And it goes all the way via real estate, junk bonds, the most-shorted stocks, cryptos, and well, sneakers, to the newest thingy, so-called NFTs, or non-fungible tokens, that are now being hyped to high heaven.
But facing these manias are long-term US Treasury bonds and high-grade corporate bonds that have been getting crushed for months – as their yields have surged. (...)
The Fed has been unanimous in accepting and even welcoming the rise in long-term interest rates as a sign of economic growth and rising expectations of inflation – as long as it remains “orderly,” and doesn’t veer into “disorderly” markets, as Jerome Powell emphasized.
And Secretary of the Treasury Janet Yellen has chimed in, also welcoming rising long-term bond yields as a sign of economic growth and rising inflation expectations.
The Fed sees these manias too. While it cannot admit to seeing them, and while it can never say that it would let the steam out of them, it is letting long-term yields rise because that is a form of tightening, and it will take some steam out of the manias. And letting long-term yields rise is a prelude to tapering its bond purchases, which is a prelude to raising its short-term interest rates.
So, there is the latest craze, the non-thing called “NFT” – the non-fungible token. Which means it is unique. It is unique like every dollar bill is unique because every dollar bill has a unique serial number. Every car is unique because it has a unique VIN number. Serial numbers have been around forever.
But now new hype has broken out about non-fungible tokens because these are essentially serial numbers combined with digital entities, such as a PDF file or a video clip, and instead of being in a database somewhere, the code is part of a blockchain, usually the Ethereum blockchain.
And how do you get everyone to talk about NFTs and spread the stuff all over the front pages of the big papers, and how do you get it to show up on TV news and on Google, Facebook, Twitter, various discussion bords, and what not?
You create a big hoopla deal that blows everyone’s socks off, and you do that systematically, and you get one of the biggest art auction houses in the world, Christie’s, to help you promote this non-thing, and voila.
It was masterfully done by some crypto hype mongers. And a crypto hype monger that goes by the handle of Metakovan, whose legal name Christie’s refused to disclose, bought a digital collage created by an artist who goes by Beeple – and the work of art is a PDF file combined with a fancy serial number, and the whole thing is an NFT.
Metakovan paid $69.3 million in ETH, the cryptocurrency on Ethereum, for the PDF file after a two-week online auction whose purpose was to drive up the price and create a sensation. And it worked.
NFTs can be anything digital. People have turned video clips on YouTube and Tweets into NFTs and sold them and traded them, and prices of these digital files have soared.
Obviously, since it’s digital, you can still endlessly copy the video clip, a tweet, or the $69-million PDF file, and you can download it, and share it a million times, for free.
You can copy a Picasso too, but it’s either a photograph of a real Picasso, or a painted fake of a real Picasso. And they’re physically different from the real Picasso. Alas, the digital copies of videos and PDF files are exactly the same as the original, and that $69-million PDF can be copied a million times.
I mean, it’s great to support living artists. The more the better. But a tweet that has been around for years? Or video clips that have been around for years? So now we have an inexplicable speculative mania in NFTs.
Then there’s bitcoin and the many thousands of other cryptos that have cropped up, whose prices soar to unimaginable highs on nothing but hype, with their combined valuations now approaching $2 trillion. This is serious money. Some of these positions are leveraged, in various ways, from buying cryptos on credit cards or with the proceeds from cash-out mortgage refis, to institutional borrowing against cryptos, such as by hedge funds.
And there are the SPACs. These Special Purpose Acquisition Companies are blank-check outfits that go public with no operations and no employees and no nothing, and people who buy these shares to fund the SPAC hope that the SPAC will acquire some startup over the next 18 months. Everyone is doing SPACs now and selling them to the public – star athletes, Hollywood celebrities, rappers, former politicians, including the former Speaker of the House….
It boils down to this: if you’re not doing your own SPAC, you’re no one. (...)
There’s Tesla, a small automaker with a market capitalization that is worth more than that of the biggest automakers in the world combined. The Tesla mania has been going on for years.
There are the other EV stocks, or anything related to EVs, often tiny companies with nearly no revenues, that suddenly and inexplicably skyrocket. The auto industry is a brutal industry with two decades of no growth in unit sales in the US and the rest of the developed world. Automakers have relied on price increases and China to get their revenues up. EVs are precisely in that space, and now all legacy automakers are making them. And yet there has been a mania in EV stocks. And it even pulled along the legacy automakers stocks. (...)
Then there’s the current mania in real estate, where people buy houses sight-unseen by bidding over asking price, and home prices have skyrocketed across the nation, with double-digit year-over-year increases. In some areas, year-over-year gains clocked in at 20% or more.
And there’s the mania in junk bonds, the riskiest end of the bond market. Junk bond prices have skyrocketed, thereby pushing yields down to record lows. The peak was likely in mid-February, and prices have edged lower since then, and yields have come up, but are still very low.
These manias have a few things in common:
by Wolf Richter, Wolf Street | Read more:
