story, as we attempt to vacuum up the last little bit of the World’s spare savings. With China slowing down and the cheap oil era ending, the only alternative will be to lubricate the printing presses’ bearings and start printing in high gear.

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  • http://GreatRedDragon.com EdwardUlyssesCate

    To me, this quote explains why I did, what I did, almost ten years ago.
    “Acquiring [physical] gold is not an investment. It is a conscious decision to REFRAIN from investing until an honest monetary regime makes rational calculation of relative asset prices possible.” Andreas Acavalos

    It’s sad that one still can’t make those rational calculations.

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