• As the IPO market has heated up, so too has the number of private equity buyouts. Year-to-date PE firms have announced nearly $945 billion in buyouts, which is more than 2x the previous peak back in 2007. This increase has been driven by large institutions (think pension funds) which have increased their private sector investment allocations in the hope of earning higher returns in the current low-interest rate environment.
• The rise in the housing market over the past year may be a bad omen for future inflation. Rents, or the implied rent that owners would pay if they were renting, typically lag the rise in home prices by 6-12 months. The fact that home prices have risen by around 20% over the past year (compared to 2.9% in rents), indicates that rents may rise more rapidly soon. This is problematic because housing costs account for 23% of the service component of the CPI.
• The level of margin debt among investors has risen 42% over the past year. As a result, 2.4% of the entire value of the S&P500 is now comprised of borrowed money. This is lower than the 3% level seen back in 2007 but still higher than average. This higher-leverage may indicate that future market pullbacks (like that seen last Friday) may force investors to sell their investments at a faster rate to protect against margin calls, further escalating any market downturn.
• Cryptocurrency (Bitcoin specifically) have occasionally been heralded by proponents as an asset class that can diversify a portfolio. But it's clear now that, unlike gold, bitcoin will not be seen as an investment of refuge during uncertain times. On Friday bitcoin dropped a whopping 8%. Looks as if the correlation between the cryptocurrency and the S&P500 is positive and has been increasingly so recently.