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2018-01-12 07:50 by Karl Denninger
in Market Musings , 369 references Ignore this thread
The Caution Light Is Lit
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You probably don't remember my postings from 2007 and especially early 2008 all that much.

One early warning marker was a very material -- and sudden -- change in online advertising prices.  The bottom fell out of the offer -- that is, while the number of impressions and "clicks" didn't change much, what I did see was a very large, step-function sort of change in revenue distribution.

The amusing part of it back then was that at the time Google was basically the whole market.  They still are, to a large degree; that's their biggest product of course, although Facesucker is more material now than it was then.  Google, however, didn't admit to any sort of material change in what they reported in the quarter.  Exactly how that slight-of-hand worked and was real is rather beyond me, as I noted at the time, but heh, nobody goes to jail these days so who knows if what was "reported" was reality or not.

It's happening again.

The last time the shift led the collapse in the markets and economy by about six months.  I guess that's how long it took before what was really going on managed to become impossible to hide any more.

It's most-interesting that this time it is occurring in the middle of what is being considered one of the biggest stock market and economic booms and cheerleading of all time.  Indeed, one could cleanly make the argument that it's "bigger" than the 1999/early 2000 boom, certainly if you start looking at valuations, margin debt and similar we're beyond those numbers.  You'd expect that if this was actually true then "the rising tide would lift all boats" and those numbers would be going up -- and quite-materially so.

There have been small dips in this indicator that I have noted since the 2008 crash, but they've not been particularly large.  This one is, approximately of the same magnitude to what I saw in early 2008, about two months before Bear Stearns blew up.  Of course that was "isolated" and the market came roaring back when Bear Stearns blew too, only to go completely to hell about six months later.

There aren't enough sample points to be able to look at this and say "heh, this one's a good signal"; it may not be.  But when you get a rate of change that strong and that fast, as dramatic as it was the last time it was real, you'd unwise to simply overlook it just as basically everyone did in 2008.

PS: There's a nasty divergence in high-yield credit too, which also shouldn't be happening if the "roaring successful economy" is what is being proclaimed.  That too was present in early 2008, but it waved off as aberration then as well..... How'd that work out for you?

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