The Dow Jones and S+P futures closed at All-Time Highs Friday, May 7, traded higher during the Sunday overnight session but turned lower Monday morning and tumbled ~1,500 points to Wednesday’s lows. The DJIA rallied back ~900 points Thursday and Friday.

Bond futures surged on the weak employment report early Friday, May 7, but had 2nd thoughts and sold off five points into Wednesday’s lows. The tumble in stocks and bonds may have been motivated by perceptions that inflation was running hotter than expected.

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This morning: As the Federal Reserve wakes up to “elevated relative risks” and the rest of us scream “bubble”, the real questions are about real value. Why is a Bitcoin worth as much as Renaissance Art? Why is Dogecoin the top performing asset off the year when everyone knows it’s a joke? And when are people going to drink the proverbial coffee?

I am going to be sending US Federal Reserve governor and head of financial stability, Lael Brainard, her second coveted No S**T Sherlock award. This is not an insult – she is a very erudite, clever and talented central banker, but she really could not have stated the downright bleeding obvious any clearer than we she warned yesterday that some asset valuations are “elevated relative to historical norms… [and].. maybe vulnerable to significant declines should risk appetite fall.” (Check it out in the FT: Fed warns of hidden leverage lurking in the financial system.)

Really?

Who knew… ?

“Measures of hedge fund leverage may not be capturing important risks..” or that the pandemic may “stress the financial system in emerging markets and some European countries..” Well… I am very glad someone has finally noticed… To think we all missed it.. (US Readers: sarcasm alert.)

If Lael really wants something to worry about, how about stock market volumes (declining) versus crypto-trading volumes – which topped $1.7 trillion during April. Again, check out the FT: “Crypto trading volumes boom as activity cools on stock markets”. It’s like watching a teething toddler chewing on a live electric cable.. and wondering what will happen next..

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Take A Bow, Jay Pow!

All that can be said about all of this is, ‘Congrats, Jay! You’ve officially blown the biggest stock market bubble in history.’ In all seriousness, however, there will undoubtedly come a time when concerns regarding financial stability will outweigh those regarding too-low inflation. Policies inspired by the latter may even precipitate the shift to the former. As a wise trader once said, “nothing like price to change sentiment.” For the moment, though, investors would appear to be applauding Jerome Powell’s historic accomplishment.

The Buffett Yardstick, or total market capitalization of the U.S. equity market relative to the overall size of the economy, now stands at a gaudy 270%. For reference, at the peak of the Dotcom Mania, this measure only reached 188% so we are now over 40% more expensive than the most expensive stock market peak in history! Another way to think about this is to understand that, at today’s valuation, the stock market would need to fall 30% overnight in order to match the peak of what is widely considered the greatest bubble in modern history.

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Alphabet reported huge beats on its top and bottom lines for its first quarter of 2021, as well as a new $50 billion stock buyback, which boosted the shares more than 4% in after-hours trading.

Here’s how Google’s parent company fared in the quarter relative to what Wall Street analysts polled by Refinitiv expected:

• Earnings: $26.29 per share vs. $15.82 per share expected
• Revenue: $55.31 billion vs. $51.70 billion expected
• Google Cloud revenue: $4.05 billion vs. $4.07 billion, according to FactSet estimates.
• YouTube ads: $6.01 billion vs. $5.70 billion, according to StreetAccount.
• Traffic Acquisition Costs (TAC): $9.71 billion  vs. $9.25 billion, according to FactSet estimates.

Google’s revenue rose 34% from the same period a year prior. The company reported advertising revenue of $44.68 billion for the quarter. That’s a significant rise from $33.76 billion in the same quarter last year, making it the fastest annualized growth rate in at least four years, although the results were boosted by an easy comparable with last year’s quarter, as the onset of the coronavirus pandemic caused a steep drop in advertising spend.

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