98,750,067,000,000 Reasons to Be Worried About 2018

As 2017 enters its final month, here are 12 charts to illustrate what a year it’s been in markets. Far be it from us to be party-poopers; but let’s just say what we see makes us slightly nervous about 2018.
The total value of companies listed on the world’s stock markets as of Friday’s close was $98,750,067,000,000 — within touching distance of $100 trillion for the first time.

A (Very Big) Round Number
World equity index market capitalization is a whisker away from $100 trillion
screenshot-www.bloomberg.com 2017-12-06 12-06-13-950
Source: Bloomberg

That surge in equity values has been accompanied by a drop in price swings. As our Bloomberg News colleague Wes Goodman pointed out last week, equity market volatility has dropped below that of bonds for the first time ever this year.

Comfortably Numb
60-day volatility for stocks dropped below that of bonds for the first time this year
screenshot-www.bloomberg.com 2017-12-06 12-07-15-400
Source: Bloomberg

Pockets of the bond market also look troublesomely bubble-like. Two-year euro zone government bonds have raced below zero this year: most governments can borrow at an even lower cost than the European Central Bank’s deposit rate.

Below Zero
Most European government bonds yield less than the -0.40% ECB deposit rate
screenshot-www.bloomberg.com 2017-12-06 12-07-37-916
Source: Bloomberg

Yields are being driven lower as the ECB continues to expand its balance sheet by buying bonds.

ECB Takes The Lead
Central banks all ramped up their balance sheets after the crisis, but the ECB is carrying on
screenshot-www.bloomberg.com 2017-12-06 12-08-02-261
Source: Bloomberg

In the U.S. Treasury market, the flattening of the yield curve is worrying some bond investors, including billionaire fund manager Bill Gross.

Flatter and Flatter
The U.S. yield curve has flattened steadily over 2017
screenshot-www.bloomberg.com 2017-12-06 12-08-22-413
Source: Bloomberg

With government paper offering such meager returns, money has been flowing into corporate bonds. European investment-grade bond funds have taken in cash for 45 consecutive weeks, according to analysts at Bank of America Merrill Lynch. Inflows are poised to set a record for the year.

Sales of new corporate debt denominated in euros are also setting records this year.

Corporate Bonanza
With one month to go, 2017 sales are already 10 percent above the total for 2016
screenshot-www.bloomberg.com 2017-12-06 12-08-40-867
Source: Bloomberg

Spreads on non-investment grade European debt briefly dipped below U.S. 10-year Treasury yields in August. As investors clamor to buy the bonds, their yields are making the moniker “high yield” increasingly unsuitable.

Not Such a High-Yielding Market
Non-investment grade European corporate yields fell below 3 percent for the first time in 2017
screenshot-www.bloomberg.com 2017-12-06 12-13-05-590
Source: Bloomberg

Last month saw the record for the highest price paid for a work of art obliterated by an unidentified buyer who bid $450.3 million for Leonardo da Vinci’s “Salvator Mundi” at a Christie’s auction — compared with its pre-sale estimate of $100 million.

Art for Art’s Sake?
The unidentified buyer of the da Vinci artwork broke the record
screenshot-www.bloomberg.com 2017-12-06 12-09-05-293
Source: Bloomberg

This year’s more than 55 percent rise in Amazon.com Inc.’s share price has been particularly good for its founder and CEO Jeff Bezos. He’s only the second executive ever to top the magic $100 billion mark, according to Robert LaFranco, who runs the Bloomberg Billionaires team; Microsoft Corp. founder Bill Gates reached that milestone in 1999.

It’s Good to be Jeff Bezos
The net worth of the Amazon founder surpassed $100 billion last month
screenshot-www.bloomberg.com 2017-12-06 12-09-24-519

And then there’s the bubbliest market of them all: Bitcoin. The price of the virtual currency recently crossed $10,000 for the first time.

A Tenfold Increase This Year
Bitcoin’s seemingly inexorable rise
screenshot-www.bloomberg.com 2017-12-06 12-09-45-570
Source: Bloomberg

Despite that move, the number of times the term “bubble” has appeared in news articles is still below previous peaks. Still feeling comfortable about 2018?

A Bubble in Bubbles
Use of the word “bubble” in stories on the Bloomberg terminal
screenshot-www.bloomberg.com 2017-12-06 12-10-07-396
Source: Bloomberg’s NT function

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