Morning Murmuration

That's another set of Debt Ceiling re-sit exams behind us. Sort of, for whilst the preliminary results for the debt ceiling are a deemed to be a scraped "pass", further re-sits are inevitable later in the year, but in the meantime markets can now allocate a bit of freed up processing power to the background tasks of tapering and growth overlaid with a smear of collateral long term confidence damage to US process and reliability.

This morning's price action is a little underwhelming. Earnings are now upon us and the valuation camp are calling tops for US equities but the the core sectoral bulls are chomping to get back to buying now that the ceiling is on the back burner. Some have already cast their die. Dagong, one of China's credit rating agencies has downgraded US to below Botswana in their rankings, but in TMM's eyes Dagong is just China's answer to Zero Hedge. However, for many there is a lot of indecision as to which way today breaks. It feels as though everyone is watching the guy next to them for confirmation of the next move on to which to jump.

In other words, behaviourally, this morning feels like a murmuration of starlings.



TMM are hoping the flock rises.

Now back to bubbles. What do you do when you are not getting an income from anything or you consider the income too low relative to risk of underlying price moves to make it worthy of consideration? Well if you are like TMM you focus on the price change capital value part of the equation rather than the income or coupon side. Of course the price SHOULD be reflective of the income streams but that can easily be ignored when prices start to trend and rising prices are backfitted against future hope stories to justify monstrous P/E's. (Look what at Tesla).

This versions of the problem with the "relative" zero bound effect is something that we feel is destabilising the old balance between true valuation and bubble generation, with the bias moving to price chasing and a faster frequency and greater amplitude in the wave form of asset classes. Money will chase price moves amplifying them rather than seeing logic damping them. A great example of this is London property where the dividend (rent) is thought to be so insignificant that it ofeetn isnt even collected (empty properties). It is all to do with appreciation of a capital value which cannot even be truly measured other than against "last price paid".

TMM are not saying that London property is a bubble, though it does share many of the definitions of one, and are definitely NOT saying that UK property is a bubble. This (courtesy of housepricecrash.com) does not look like a bubble -



But we are saying that we expect this behaviour to become more redolent in financial markets as capital chases capital growth rather than income. It's all part of the super savings glut. As with a ship taking on water, the inpouring and sloshing of all this cash can destabilise and capsize any craft not fitted with protective bulkheads in the way that did for the the Herald of Free Enterprise and Titanic, but we believe we are a long way off that point in any of the markets currently being cited. Screaming "Stop! Bubble!", is hoped by many to stop the bus they have just missed allowing themselves a chance to get on board.

It's just desperation for performance driving herd mentality in a low yield world which is too driven by short term peer performance benchmarks.



Now, back to the Starlings..