Is the Economy and Stock Market Entering a “Minsky Moment”?

The different phases leading to a “Minsky Moment”

[By Dr. David E. Marcinko MBA]

With all the stock market volatility lately, and the recent declines signaling a potential bear market from both fundamentalists and chartists, I have to ask this question:

Q = Are we entering a stock market Minsky Moment?

DEFINITION

A Minsky moment is a sudden major collapse of asset values which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. The spiraling debt incurred in financing speculative investments leads to cash flow problems for investors. The cash generated by their assets is no longer sufficient to pay off the debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. This is likely to lead to a collapse of asset values. Meanwhile, the over-indebted investors are forced to sell even their less-speculative positions to make good on their loans.

However, at this point no counterparty can be found to bid at the high asking prices previously quoted. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.

CITE: https://www.r2library.com/Resource/Title/082610254

A  more general meaning is to say that a “Minsky Cycle” features a series of Minsky Moments … in which a period of stability encourages risk taking, which leads to a period of instability, which causes more conservative and risk-averse (de-leveraging) behavior, until stability is restored, continuing the cycle. In this more general view, the Minsky Cycle may apply to a wide range of human activities, beyond investment economics.

History

The term was coined by Paul McCulley of PIMCO in 1998, to describe the 1998 Russian financial crisis,and was named after economist Dr. Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Minsky opposed the deregulation that characterized the 1980s.

Some, such as McCulley, have dated the start of the financial crisis of 2007–2010 to a Minsky moment, and called the following crisis a “reverse Minsky journey”; McCulley dates the moment to August 2007, while others date the start to some months earlier or later, such as the June 2007 failure of two Bear Stearns funds.

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Assessment

The concept has some parallels with Austrian business cycle theory although Minsky himself was known as a Keynesian and is identified as a post-Keynesian—as is McCulley.

Conclusion

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SPAC Popularity Soaring in Healthcare

By Health Capital Consultants, LLC

"Todd

Todd A. Zigrang, MBA, MHA, FACHE, CVA, ASA

[President]

The popularity of special purpose acquisition companies (SPACs) has been soaring in recent years. There are 35 times as many SPACs operating in 2020 as in 2010, and these companies seem poised for greater exponential growth in the future.

While many experts are predicting a continued, rapid increase in SPACs, this article will also examine the factors that could possibly slow SPAC growth and diminish their future prospects. SPACs span several market areas, including biotechnology and healthcare; this article will review SPAC trends generally as well as healthcare SPACs in particular. (Read more…)

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SPAC v. Direct Listing v. IPO?

What’s the difference between an IPO, a special purpose acquisition company (SPAC), and a direct listing?

[By staff reporters]

IPOs are a 6–12 month journey where a company works with investment banks and underwriters, who buy a bunch of shares and then sell them to investors in the public market during the actual IPO. Early investors are able to liquidate their shares, and the company raises new funds.

CITE: https://www.r2library.com/Resource/Title/0826102549

Direct listings skip the underwriting hullabaloo. But without that stability guarantee, direct listings can result in a more volatile opening. Some companies, like Coinbase, find that it’s worth it to keep their hard-earned money out of bankers’ hands.

SPACs, aka “blank-check companies,” offer yet another alternative path to public markets. A SPAC is a shell company that raises money through the traditional IPO process, then merges with a private company and takes it public. 

MORE: https://medicalexecutivepost.com/2019/06/24/what-is-a-direct-listing-process-on-wall-street/

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UPDATE: Sentient GOOGLE, Corporate Earnings, the Markets and Cryptocurrency

By Staff Reporters

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Blake Lemoine, an engineer for Google’s responsible AI organization, described an AI system that he has been working on since last fall as sentient, with a perception of, and ability to express thoughts and feelings that was equivalent to a human child. He was promptly suspended.

Earnings Are Under Threat. Companies from Target to Microsoft have warned their results will be lower than expected, while analysts have trimmed earnings forecasts across industries. Investors will get further clarity next month when companies begin reporting results for the second quarter.

The S&P is in a historic slump having fallen in nine out of the past 10 weeks for just the third time since 1980. And cryptocurrencies, which trade 24/7, tumbled following another red-hot inflation report.


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VALUATION: Approaches for Common Stocks

A BRIEF REVIEW FOR PHYSICIAN INVESTORS

By Dr. David Edward Marcinko MBA CMP™

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QUESTION: We are in near bear market correction territory – especially for tech stocks – so what are the 2 major types of valuation approaches for common stock?

UPDATE: https://www.msn.com/en-us/money/markets/stock-market-news-live-updates-sandp-500-dow-fall-amid-mixed-bank-earnings-retail-sales-miss/ar-AASL74g?li=BBnb7Kz

TECH: https://www.msn.com/en-us/money/markets/nasdaq-near-a-10percent-correction-isnt-the-sell-signal-you-probably-think-it-is/ar-AASL22m?li=BBnbfcL

ANSWER: There are basically two different approaches for common stock valuation; top-down and bottom-up.  Under either of the two fundamental approaches, a physician investor will have to work with individual company data.  In reality, each of these approaches is used by investors and security analysts when doing fundamental analysis.  

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With the bottom-up approach, investors focus directly on a company’s prospects. Analysis of such information as the company’s products, its competitive position, and its financial status leads to an estimate of the company’s earnings potential, and, ultimately, its value in the market.  Considerable time and effort are required to produce the type of detailed financial analysis needed to understand a firm’s standing. The emphasis in this approach is on finding companies with good long-term growth prospects, and making accurate earnings estimates. 

The top-down approach is the opposite of the bottom-up approach. Investors begin with the economy and the overall market, considering such important factors as interest rates and inflation. They next consider likely industry prospects, or sectors of the economy that are likely to do particularly well (or particularly poorly). Finally, having decided that factors are favorable for investing, and having determined which parts of the overall economy are likely to perform well, individual companies are analyzed.

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What is a CONTENT DELIVERY NETWORK, Doctor?

CDNs and What They Mean to Physicians

BY J.M.

[Anonymous IT Expert]

DOCTOR – Do you like the internet? Do you use EMRs/EHRs? Do you like fast internet? Of course you do.

But, without a strong infrastructure of content delivery networks (CDNs), website loading times would be too slow to stream tele-health/tele-medicine visits or tela-radiology services; not to mention Netflix, or argue with Reddit strangers or your patients; etc.

CDNs are geographically distributed networks of servers that handle processing and speed up internet delivery. In practice, CDNs make website content like HTML pages, JavaScript files, style-sheets, images, and videos load faster. They also reduce bandwidth costs, handle more traffic, and provide a little security protection. 

  • CDNs don’t actually host web content, but instead keep cached versions of it at the ready in edge servers. 

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How CDN Works? How to Find the Cheapest CDN Provider?

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Fastly is one of a number of significant CDN providers that help form the infrastructure of the internet. And while the outage shows the breadth of its reach, it’s far from the biggest player—Akami, Cloudflare, and Amazon CloudFront take up 75% of revenue in CDN space, per Intricately.

But Fastly, one of the world’s largest cloud computing companies itself, just had an outage that shut down its CDN service, affecting major websites including the New York Times, HBO Max, and the British government’s homepage. 

ASSESSMENT: Were you or your clinic or hospital affected? Your thoughts and comments are appreciated.

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PODCAST: The “Medical Trend”?

By Eric Bricker MD

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