The Flow Show A Short History of Bubble

TheFlowShow AShortHistoryofBubbles Accessibleversion ScoresontheDoors:crypto16.3%,oil7.0%,USdollar3.3%,commod2.8%,stocks2.6%,cash0.6%,HYbonds-0.3%,IGbonds-2.3%,gold-3.9%,govbonds-4.0%YTD. ThePriceisRight:creditthe“glue”ofanybullmarket…IGbondspreadstight-as-a-drum,closetopost-Covidlowsof86bps(despiterecord$310bnissuance);butequitybullsonarrow…top5stocks=75%ofS&P500YTDgain,top3techstocks=90%oftechsectorYTDgain,USequity“breadth”currentlyworstsinceMar’09(Chart2). TaleoftheTape:newconsensus"all-weather"assetclassesarecorporatebonds&techstocks…inflowstobothoncourseforblowoutyears…YTDannualized$0.5tntoIGbonds,$85bntotechsectorfunds–Charts4&5). TheBiggestPicture:long,illustriousbubblehistory…SouthSea,Mississippimonopoliesof1710s,DowinRoaring1920s,goldininflationary‘70s,Japanin‘80s,internetin‘90s,China2000s,GreatBondBubble2014-20,crypto,FAANG,techdisruptorderivatives;notwobubblesalike(tryblowingacoupleyourself)butsimilaritiestogaugeMagnificent7todayarecatalyst,price,valuation&"priceofmoney"(seeTable1,page2formore). Table1:AShortHistoryofBubbles Bubble Peak Rise Decline Velocity Valuation Yield michael.hartnett MississippiCo. 1720 2955% -95% 73% n/a ElyasGalou>> SouthSeaCo. 1720 707% -89% 188% n/a InvestmentStrategBofASE(France) Roaring20s 1929 153% -53% 21% 19x +33187700087 BubblesinPrice,Velocity,Valuation,Yield NiftyFifty 1972 153% -53% 9% 54x Gold 1980 428% -65% 142% n/a BlackMonday1987111%-41%21%19x Japan 1989 149% -64% 12% 67x Dotcom 2000 192% -73% 55% 65x 15February2024 InvestmentStrategyGlobal MichaelHartnettInvestmentStrategistBofAS +16468551508 @bofa.comist elyas.galou@bofa.com AnyaShelekhinInvestmentStrategistBofAS +16468553753 anya.shelekhin@bofa.com SaudiArabia 2006 316% -67% 28% 124x InvestmentStrategist China 2007 513% -73% 37% 53x BofAS Govtbonds 2020 +$18.4tn -$18.3tn 33% n/a +16468550389myung-jee.jung@bofa.com TechDisruptors 2021 384% -82% 62% n/a FAANG 2021 229% -49% 15% 60x Crypto 2021 1662% -78% 49% n/a Chart1:BofABull&BearIndicator Magnificent7 - 139% - 20% 45x Downto6.6from6.8 Myung-JeeJung Source:BofAGlobalInvestmentStrategy,Frehen(2012),Bloomberg,GlobalFinancialData,RefinitivDatastream;velocity:pricevs200dma(%)atpeak;valuation:trailingP/E;yield:directionofbondyields3-6monthspriortopeak. BofAGLOBALRESEARCH 6.6 Moreonpage2… Tradingideasandinvestmentstrategiesdiscussedhereinmaygiverisetosignificantriskandarenotsuitableforallinvestors.Investorsshouldhaveexperienceinrelevantmarketsandthefinancial 46 2 Buy 0 ExtremeBearish 8 Sell 10 ExtremeBullish resourcestoabsorbanylossesarisingfromapplyingtheseideasorstrategies. >>Employedbyanon-USaffiliateofBofASandisnotregistered/qualifiedasaresearchanalystundertheFINRArules. Referto"OtherImportantDisclosures"forinformationoncertainBofASecuritiesentitiesthattakeresponsibilityfortheinformationhereininparticularjurisdictions. BofASecuritiesdoesandseekstodobusinesswithissuerscoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision. Source:BofAGlobalInvestmentStrategyTheindicatoridentifiedaboveastheBofABull&BearIndicatorisintendedtobeanindicativemetriconlyandmaynotbeusedforreferencepurposesorasameasureofperformanceforanyfinancialinstrumentorcontract,orotherwiserelieduponbythirdpartiesforanyotherpurpose,withoutthepriorwrittenconsentofBofAGlobalResearch.Thisindicatorwasnotcreatedtoactasabenchmark. WeeklyFlows:$16.1bntostocks,$11.6bntobonds,$0.6bnfromgold,$18.4bnfromcash. FlowstoKnow: Cash:largestoutflowin8weeks($18.4bn); IGbonds:16thstraightweekofinflows($10.3bnpastweek); Equities:largest4-weekinflow($59.5bn)sinceFeb’22; Techfunds:6thstraightweekofinflows($2.3bnpastweek); Consumerfunds:largestoutflowsinceDec’20($1.3bn); Materialsfunds:largestinflowsinceApr’22($1.6bn). BofAPrivateClients:$3.4tnAUM…60.9%stocks,20.8%bonds,11.6%cash;privateclientsreducingcash(cash&T-bills14.4%ofAUM,lowestin8months),extendingduration(5thlargestweeklyinflowevertoT-notes),notchasingstocks(outflows5ofpast7weeks);ETFflowsbuyingTIPS,Japan,EMdebt,sellingbankloans,dividend&HY. BofABull&BearIndicator:dipsto6.6from6.8onlowerequitymarketbreadthandS&P500&oilhedging;biggerpictureispositioningbullish…BofAGlobalFMScashlevelsplungefrom4.8%to4.2%inFeb&$60bnequityinflowspast4weeks;catalystsforBofABull&BearIndicatortohit"sellsignal"comingweeks…EMdebtinflows,EMequityinflows≈$10bn,lessSPXhedging,breadthimprovesvia10%China/HKrally. AShortHistoryofBubbles:quick&dirtycompsvstoday’sMagnificent7… Catalyst:bubblesdrivenbytechnologicalinnovation,newgeographicalsourcesofgrowth,andverycruciallycentralbankeasing;AIbubblewaskick-startedbyFedresponsetoSVBandChatGPT…justasPlazaAccordkick-startedJapan,LTCMtheinternet,9/11thehousingbubbleof2000s,COVID($30tnofpolicystimulus)cryptoandsoon;evenMississippiandSouthSeaCompanybubblescausedbyamendmenttoEnglishusurylawsin1714whichforbadelendingratesover5%asUK&Franceneededtoborrowtofin