“Worst Six Months Ever For Financial Markets”
JUNE 30, 2022
The first half [of 2022] was summarized by these headlines:
“WORST SIX MONTHS EVER FOR FINANCIAL MARKETS”
“S&P 500 closes the book on its steepest first-half slide since 1970”
“NASDAQ notches biggest-ever Jan-June percentage drop”
It is unusual for both stocks and bonds to fall in the same quarter. It is even more unusual for this to happen over two quarters. This happened previously in 2008 and 1981, but this half year was the worst ever.
The only places to hide in the second quarter were cash, commodities, commodity linked equities (but not gold miners), and some value stocks….
In some cases, such as Uber, we do not think reported earnings are credible, and wonder why the SEC does not step in.
Fed
The Fed has now raised interest rates sufficiently that it is paying more in interest than it is earning. If it were a similarly leveraged bank (which would be illegal), this would bankrupt it. In recent years, the Fed announced (with doubtful legal grounding) that any losses in its operations would become a liability of the U.S. Treasury. Under the Federal Reserve Act, it would seem obligatory for the Treasury to send the Fed a check to cover its deficit, just as the Fed formerly sent the Treasury a check representing its cash flow profits. However, the Fed often ignores the Federal Reserve Act and even banks lack judicial standing to [file suit]….
Some Market Notes
As of end of quarter, the price/dividend ratio of the S&P 500 was 78.5X versus an historical norm of 27X. The price/dividend ratio is rarely cited, but dividends are the one part of corporate results that cannot be manipulated. A taxable investor would of course need more than 79 years to earn back the purchase price via dividends.
Bain Capital, a leading venture capital firm, valued digital currency lending platform BlockFi at $4.8 billion in July of 2021. Now it is being sold for $25mm.
A SPAC, initially valued at $33 billion, eventually came to market in late May of this year at $32mm.
The Chinese government has simply stopped reporting on foreigners’ purchases and sales of Chinese bonds. This followed heavy net outflows.
Robinhood, claiming to be the people’s broker while feeding information to a Wall St. hedge fund, is now down 87% from its post IPO peak and is facing lawsuits.
A Malaysian company bought a non-fungible token of founder Jack Dorsey’s first Twitter tweet for $2.9mm. The owner recently put it up for auction and received a bid of $277.
Chinese developer Evergrande, at the heart of current Chinese debt problems, announced that banks had succeeded in seizing cash held in subsidiaries, which apparently had been pledged against certain mystery loans unknown to the bond and shareholders. Evergrande has already defaulted on its offshore loans.