The Flight To Trash

We are all familiar with “flight to safety”, the tendency of investors to choose safe investments like bonds and precious metals in times of crisis and uncertainty. What constitutes “safe” is, of course, always up for debate, but you get the picture…

Well, we are now becoming very familiar with “flight to trash”, the notion that just about anything can be an investment vehicle. From cryptos and NFT “art”,  all the way to dubious SPACs, wacko IPOs and meme stocks boosted by rabid teenagers using their phone trading apps.

This lunacy is possible only because the Fed (and ECB) are continuing their cash deluge, blackmailing even belt-and-suspenders type investors to participate in this “flight to trash”. Cash is obviously (?) trash, investment grade bonds nearly so (or worse, in negative-yield Eurozone), even junk bonds are at record low yields. Hooray, let’s buy it all - dear me, even serial bankrupt Greece is at 0% yields 😱😱

The Fed keeps pumping and the cash is spilling over, backwashing into its own reverse overnight repo, now at $1.1 trillion. I know, I’ve posted about this a zillion times, but the sheer audacity of central banks ballooning their balance sheets still amazes me - charts below.

I wonder, like Bill Gross did in yesterday’s post, what the following chart will look like if/when (a) the Fed stops pumping and (b) earnings don’t match the extreme stock valuations. Maybe we should all start thinking about flight FROM trash… Note: current P/E for S&P 500 is at 35x while the median since 1950 is 15x.