Home » Posts tagged 'economic bubble' (Page 2)

Tag Archives: economic bubble

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Post Archives by Category

Something Smells Fishy

May 30, 2015

SOMETHING SMELLS FISHY

It’s always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn’t afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.

Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing.

…click on the above link to read the rest of the article…

 

 

 

We’re In Uncharted Economic Territory

May 30, 2015

We’re In Uncharted Economic Territory

We’re in uncharted territory …

For example, this is the first time in history that most central banks worldwide have printed money during the same time period.

And one of America’s leading economists (Nobel-prize winner Robert Shiller) just said that – unlike 1929 –  this time, stocks, bonds and housing are ALL overvalued:

This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren’t. It’s an interesting phenomenon.

There’s a connection between the two unprecedented events …

Money printing sucks money out of the real economy, and throws it at the wealthy … who use it to speculate on stocks, bonds and housing.

Indeed, the central banks have consciously been focusing all of their efforts on blowing asset bubbles …

But the bigger they come, the harder they fall.

 

Robert Shiller: Unlike 1929 This Time Everything – Stocks, Bonds And Housing – Is Overvalued

May 29, 2015

Robert Shiller: Unlike 1929 This Time Everything – Stocks, Bonds And Housing – Is Overvalued

Robert Shiller is a professor of economics and finance at Yale University. He is the author of Irrational Exuberance, which in 2000 predicted the collapse of the tech bubble and is now in its third edition. He was awarded the Nobel Prize in Economic Sciences in 2013 for his work on asset prices and financial market behavior.

In the attached interview he observes that the recent equity run-up seems to be driven more by fear than by exuberance, as a lack of confidence in the future prompts investors to save more and thereby bid up asset prices.

Below is an interview he gave to Goldman Sachs’ Allison Nathan

Allison Nathan: Are US stocks overvalued today?

Robert Shiller: I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007—all moments before market crashes.

…click on the above link to read the rest of the article…

 

 

The potential bond crisis most people have never heard of

May 26, 2015

The potential bond crisis most people have never heard of

While 007 goes from strength to strength, his financial namesake may be heading for a fall

“The name’s Bond,” goes the famous line. But in this case, it’s not James Bond. While nearly everyone knows every detail about the 007 super spy, his lesser-known financial namesake is many times more important.

The James Bond franchise is expected to continue strongly with the autumn arrival of Daniel Craig speeding through the streets of Rome inSPECTRE, but those in the financial know worry about the spectre of the other kind of bond heading for a crash.

Four out of five bond traders worry the market could collapse in a disorderly sell-off.

And while Bond villains jump right out at you, bond villains are hard to finger.

At their most basic level, bonds are anything but complicated. They are simply a legal arrangement where one person agrees to lend money to someone else for a fixed length of time at a fixed rate of interest.

Popping the bond bubble

In the public imagination, if we think of them at all, bonds are the epitome of safety. Which is why it is strange to read in one of the world’s most reliable business publications, the London Financial Times, that experts are terrified of an imminent crash in bonds that could destabilize the global economy.

Canadian 30 year bond chart

The interest rates on Canadian bonds have been falling for decades, meaning existing bonds have risen in value. That could be about to change. (Pete Evans/CBC)

“This market could pop,” leading bond trader Brad Crombietold the FT. “There is more tension and anxiety over valuations than for a long while.”

 

…click on the above link to read the rest of the article…

Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

May 26, 2015

Is The 505 Trillion Dollar Interest Rate Derivatives Bubble In Imminent Jeopardy?

All over the planet, large banks are massively overexposed to derivatives contracts.  Interest rate derivatives account for the biggest chunk of these derivatives contracts.  According to the Bank for International Settlements, the notional value of all interest rate derivatives contracts outstanding around the globe is a staggering 505 trillion dollars.  Considering the fact that the U.S. national debt is only 18 trillion dollars, that is an amount of money that is almost incomprehensible.  When this derivatives bubblefinally bursts, there won’t be enough money in the entire world to bail everyone out.  The key to making sure that all of these interest rate bets do not start going bad is for interest rates to remain stable.  That is why what is going on in Greece right now is so important.  The Greek government has announced that it will default on a loan payment that it owes to the IMF on June 5th.  If that default does indeed happen, Greek bond yields will soar into the stratosphere as panicked investors flee for the exits.  But it won’t just be Greece.  If Greece defaults despite years of intervention by the EU and the IMF, that will be a clear signal to the financial world that no nation in Europe is truly safe.  Bond yields will start spiking in Italy, Spain, Portugal, Ireland and all over the rest of the continent.  By the end of it, we could be faced with the greatest interest rate derivatives crisis that any of us have ever seen.

The number one thing that bond investors want is to get their money back.  If a nation like Greece is actually allowed to default after so much time and so much effort has been expended to prop them up, that is really going to spook those that invest in bonds.

…click on the above link to read the rest of the article…

China Momentum Indicator Plunges to “Hard Landing” Level

May 16, 2015

China Momentum Indicator Plunges to “Hard Landing” Level

“But nothing is normal in China anymore.”

Hard-landing gurus have been predicting an imminent end of the China bubble for years. A “hard landing” would be the optimistic scenario. The other scenario would be a crash-and-burn. But to their greatest frustration, there was no hard landing, or a soft landing, or any landing for that matter. China just kept on flying.

Fueled by an enormous credit bubble and monetary propellants, it kept adding to entire ghost cities, industrial overcapacity, and the most breath-taking infrastructure build-out the world has ever seen. Global demand for its products faded as labor got more expensive, but the 1.35 billion increasingly moneyed Chinese consumers discovered splurging on smartphones, cars, luxury goods, and a million other things. The China bubble stayed aloft, despite all the cracks appearing here and there.

But now it’s running out of air.

The car business in China has been the most phenomenal growth party in the world: in two decades, it went from nearly nothing to 20 million passenger vehicle sales per year. Every global manufacturer elbowed into it with multi-billion dollar investments. It’s a big part of the Chinese economy, impacting retail sales, manufacturing, and investment in fixed assets as plants, distribution centers, and dealerships are built. It adds to transportation as these cars are shipped from the plant to dealers across the country. It adds to services such as finance and insurance.

But the party has been running out of booze. In April it just about stalled at a dreadfully tiny year-over-year growth rate of 3.7% when the industry is counting on a 9% increase for the year and is building out capacity to accommodate much more. Hence what automakers dread: price cuts.

…click on the above link to read the rest of the article…

 

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

May 5, 2015

Experts Are Warning That The 76 Trillion Dollar Global Bond Bubble Is About To Explode

Warren Buffett believes “that bonds are very overvalued“, and a recent survey of fund managers found that 80 percent of them are convinced that bonds have become “badly overvalued“.  The most famous bond expert on the planet, Bill Gross, recently confessed that he has a sense that the 35 year bull market in bonds is “ending” and he admitted that he is feeling “great unrest”.  Nobel Prize–winning economist Robert Shiller has added a new chapter to his bestselling book in which he argues that bond prices are “irrationally high”.  The global bond bubble has ballooned to more than 76 trillion dollars, and interest rates have never been lower in modern history.  In fact, 25 percent of all government bonds in Europe actually have a negative rate of return at this point.  There is literally nowhere for the bond market to go except for the other direction, and when this bull market turns into a bear it will create chaos and financial devastation all over the planet.

In a recent piece entitled “A Sense Of Ending“, bond guru Bill Gross admitted that the 35 year bull market in bonds that has made him and those that have invested with him so wealthy is now coming to an end…

Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don’t necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a “bang” at some future date.

…click on the above link to read the rest of the article…

We Just Broke 2008′s Record for the Fastest Economic Unraveling!

May 2, 2015

We Just Broke 2008′s Record for the Fastest Economic Unraveling!

In my last piece I provided a technical analysis that signaled we are entering the first stage of a bursting bubble that we’ll call the Fed Bubble.  Now while I do believe technicals provide good insight to the economic landscape I see them as a necessary rather sufficient qualifier.  In order to be truly confident that our technicals are providing an accurate story we need to understand the fundamentals behind the charts, as we often find the engine light comes on due to a loose wire rather than a problem with the engine.

The final Q1 GDP revision was just released and we saw that GDP has again missed expectations by such a large margin that 2015 is another write off for a 3% growth year.  Almost comically we heard the same excuses we got last year.  “Weather was wintery and next year is going to be the turnaround year”.  So in order to explain to these supposed economic and market ‘experts’ who seem wholly incapable of understanding economic and market forces with any sense of accuracy, let’s run through a few fundamentals.

I want to hone in on the category of consumer spending that is first to go away so that we may capture the first signals of a consumer spending pull back.  A good proxy for this is the Johnson Redbook Chain Store yoy sales.  This captures the consumer spending taking place at large department stores (Macy’s, Kohls, Walmart, Kmart, etc).  This is going to be where the real discretionary retail spending takes place, as in do I have enough space on my credit card for that sassy blue dress and groceries or just groceries?  And don’t think that is just a theatrical example.  I remember the days of asking myself those very same questions (ok maybe not the blue dress but you get the idea).  That is just real life here in the US (and Canada for that matter).

…click on the above link to read the rest of the article…

 

 

How Shale Is Becoming The .COM Bubble Of The 21st Century

May 1, 2015

How Shale Is Becoming The .COM Bubble Of The 21st Century

As I review the financials of one of the largest shale producers in the United States, Whiting Petroleum (WLL), I can’t help but notice the parallels to the .COM era of 1999 which, to some extent, has already returned to the technology and biotech sectors of today. Back then, the faster you burned cash to capture customers regardless of earnings to drive your topline, the higher your valuation. The theory was that after capturing the customers (in energy today, it is the wells) spending would slow and so would customer additions allowing companies to generate cash. By the way, a classic recent case is none other than Netflix (NFLX) which, in the past was exposed for accounting gimmicks that continue even today. It is still following this path of burning cash for the sake of customer additions, while never generating any cash in its entire existence.

Cash was plentiful in 1999 so it could always be raised as the Federal Reserve began its easy money era creating a series of bubbles for the next 15 years. Does this sound familiar to what is occurring now? It will end the same way and that process has already started as currency wars heat up and our economy grinds to a halt proving QE does not, in fact, create wealth (temporary yes for the 1%, short term, until POP) but instead it destroys it by distorting asset prices, misallocating investments, and ultimately creating an equity crash.

 

…click on the above link to read the rest of the article…

Australia’s Bad Bet on China

April 27, 2015

Australia’s Bad Bet on China

Wolf here: After any bubble, it’s always: “Nobody predicted the crash….” Central bankers don’t see bubbles. They’re not allowed to. At least officially, they don’t see them. And thus they can’t see the implosions coming. They can’t officially see these things because they help create them with their monetary policies.

Industry insiders and their financiers don’t see bubbles either because they get rich off them. Politicians and bureaucrats don’t see them because bubbles make them look good and bring in a lot of moolah.

But people do see the bubbles – which are huge and easy to see – and they do predict their crashes though they might not always get the timing right. Yet, they’re pushed aside and made the most unpopular folks around, and they’re expelled from the herd, and their warnings are ignored. It happens every time. And it happened during the Australian iron-ore bubble, whose spectacular crash suddenly “nobody was predicting.” Ha! Here’s Lindsay David:

By Lindsay David, Australia, author of Print: The Central Bankers Bubble, founder of LF Economics:

Late last week Bloomberg’s James Paton released an article titled, Gina Rinehart says ‘nobody was predicting the ore price crash’

Rinehart, “Australia’s richest woman” and “chairman of Hancock Prospecting,” as the article put it, is not the only mining head, politician, treasury employee, mainstream economist, or Reserve Banker “not” to predict the ore price crash. In fact, unless I am seriously mistaken, none of them saw the price crash coming. But they have indeed ignored all the warnings by those who did predict the crash in the spot price of iron ore.

 

…click on the above link to read the rest of the article…

Canada’s Central Bank is Headed by a Comedian

April 23, 2015

Canada’s Central Bank is Headed by a Comedian

Yet Another Delusional Bubble Blower

Canada is home to one of the most egregious housing and credit bubbles in the world – a legacy of its former central bank governor Mark Carney, who is now blowing a similarly dangerous bubble in the UK as governor of the Bank of England. For some background information on this, see:

Carney’s Legacy: Canada’s Credit and Housing Bubble

Mark Carney: If There is a Bubble, It’s Not Our Fault

A Tale of Two Bubbles

After having slashed interest rates to the bone in Canada and instigating a mortgage credit and consumer lending boom that has inter alia led to one third of Canadians complaining that they can no longer sleep properly due to worries about their huge debt loads, Mr. Carney is now presiding over this in the UK:

1-BoE-base-rateThe BoE’s current base rate is the lowest since the central bank was founded in the late 17th century – click to enlarge.

Stephen Poloz picked evidently up where Carney left off. While the data on Canada’s housing bubble are plain as day to anyone with a set of eyes and an IQ temperature above 80, the comedian who has become Mr. Carney’s replacement as governor of the Bank of Canada somehow just can’t see it. This is highly reminiscent of Ben Bernanke’s frequent denials in 2006 that there was a housing bubble in the US, even as the bubble became so freaking obvious one literally had to be in a coma not to see it. From a tweet by Forex Live in December last year:

…click on the above link to read the rest of the article…

 

Post navigation

Newer posts →

Olduvai IV: Courage
Click on image to read excerpts

Olduvai II: Exodus
Click on image to purchase

Click on image to purchase @ FriesenPress