Lanli
金融、宏观为主的币圈博主
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Study on the root causes of economic crises in history 3: 1990 US recession
This is basically explained by chatGPT (italics). One reason is the savings and loan crisis (banking industry), and the other is the Gulf War which caused the oil price to soar.
According to FDIC statistics, more than 2,900 institutions went bankrupt during the savings and loan crisis, with total assets of approximately $920 billion, accounting for about 19% of the average annual GDP during the period. Among them, about 1,300 savings and loan institutions went bankrupt or were taken over, with total assets of approximately $620 billion, making them the hardest hit area of bankrupt financial institutions during the period (the rest were mainly commercial banks).
In short, combined with 2008, as long as it involves the bankruptcy of a large number of financial institutions, the recession will have a greater impact. The reason is that the bankruptcy of financial institutions is equivalent to the contraction of the entire market's money supply, which is more influential than the Fed's QT.
According to FDIC statistics, more than 2,900 institutions went bankrupt during the savings and loan crisis, with total assets of approximately $920 billion, accounting for about 19% of the average annual GDP during the period. Among them, about 1,300 savings and loan institutions went bankrupt or were taken over, with total assets of approximately $620 billion, making them the hardest hit area of bankrupt financial institutions during the period (the rest were mainly commercial banks).
In short, combined with 2008, as long as it involves the bankruptcy of a large number of financial institutions, the recession will have a greater impact. The reason is that the bankruptcy of financial institutions is equivalent to the contraction of the entire market's money supply, which is more influential than the Fed's QT.
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Study on the root causes of economic crises in history 2: The Internet bubble in 2000
Compared with 2008, the market value of NASDAQ in 2000 was 6.6 trillion, while the market value of the housing market was 30 trillion, more than twice the GDP. Moreover, houses affect everyone, while the stock market only affects a part of people, so the bursting of the stock market bubble in 2000 had little impact on the real economy.
In addition, the current bubble level is far less than that in 2000. As can be seen from the figure below, the NASDAQ 100 forward PE reached 100 times that year, but now it is only 25 times.
Another perspective is S&P PE. The current PE looks similar to that before 2000, but I think the valuation axis of the entire stock market has moved upward. The reason is that interest rates have been declining consistently since 1980, which has led to an upward PE.
In addition, the current bubble level is far less than that in 2000. As can be seen from the figure below, the NASDAQ 100 forward PE reached 100 times that year, but now it is only 25 times.
Another perspective is S&P PE. The current PE looks similar to that before 2000, but I think the valuation axis of the entire stock market has moved upward. The reason is that interest rates have been declining consistently since 1980, which has led to an upward PE.
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Study on the root causes of economic crises in history 1: The 2008 financial crisis
Recently, I studied the past economic crises as a reference. First of all, chatgpt is a good tool. At least it can list the key events for you. Experienced people can already make root cause judgments. Let's look at 2008 first. The following italics are the key events listed by chatgpt. Please list the important events and events of the 2008 US financial crisis, as well as the cause analysis.
You can see:
First, the underlying assets deteriorated - in the context of loose monetary policy, real estate was sold to people who could not afford to buy houses. The underlying assets were constantly packaged (wrapped) to form MBS, CDO, and finally insurance products (AIG). These derivatives further magnified the leverage and scale of the poor-quality assets.
You can see:
First, the underlying assets deteriorated - in the context of loose monetary policy, real estate was sold to people who could not afford to buy houses. The underlying assets were constantly packaged (wrapped) to form MBS, CDO, and finally insurance products (AIG). These derivatives further magnified the leverage and scale of the poor-quality assets.
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After the elimination of inflation and confirmation of interest rate cuts, the market is currently dominated by two forces: one is the expectation of recession, and the other is liquidity.
Now it is probably the result of the superposition of the two. Yesterday, I discussed liquidity with @qinbafrank. The conclusion is that the uncertainty of liquidity reversal is high. I am relatively pessimistic and think that at least there will be some changes after the election.
Then the other problem is recession. I am not particularly worried about recession itself. The current unemployment rate is 4.2, and even if there is a recession, it will be a shallow recession. I don’t see the risk of a particularly large recession. A few more words:
- The bubble in 2008 was in subprime mortgages (poor people buying houses)
- The bubble in 2000 was in the Internet
- The crisis in 1990 was the savings and loan crisis + Iraq’s invasion of Kuwait doubled the oil price. In simple terms, the savings and loan crisis was also caused by the inverted interest rate, which led to the bankruptcy of more than 1,000 institutions.
Under the current market structure, households have excellent balance sheets (net assets far exceed historical levels), and companies have no major problems with estimates. Leverage is mainly in the government, and everyone knows that as long as the US dollar has credit, it can borrow unlimitedly.
Then you say war risk? At least it can't be seen from oil prices.
The biggest recession risk is still China, because China has always been the leader of global economic growth, and now China's economy is declining under the influence of the decline in real estate. But this may have a greater impact on resource-rich countries, and may have a slight impact on the US stock market (such as companies like Apple and Tesla).
Finally, it is Russia and Ukraine. Let's see if NATO will make any big moves to expand the war before the election. So far, it feels that Ukraine has come up with all the tricks it wants to use, and there is no risk of further expansion of the war for the time being.
--------------------------------
The question is, under what circumstances will everyone confirm that the recession risk has been eliminated? I feel that we still have to wait for the general election results to be implemented. Hahaha proposed high taxes, which is obviously not conducive to the economy and the stock market. On the contrary, if Trump is elected, the boost to the market should be obvious.
So, it may still follow the trend of historical election years, bottoming out in October and rebounding in November.
Now it is probably the result of the superposition of the two. Yesterday, I discussed liquidity with @qinbafrank. The conclusion is that the uncertainty of liquidity reversal is high. I am relatively pessimistic and think that at least there will be some changes after the election.
Then the other problem is recession. I am not particularly worried about recession itself. The current unemployment rate is 4.2, and even if there is a recession, it will be a shallow recession. I don’t see the risk of a particularly large recession. A few more words:
- The bubble in 2008 was in subprime mortgages (poor people buying houses)
- The bubble in 2000 was in the Internet
- The crisis in 1990 was the savings and loan crisis + Iraq’s invasion of Kuwait doubled the oil price. In simple terms, the savings and loan crisis was also caused by the inverted interest rate, which led to the bankruptcy of more than 1,000 institutions.
Under the current market structure, households have excellent balance sheets (net assets far exceed historical levels), and companies have no major problems with estimates. Leverage is mainly in the government, and everyone knows that as long as the US dollar has credit, it can borrow unlimitedly.
Then you say war risk? At least it can't be seen from oil prices.
The biggest recession risk is still China, because China has always been the leader of global economic growth, and now China's economy is declining under the influence of the decline in real estate. But this may have a greater impact on resource-rich countries, and may have a slight impact on the US stock market (such as companies like Apple and Tesla).
Finally, it is Russia and Ukraine. Let's see if NATO will make any big moves to expand the war before the election. So far, it feels that Ukraine has come up with all the tricks it wants to use, and there is no risk of further expansion of the war for the time being.
--------------------------------
The question is, under what circumstances will everyone confirm that the recession risk has been eliminated? I feel that we still have to wait for the general election results to be implemented. Hahaha proposed high taxes, which is obviously not conducive to the economy and the stock market. On the contrary, if Trump is elected, the boost to the market should be obvious.
So, it may still follow the trend of historical election years, bottoming out in October and rebounding in November.
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How to judge this bear market from the rearview mirror?
1- Bank reserve has been declining since March, and liquidity has tightened
2- Net liquidity = fed total asset - onRRP - TGA Let's look at TGA first. It has remained at the same level since the end of 23, neither increasing nor rising, so it is not worth paying attention to for now.
3- onRRP is still falling, but as the total amount becomes smaller, the speed becomes slower, about 30 billion per month. Before March, the decline rate was 180 billion per month, far exceeding the speed of QT, which was the main driving force of the bull market in 23 years. But by March, the total onRRP was only 440 billion, which was not enough to support the continued rapid decline.
4- Fed total assets have been declining, 70 billion per month, and the rapid decline from June to 50 billion is still greater than the decline rate of onRRP.
Standing at the juncture of March, if you are not confused by the increase at that time, you have the opportunity to judge the risk.
Then the subsequent bull and bear markets will mainly depend on when QT slows down further or even stops, which is more important than lowering interest rates.
1- Bank reserve has been declining since March, and liquidity has tightened
2- Net liquidity = fed total asset - onRRP - TGA Let's look at TGA first. It has remained at the same level since the end of 23, neither increasing nor rising, so it is not worth paying attention to for now.
3- onRRP is still falling, but as the total amount becomes smaller, the speed becomes slower, about 30 billion per month. Before March, the decline rate was 180 billion per month, far exceeding the speed of QT, which was the main driving force of the bull market in 23 years. But by March, the total onRRP was only 440 billion, which was not enough to support the continued rapid decline.
4- Fed total assets have been declining, 70 billion per month, and the rapid decline from June to 50 billion is still greater than the decline rate of onRRP.
Standing at the juncture of March, if you are not confused by the increase at that time, you have the opportunity to judge the risk.
Then the subsequent bull and bear markets will mainly depend on when QT slows down further or even stops, which is more important than lowering interest rates.
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In fact, the ultimate question is: Does DeFi need to be decentralized?
Cold knowledge:
The ratio of public chain TVL to CEX is about 4:6, and the transaction volume is even worse, about 1:9.
I think the lending protocol is best decentralized, such as AAVE, because you feel more assured to deposit money in AVE, while it may be eaten up in CEX.
But is DEX necessary? At present, decentralized DEX cannot compare with CEX. The contradiction after the emergence of L2 is that L2 liquidity is not as good as L1, so the slippage is large.
The primary task of the public chain is to succeed in the field of DeFi, rather than doing something messy like SocialFi. As for NFT/Depin, it is just a way of issuing assets in a different way.
But has DeFi made any progress from 21 to now?
Uniswap has a new version, but CRV is dead, liquidity mining is dead, and the real income is ok.
The infrastructure required for defi is progressing very slowly, and cross-chain issues are a commonplace.
Cold knowledge:
The ratio of public chain TVL to CEX is about 4:6, and the transaction volume is even worse, about 1:9.
I think the lending protocol is best decentralized, such as AAVE, because you feel more assured to deposit money in AVE, while it may be eaten up in CEX.
But is DEX necessary? At present, decentralized DEX cannot compare with CEX. The contradiction after the emergence of L2 is that L2 liquidity is not as good as L1, so the slippage is large.
The primary task of the public chain is to succeed in the field of DeFi, rather than doing something messy like SocialFi. As for NFT/Depin, it is just a way of issuing assets in a different way.
But has DeFi made any progress from 21 to now?
Uniswap has a new version, but CRV is dead, liquidity mining is dead, and the real income is ok.
The infrastructure required for defi is progressing very slowly, and cross-chain issues are a commonplace.
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Recently, many big Vs have supported Ethereum and brought out the earliest "civilization-level innovation" of Chuan Ge. Let's put it this way, there is a paradox here:
1/ Are you holding for the long term or doing cycles? If you hold for the long term, just ignore what I said, I think you can do it.
2/ If you do cycles, this cycle will end in 25 years. Will Ethereum be able to catch up? I think the probability is not high, whether from the application perspective or the interoperability perspective.
Therefore, if you do cycles, it is better to wait until the bear market to buy some bloody Ethereum chips.
1/ Are you holding for the long term or doing cycles? If you hold for the long term, just ignore what I said, I think you can do it.
2/ If you do cycles, this cycle will end in 25 years. Will Ethereum be able to catch up? I think the probability is not high, whether from the application perspective or the interoperability perspective.
Therefore, if you do cycles, it is better to wait until the bear market to buy some bloody Ethereum chips.
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This article explains clearly what liquidity is and whether the market will be bullish or bearish in the future
Let me explain "liquidity" a little bit first. Liquidity is an overused word. It essentially refers to the amount of funds in the market. There are many indicators. Generally speaking, we pay most attention to the liquidity indicators of the four major banks (Fed, ECB, BOJ, PBOC). Among them, ECB/BOJ is generally highly synchronized with the Fed, so we mainly look at the Fed and PBOC. Of course, the recent interest rate hike by BOJ is a disturbance factor.
If we look at M2 from the PBOC, at the beginning of 2023, the M2 growth rate reached more than 12%, which is considered high liquidity. But it has been declining since then. In July, the annual growth rate of M2 was 6.3%, which is lower than the previous level, which is considered a contraction.
If we look at M2 from the PBOC, at the beginning of 2023, the M2 growth rate reached more than 12%, which is considered high liquidity. But it has been declining since then. In July, the annual growth rate of M2 was 6.3%, which is lower than the previous level, which is considered a contraction.
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Liquidity: Water Level
Coin Price: High Boats
Rising water lifts all boats. Take Ethereum for example. Before March 24, it rose slightly above the water level, which was due to the emotional premium brought by the ETF effect of BTC.
After March, the water level dropped slightly, but not too much, while the price of Ethereum retreated more, which may be due to the retreat of the emotional premium.
Now the Ethereum boat is close to the water level, and there is still room for downward adjustment, but not much, and the bottom is around 2000 (where the red line and the blue line overlap).
Future:
1/ The blue line continues to decline, and Ethereum bottoms out at 2000
2/ The blue line starts to rise at the right time, at the latest after the election, and at the earliest in October-November. This mainly depends on how JP cooperates with Trump, and the probability is higher in November.
Coin Price: High Boats
Rising water lifts all boats. Take Ethereum for example. Before March 24, it rose slightly above the water level, which was due to the emotional premium brought by the ETF effect of BTC.
After March, the water level dropped slightly, but not too much, while the price of Ethereum retreated more, which may be due to the retreat of the emotional premium.
Now the Ethereum boat is close to the water level, and there is still room for downward adjustment, but not much, and the bottom is around 2000 (where the red line and the blue line overlap).
Future:
1/ The blue line continues to decline, and Ethereum bottoms out at 2000
2/ The blue line starts to rise at the right time, at the latest after the election, and at the earliest in October-November. This mainly depends on how JP cooperates with Trump, and the probability is higher in November.
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