The deserted financial district amid coronavirus restrictions in New York City in March. Reuters
The deserted financial district amid coronavirus restrictions in New York City in March. Reuters
The deserted financial district amid coronavirus restrictions in New York City in March. Reuters
The deserted financial district amid coronavirus restrictions in New York City in March. Reuters

In the US, another financial bubble is about to burst


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American stock markets have been disconnected from events for too long and a reckoning, which may come soon, is likely to burn those ordinary investors simply trying to grow their nest eggs.

It is a dangerous time. Despite the volatile and uncertain environment, US stock market indexes continued to climb following a short and sharp blip in February. After that, shares had their best period in more than 20 years in the second quarter.

Money is pouring into growth stocks like the big technology companies, a New York hedge fund owner told me, with little going the way of the "old economy". The millions of people in the US using the Robinhood app to invest for the first time in shares have also skewed the market.

All of this is related to the actions of the Federal Reserve, the central bank of the US, which has since March pumped trillions of dollars into securities to ensure that borrowing rates remain low and that there is enough liquidity in the financial system to give confidence to businesses and people to keep spending.

It seems, however, as if the rally has finally lost some momentum as the coronavirus pandemic has been gathering steam in the US with a spike in new infections. According to some opinion polls, Americans' confidence in the government's ability to handle the crisis - in areas such as getting children back to school - and the Fed's ability to handle the economy is weakening. The price of gold is up nearly 30 per cent this year, hitting another record this week. An investor friend of mine explained to me that this can be viewed as a sign of waning confidence in governments.

Still, a reckoning has been coming for some time, even before the coronavirus hit.

Under Jerome Powell, the Federal Reserve has pumped trillions of dollars into securities to ensure that borrowing rates remain low. Reuters
Under Jerome Powell, the Federal Reserve has pumped trillions of dollars into securities to ensure that borrowing rates remain low. Reuters

Nearly a year ago, Michael Burry, who made a fortune predicting the last financial crisis, as depicted in the film The Big Short, warned that the $4 trillion or so of passive money tracking American stock markets was creating a new bubble. The principles behind passive investing – which are sensible – are that over a long period of time you will get better returns by tracking an index, or an entire sector, rather than by trying to pick individual stocks. This strategy tries to account for the boom and bust cycle of markets.

But Mr Burry said in August 2019 that those people investing in tracker funds were not doing so based on the kind of "analysis that is required for true price discovery”; such analysis is based on using the future cash flow or current assets of a company to place a value on it.

Mr Burry warned that this was no longer happening and, as a result, huge amounts of money have been flowing into funds in an unsustainable manner, echoing what happened more than a decade ago when very risky assets became outlandishly popular with investors who didn't fully understand them.

When it came to light that they weren’t worth anywhere near the levels they had reached, it was a swift and brutal ride to the bottom for anyone holding the securities these assets were backing. Confidence evaporated.

Nearly a year ago, Michael Burry warned that the $4 trillion or so of passive money tracking US stock markets was creating a new bubble. AFP
Nearly a year ago, Michael Burry warned that the $4 trillion or so of passive money tracking US stock markets was creating a new bubble. AFP
Michael Burry has warned that huge amounts of money have been flowing into funds in an unsustainable manner, echoing what happened more than a decade ago

Today, the investors who use these low-cost and highly efficient passive strategies now make up nearly half of the money in US stocks and have become a risk to the system in recent years.

Yet the concern right now isn't just about how passive investors might impact markets. The broader worry is why American stocks remain attractive during the worst crisis in a century. It is frightening to consider that so much money is being put at risk like this when it is so obvious that there is a disconnect.

Yet, we are even more in the dark about what the true value of financial assets should be in July 2020 than we even were in 2008. The risk profile of US stocks cannot be accurately measured. There are too many unknowns about how the pandemic will unfold and what the actual impact will be on businesses and economies. What the share price of a company should be right now will be not much more than a guess. There should be a deep discount on share prices, not a premium.

At some point, investors will realise that current valuations do not match reality and the race for the exit will be far uglier than what we saw in the last financial crisis.

That awakening could come very soon too, with earnings season under way. We will gain some much-needed clarity about the scale of the damage that was wrought by the coronavirus on corporations in April, May and June, as well as receive some guidance about what the rest of the year could look like.

Confidence is a fragile thing. Once it is lost, getting it back is expensive and time-consuming.

The experience since the last financial crisis a decade ago is ample evidence of that, with central banks around the world unable to wind down their support without severe consequences.

Perhaps that is what many investors currently believe too, that they can always rely on the backing of the US government, no matter the events playing out on the ground, to keep stock markets chugging along.

Yet can the Fed step up its support from these already heady levels if there is another market crash? How long can it continue to pour trillions of dollars into the system after having done so for much of the past decade?

Even if it can meet such expectations, it might be too late by then for badly wounded investors.

Mustafa Alrawi is an assistant editor-in-chief at The National

PAKISTAN SQUAD

Abid Ali, Fakhar Zaman, Imam-ul-Haq, Shan Masood, Azhar Ali (test captain), Babar Azam (T20 captain), Asad Shafiq, Fawad Alam, Haider Ali, Iftikhar Ahmad, Khushdil Shah, Mohammad Hafeez, Shoaib Malik, Mohammad Rizwan (wicketkeeper), Sarfaraz Ahmed (wicketkeeper), Faheem Ashraf, Haris Rauf, Imran Khan, Mohammad Abbas, Mohammad Hasnain, Naseem Shah, Shaheen Afridi, Sohail Khan, Usman Shinwari, Wahab Riaz, Imad Wasim, Kashif Bhatti, Shadab Khan and Yasir Shah. 

England's all-time record goalscorers:
Wayne Rooney 53
Bobby Charlton 49
Gary Lineker 48
Jimmy Greaves 44
Michael Owen 40
Tom Finney 30
Nat Lofthouse 30
Alan Shearer 30
Viv Woodward 29
Frank Lampard 29

Ferrari 12Cilindri specs

Engine: naturally aspirated 6.5-liter V12

Power: 819hp

Torque: 678Nm at 7,250rpm

Price: From Dh1,700,000

Available: Now

The five pillars of Islam

1. Fasting 

2. Prayer 

3. Hajj 

4. Shahada 

5. Zakat 

ARABIAN GULF LEAGUE FIXTURES

Thursday, September 21
Al Dahfra v Sharjah (kick-off 5.35pm)
Al Wasl v Emirates (8.30pm)

Friday, September 22
Dibba v Al Jazira (5.25pm)
Al Nasr v Al Wahda (8.30pm)

Saturday, September 23
Hatta v Al Ain (5.25pm)
Ajman v Shabab Al Ahli (8.30pm)

Mia Man’s tips for fermentation

- Start with a simple recipe such as yogurt or sauerkraut

- Keep your hands and kitchen tools clean. Sanitize knives, cutting boards, tongs and storage jars with boiling water before you start.

- Mold is bad: the colour pink is a sign of mold. If yogurt turns pink as it ferments, you need to discard it and start again. For kraut, if you remove the top leaves and see any sign of mold, you should discard the batch.

- Always use clean, closed, airtight lids and containers such as mason jars when fermenting yogurt and kraut. Keep the lid closed to prevent insects and contaminants from getting in.

 

Sri Lanka-India Test series schedule
  • 1st Test India won by 304 runs at Galle
  • 2nd Test Thursday-Monday at Colombo
  • 3rd Test August 12-16 at Pallekele

Origin
Dan Brown
Doubleday

Dates for the diary

To mark Bodytree’s 10th anniversary, the coming season will be filled with celebratory activities:

  • September 21 Anyone interested in becoming a certified yoga instructor can sign up for a 250-hour course in Yoga Teacher Training with Jacquelene Sadek. It begins on September 21 and will take place over the course of six weekends.
  • October 18 to 21 International yoga instructor, Yogi Nora, will be visiting Bodytree and offering classes.
  • October 26 to November 4 International pilates instructor Courtney Miller will be on hand at the studio, offering classes.
  • November 9 Bodytree is hosting a party to celebrate turning 10, and everyone is invited. Expect a day full of free classes on the grounds of the studio.
  • December 11 Yogeswari, an advanced certified Jivamukti teacher, will be visiting the studio.
  • February 2, 2018 Bodytree will host its 4th annual yoga market.
SPECS
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E4-litre%20flat-six%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E525hp%20(GT3)%2C%20500hp%20(GT4)%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E465Nm%20(GT3)%2C%20450Nm%20(GT4)%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESeven-speed%20automatic%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh944%2C000%20(GT3)%2C%20Dh581%2C700%20(GT4)%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ENow%0D%3Cbr%3E%3C%2Fp%3E%0A
UAE currency: the story behind the money in your pockets
How to watch Ireland v Pakistan in UAE

When: The one-off Test starts on Friday, May 11
What time: Each day’s play is scheduled to start at 2pm UAE time.
TV: The match will be broadcast on OSN Sports Cricket HD. Subscribers to the channel can also stream the action live on OSN Play.

The%20specs%3A%20Panamera%20Turbo%20E-Hybrid
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E4.0-litre%20twin-turbo%20V8%20hybrid%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E680hp%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E930Nm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3EEight-speed%20dual-clutch%20auto%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh749%2C000%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%20%3C%2Fstrong%3ENow%3C%2Fp%3E%0A
The%20specs%3A%202024%20Panamera
%3Cp%3E%3Cstrong%3EEngine%3A%20%3C%2Fstrong%3E2.9-litre%20twin-turbo%20V6%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E353hp%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E500Nm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3EEight-speed%20dual-clutch%20auto%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh408%2C200%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%3C%2Fstrong%3E%20Now%3C%2Fp%3E%0A
Sri Lanka-India Test series schedule
  • 1st Test India won by 304 runs at Galle
  • 2nd Test Thursday-Monday at Colombo
  • 3rd Test August 12-16 at Pallekele

 

 

It Was Just an Accident

Director: Jafar Panahi

Stars: Vahid Mobasseri, Mariam Afshari, Ebrahim Azizi, Hadis Pakbaten, Majid Panahi, Mohamad Ali Elyasmehr

Rating: 4/5

RESULTS

Bantamweight title:
Vinicius de Oliveira (BRA) bt Xavier Alaoui (MAR)
(KO round 2)
Catchweight 68kg:
Sean Soriano (USA) bt Noad Lahat (ISR)
(TKO round 1)
Middleweight:
Denis Tiuliulin (RUS) bt Juscelino Ferreira (BRA)
(TKO round 1)
Lightweight:
Anas Siraj Mounir (MAR) bt Joachim Tollefsen (DEN)
(Unanimous decision)
Catchweight 68kg:
Austin Arnett (USA) bt Daniel Vega (MEX)
(TKO round 3)
Lightweight:
Carrington Banks (USA) bt Marcio Andrade (BRA)
(Unanimous decision)
Catchweight 58kg:
Corinne Laframboise (CAN) bt Malin Hermansson (SWE)
(Submission round 2)
Bantamweight:
Jalal Al Daaja (CAN) bt Juares Dea (CMR)
(Split decision)
Middleweight:
Mohamad Osseili (LEB) bt Ivan Slynko (UKR)
(TKO round 1)
Featherweight:
Tarun Grigoryan (ARM) bt Islam Makhamadjanov (UZB)
(Unanimous decision)
Catchweight 54kg:
Mariagiovanna Vai (ITA) bt Daniella Shutov (ISR)
(Submission round 1)
Middleweight:
Joan Arastey (ESP) bt Omran Chaaban (LEB)
(Unanimous decision)
Welterweight:
Bruno Carvalho (POR) bt Souhil Tahiri (ALG)
(TKO)

The%20specs
%3Cp%3E%3Cstrong%3EPowertrain%3A%20%3C%2Fstrong%3ESingle%20electric%20motor%0D%3Cbr%3E%3Cstrong%3EPower%3A%20%3C%2Fstrong%3E201hp%0D%3Cbr%3E%3Cstrong%3ETorque%3A%20%3C%2Fstrong%3E310Nm%0D%3Cbr%3E%3Cstrong%3ETransmission%3A%20%3C%2Fstrong%3ESingle-speed%20auto%0D%3Cbr%3E%3Cstrong%3EBattery%3A%20%3C%2Fstrong%3E53kWh%20lithium-ion%20battery%20pack%20(GS%20base%20model)%3B%2070kWh%20battery%20pack%20(GF)%0D%3Cbr%3E%3Cstrong%3ETouring%20range%3A%20%3C%2Fstrong%3E350km%20(GS)%3B%20480km%20(GF)%0D%3Cbr%3E%3Cstrong%3EPrice%3A%20%3C%2Fstrong%3EFrom%20Dh129%2C900%20(GS)%3B%20Dh149%2C000%20(GF)%0D%3Cbr%3E%3Cstrong%3EOn%20sale%3A%3C%2Fstrong%3E%20Now%3C%2Fp%3E%0A
The specs

Engine: 2.0-litre 4cyl turbo

Power: 261hp at 5,500rpm

Torque: 405Nm at 1,750-3,500rpm

Transmission: 9-speed auto

Fuel consumption: 6.9L/100km

On sale: Now

Price: From Dh117,059

Super Rugby play-offs

Quarter-finals

  • Hurricanes 35, ACT 16
  • Crusaders 17, Highlanders 0
  • Lions 23, Sharks 21
  • Chiefs 17, Stormers 11

Semi-finals

Saturday, July 29

  • Crusaders v Chiefs, 12.35pm (UAE)
  • Lions v Hurricanes, 4.30pm