Home » Posts tagged 'bubble' (Page 3)

Tag Archives: bubble

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Post Archives by Category

J.M. Keynes: The Time He Had A Point

September 28, 2019

J.M. Keynes: The Time He Had A Point

John Maynard Keynes once said:

“Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

While true, it doesn’t go far enough. The problem isn’t simply defunct economists or “scribblers of a few years back.”

We are in the grip of economists who, far from being defunct, hold great power. Whether they hear voices in the air (or Twitter), I can’t say, but they are indeed madmen in authority.

Not all economists are in that category. Many provide valuable insight or are at worst harmless. They don’t pretend they can change human nature or prevent the inevitable.

Unfortunately, some economists do believe those things. Worse, they are in places from which they can wreak havoc, and they are.

Last weekend I received two emails referring me to articles about the economics profession that stirred my writing juices.

I don’t agree with everything in the articles. They are, however, important because they try, at least, to describe and possibly fix the problem Keynes identified.

We have to address them, not just economically but politically. We can’t just put our heads in the sand and think this will go away.

The whole debt bubble, the income and wealth inequality angst, a growing deficit which will get worse after the next recession, and lack of economic understanding among voters is all coming home to roost.

Better to think about that now, while we can still act and maybe even change things.

False Assumptions

The first item is a July 2019 TED talk by Nick Hanauer, a self-described Seattle “plutocrat” who founded and sold several companies.

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

BofA: Central Banks Are Creating Bubbles Instead Of Helping The Economy; The Result Will Be A Disaster

August 27, 2019

BofA: Central Banks Are Creating Bubbles Instead Of Helping The Economy; The Result Will Be A Disaster

In recent weeks we have seen a surprising spike in criticism of central banks by establishment figures, in some cases central bankers themselves, most notably Mark Carney who last Friday remarkably admitted that very low interest rates tend “to coincide with high risk events such as wars, financial crises, and breaks in the monetary regime.” This continued yesterday when 7 months after it praised negative rates, the San Francisco Fed pulled a U-turn and warned that the “Japanese experience”, where negative rates dragged down inflation expectations even more, is ground for NIRP caution.

Then, in an even more bizarre interview with the FT, St Louis Fed president James Bullard made an even more stunning admission – that the Fed no longer has any idea what is going on. To wit:

“Something is going on, and that’s causing I think a total rethink of central banking and all our cherished notions about what we think we’re doing… We just have to stop thinking that next year things are going to be normal.”

There was more. In a series of questions aimed at the Fed in this post-Jackson Hole powerless reality, we brought you some rhetorical fireworks from the head of FX at Deutsche Bank, Alan Ruskin, who lashed out at the central bank with 20 questions, technically statements, that 10 years ago would have branded him a tinfoil-wearing conspiracy theorist (we know, because we asked just these questions back in 2009), among which:

  • “Will the Fed/ECB buy equities/ETFs? How far are central banks willing to distort underlying value, or is distorting value intrinsic to Central Banking as per the Austrian critique?”
  • “How much are Central Banks going to be complicit in a collapse in fiscal standards, by buying public sector assets? Will a passive Central bank simply accommodate and facilitate fiscal actions related to MMT?”

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

The Economic Bubble Bath

July 2, 2019

The Economic Bubble Bath

economic bubble stocks bonds

At the end of a long, tiring day, we may choose to treat ourselves to a soothing bubble bath. Surrounded by steaming water and a froth of sweet-smelling bubbles, it’s easy to forget the cares of everyday life.

This fact is equally true of economic bubbles. When the markets are up, we’re inclined to feel as though life is rosy. Unfortunately, it does seem to be the norm that investors fail to recognize when a healthy up-market transforms into a dangerous bubble. We tend to be soothed into overlooking the fact that we’re in hot water, and economically, that’s not an advantageous situation to be in.

Periodically, any economy will experience bubbles. It’s bound to happen. Human nature dictates that, if the value of an asset is on the rise, the more success it experiences, the more we want to get in on the success.

Sadly, the great majority of investors have a tendency to fail to educate themselves on how markets work. It’s easier to just trust their broker. Unfortunately, our broker doesn’t make his living through our success; he makes it through brokering transactions. The more buys he can encourage us to make, the more commissions he enjoys.

It’s been said that a broker is “someone who invests your money until it’s gone,” and there’s a great deal of truth in that assessment.

And so, we can expect to continue to witness periodic bubbles in the markets. They’ll occur roughly as often as it takes for us to forget the devastation of the last one and we once again dive in, only to be sheared once again.

But we’re presently seeing an economic anomaly – a host of bubbles, inflating dramatically at the same time.

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

April 21, 2019

Mismatch

Oh dear. People are embracing the bubble and, as it happens in every bubble, fantastical narratives are emerging to justify the valuations and the price momentum as folks cannot square reality with non stop levitation in equity prices. Never mind that the final price spurt in any bubble is the most dangerous and most deceiving.

And with these fantastical narratives suddenly debt no longer matters because MMT. Inflation is declared dead as central bankers keep missing their inflation targets yet consumers are well aware of inflation in their daily lives, and yield curves no longer matter because they are simply a play thing of central bankers who can now prevent recessions forever:

“The Fed has the power to “prevent or quickly undo” an unwanted inversion, the BofA economists said.”

If debt doesn’t matter, inflation doesn’t exist, and yield curve inversions can be prevented by an all powerful Fed we must truly live in a world of milk and honey.

After all:

United States weekly jobless claims just hit a 50 year low. The economy is doing GREAT!
— Donald J. Trump (@realDonaldTrump) April 20, 201

Things are so awesome we are experiencing some of the loosest financial conditions in history:

And global liquidity keeps running at record levels:

No wonder stocks are celebrating and flirting with record highs, indeed record highs are already seen printed on tech and consumer discretionary:

No wonder investors are chasing after money losing IPOs like it’s 1999:

And are piling in their cash after a 24% rally off the lows:

After all Q1 GDP is flying higher to unforeseen levels.

The Atlanta Fed’s GDP forecasting model, always having an adventurous relationship with reality, is now forecasting a 2.8% GDP print for Q1, following a 0.4% projection just 6 weeks ago:

Looks like Alan Greenspan is right. Get a big rally in $SPX and suddenly your GDP looks much better.

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

Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

April 3, 2019

Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

Image: Preppers save for a rainy day: Why financial planning is crucial for surviving an economic downturn

(Natural News) As a prepper, one of the first things that you need to learn is the importance of financial preparedness. Don’t wait until an economic collapse before you start settling your debts or saving money. (h/t to TimGamble.com)

The basics of financial preparedness

Personal, business, or government debt is bad. It will stress you out, and it makes you more vulnerable to economic downturns.

To become financially prepared, you must first eliminate consumer debt. This includes credit cards, car loans, payday loans, personal loan, and installment plans.

To clear your debts, you may need to make sacrifices, such as:

  • Putting off major purchases.
  • Avoiding impulse purchases (e.g. luxury items, etc).
  • Bringing your own lunch to school or work.
  • Having a major yard sale to raise some money.
  • Starting a second job.

Making these sacrifices may seem hard, but keep in mind that in the end, the benefits will be more than worth it. (Related: 7 obvious warning signs we are heading for an economic meltdown.)

Second, you need to have emergency savings. Start by holding yard sales or getting a second job. Put the money somewhere safe, such as an insured certificate of deposit(CD). A CD is a type of federally insured savings account with a fixed interest rate and fixed date of withdrawal or maturity date. CDs don’t usually have monthly fees and they are different from traditional savings accounts in several ways. Savings accounts let you deposit and withdraw funds rather freely.

However, with a CD you agree to leave your money in the bank for a set amount of time (know as the “term length”). If you do access the money in a CD, you will need to pay a penalty. Term lengths can range from several days to a decade. The standard range of options for CDs is between three months and five years.

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

Janet Yellen Suggests Strengthening The ‘Fed Put’

March 27, 2019

Janet Yellen Suggests Strengthening The ‘Fed Put’

In a speech in Hong Kong this week, former Fed chair Janet Yellen stated that “global central banks don’t have adequate crisis tools.” According to that logic, she believes that launching additional multi-trillion dollar rounds of quantitative easing and cutting interest rates into negative territory – two aggressive and controversial monetary tools that are currently available – are simply not enough. Yellen’s comments this week echo comments that she made in September 2016 when she was still Fed chair: 

The Federal Reserve might be able to help the U.S. economy in a future downturn if it could buy stocks and corporate bonds, Fed Chair Janet Yellen said on Thursday. 

Speaking via video conference with bankers in Kansas City, Yellen said the issue was not a pressing one right now and pointed out the U.S. central bank is currently barred by law from buying corporate assets. 

But the Fed’s current toolkit might be insufficient in a downturn if it were to “reach the limits in terms of purchasing safe assets like longer-term government bonds.”

“It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions,” she said, adding that buying equities and corporate bonds could have costs and benefits.

If the Federal Reserve is ever allowed to buy stocks and corporate bonds, it will create an extremely dangerous situation in which investors, speculators, and business leaders will feel that they can take virtually unlimited risk and will still be backed by the Fed. This phenomenon is known as a moral hazard or the Fed Put.

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

Bubble 3.0: No Way Out

February 26, 2019

BUBBLE 3.0: NO WAY OUT

“We’re paddling against the current in trying to sustain public faith in the Fed.”
–Federal Reserve Chairman JEROME (JAY) POWELL

“The FOMC (Federal Open Market Committee, the Fed’s key rate-setting entity) is in panic mode now, facing the Frankenstein monster balance sheet it has created. The FOMC has come to the realization that it cannot unwind it.”
–Jones Trading’s chief strategist MIKE O’ROURKE 

“The Fed today is as much a prisoner of the market as the market today is a prisoner of the Fed.”
–Epsilon Theory’s BEN HUNT

______________________________________________________________________________________________________________

INTRODUCTION

At the beginning of 2018, we initiated a new EVA series titled “Bubble 3.0” with excerpts from David Hay’s upcoming book titled “Bubble 3.0: How Central Banks Created the Next Financial Crisis”.

If you are just joining us in the middle of this ongoing series, which will eventually culminate in a full-length publication, please take a few moments to review the prior installments in the series:

In this month’s edition, David looks at how a recent policy pivot from the Fed could create a longer-term crisis with no way out for the US economy or stock market. 

______________________________________________________________________________________________________________

BUBBLE 3.0, CHAPTER 10: NO WAY OUT

“Big hat, no cattle”. “All sizzle, no steak”. “Talks a good game”. Those and other popular sound-bites are meant to refer to someone who is, to use another colloquialism, “all bark and no bite”. When it comes to most of the world’s central banks, all of those quips apply. 

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

The Next Recession: What It Could Look Like

January 21, 2019

The Next Recession: What It Could Look Like

With the New Year and the US recovery soon to be record-breaking in duration, many are asking when the next recession is likely to come and what will cause it. While none of us has a crystal ball that gives a clear view of the future, there are a few things we can say.

First, and most importantly, the next recession will not look like the last recession. The last recession was caused by the collapse of a massive housing bubble that had been the driving force in the previous recovery. While economists like to pretend this was an unforeseeable event, that is not true.

There was an unprecedented run-up in nationwide house prices. It was clear that this was not being driven by the fundamentals of the housing market, as there was no remotely corresponding increase in rents, and vacancy rates were hitting record levels.

Furthermore, it was easy to see the housing bubble was driving the economy. Residential construction was hitting record shares of GDP, more than two full percentage points above its long-term average of 4.0 percent of GDP.

The wealth created by the bubble was also leading to a consumption boom, as people spent based on the new equity created by the run-up in the price of their home. This was also easy to see in the data, as the ratio of consumption-to-income hit record levels.

This history is important to review because many analysts are looking for the next recession to be a replay of the 2008 crash. If we pretend that the bursting of the housing bubble and subsequent downturn was an unforeseeable event, then there could be other unforeseen events that will sink the economy. For this reason, it is necessary to point out that the 2008 collapse was entirely foreseeable, economists just ignored the evidence that was visible to anyone who examined the economy with open eyes.

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

Market Commentary: Issues 2019

January 12, 2019

Market Commentary: Issues 2019

When I began posting the CBB some twenty years ago, I made a commitment to readers: “I’ll call it as I see it – and let the chips fall where they will.” Over the years, I made a further commitment to myself: Don’t be concerned with reputation – stay diligently focused on analytical integrity.

I attach this odd intro to “Issues 2019” recognizing this is a year where I could look quite foolish. I believe Global Financial Crisis is the Paramount Issue 2019. Last year saw the bursting of a historic global Bubble, Crisis Dynamics commencing with the blow-up of “short vol” strategies and attendant market instabilities. Crisis Dynamics proceeded to engulf the global “Periphery” (Argentina, Turkey, EM, more generally, and China). Receiving a transitory liquidity boost courtesy of the faltering “Periphery,” speculative Bubbles at “Core” U.S. securities markets succumbed to blow-off excess. Crisis Dynamics finally engulfed a vulnerable “Core” during 2018’s tumultuous fourth quarter.

As we begin a new year, rallying risk markets engender optimism. The storm has passed, it is believed. Especially with the Fed’s early winding down of rate “normalization”, there’s no reason why the great bull market can’t be resuscitated and extended. The U.S. economy remains reasonably strong, while Beijing has China’s slowdown well under control. A trade deal would reduce uncertainty, creating a positive boost for markets and economies. With markets stabilized, the EM boom can get back on track. As always, upside volatility reenergizes market bullishness.

I titled Issues 2018, “Market Structure.” I fully anticipate Market Structure to remain a key Issue 2019. Trend-following strategies will continue to foment volatility and instability. U.S. securities markets rallied throughout the summer of 2018 in the face of a deteriorating fundamental backdrop. That rally, surely fueled by ETF flows and derivatives strategies, exacerbated fragilities.
…click on the above link to read the rest of the article…

Peter Schiff: This Is the Beginning of a Much Bigger Crisis (Video)

January 11, 2019

Peter Schiff: This Is the Beginning of a Much Bigger Crisis (Video)

Wall Street has been on a roller coaster ride over the last few months. If you listen to the pundits on the financial networks, you’ll hear the word “volatile” used over and over again. That word certainly seems to describe the current state of US stock markets and in a broader sense the economy. But during a recent interview on RT News with Rick Sanchez, Peter Schiff said it’s not that the economy is volatile. It’s actually a bubble. And we are on the verge of a bigger crisis than the one we went through in 2008.

It’s not a volatile economy, it’s a bubble economy. Thanks to the Federal Reserve, they inflated an even bigger bubble, on purpose, than the one they inflated by accident that popped in 2008. And so the economy is in much worse shape structurally today then it was before it fell apart the last time. So, this is the beginning of a much greater crisis, of a much greater recession than the one that we experienced back in 2008.”

Sanchez asked Peter what exactly the Federal Reserve did wrong. Peter said, basically, everything.

But the biggest things they did wrong were lowering interest rates down to zero, practically, and leaving them there for pretty much the entirety of the Obama presidency. And then they’ve barely raised them. They’re still at 2%, which is very low. They also did all the quantitative easing where they printed a bunch of money and bought US government bonds and mortgage bonds. That enabled the housing bubble to reflate, and that enabled the US government to go much deeper into debt. So, the government didn’t cut spending, which is what we needed. They increased spending. But it also enabled corporations to lever up and buy stocks.

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

The Fed IS the Ugly Truth

January 7, 2019

The Fed IS the Ugly Truth

Rembrandt van Rijn Man with a falcon on his wrist (possibly St. Bavo) 1661

This Fed thing just keeps going on, and it needs to stop. There is nothing in the discussion about the Federal Reserve these days that has any value other than it provides even more proof that the Fed has killed off the most essential elements of what once made the US economy function. All markets, stocks, bonds, housing markets, all price discovery, all murdered. No heartbeat. Pining for the fjords.

And instead of addressing that, and I’m not even talking about addressing fixing what is wrong, all I see is neverending stuff about Jay Powell using, or not using, terms such as “patient” or “accommodative”. Like any of it means anything coming from him and his ilk. Other than for making ‘investors’ a quick buck. Like a quick buck could ever trump the survival of entire market systems.

People discussing whether Jay Powell is doing a good job all miss the point. Because Powell should not be doing that job in the first place. The Fed should not have the power to manipulate the US economy anywhere near as much as it does. Because that power is perverting America like nothing else, and the US economy will never recover as long as the Fed holds that power. Is that clear enough? Do we understand that at least?

Powell apparently changed his tune Friday in order to let the mirage that the stock market has become, live another day. Almost literally a day, since it will come crumbling down no matter what he does, just a day or so later. It’s all some message hidden in his use of “patience” or “accommodative”. Nothing he does will have any effect in the medium or longer term, and he knows it.

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

Trump Is A Pied Piper For The New World Order Agenda

January 5, 2019

Trump Is A Pied Piper For The New World Order Agenda

In my last article, ‘The Fed Is A Suicide Bomber With A Deeper Agenda’, I explored and dismantled recent propaganda surrounding the Federal Reserve’s tightening actions, including the propaganda that Jerome Powell is some kind of rogue central banker who is rebalancing the system for the good of the nation.  To summarize the points made in that article:

The Fed deliberately created the “Everything Bubble” so that it could be deliberately imploded at the proper time – in other words, the crash we have been witnessing so far during the final quarter of 2018 and continuing into 2019 is a controlled demolition of the economy.  Jerome Powell is not some “rebel” going against the easy money dictates of the Fed.  Jerome Powell is playing the role that has been given to him.  Ben Bernanke and Janet Yellen’s job was to inflate the bubble.  Jerome Powell’s job is to crash the bubble.

This is a tactic used by the Fed and the globalists that run it for over 100 years – conjure a debt bubble, deflate the debt bubble, cause a crisis, siphon up hard assets for pennies on the dollar, use the panic to gain more power and centralization, introduce new control measures while everyone is distracted, rinse, repeat.

This process of controlled demolition needs a considerable distraction so that the central banks and the globalists ultimately avoid blame for the painful consequences of the event.  Enter Donald Trump and the false Trump vs. Globalist paradigm.  As I mentioned last week, the Fed is only one side of the equation for the crash; Trump is the other side.

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

The Ghost Of Christmas Future

December 29, 2018

The Ghost Of Christmas Future

Here in the brief period between Christmas and New year’s, as a writer I am obligated to say happy, wishful things. I have to confess, I’m just not feeling it this year, so I’ll just do the minimum here and return to being a curmudgeon, because that’s what the times call for.

So, happy new year. I hope everything works out well for you in 2019.

There, with that behind us we can now return our attention to the true state of the world, which is deteriorating and getting worse.

For most people things will be decidedly worse, not better, as things progress along their current trajectories. The only planet we’ve got to live on is being killed by human activity and gross inattention, while economically the greatest and most ill-advised credit bubble in all of human history flirts with the sort of sudden disaster that follows shortly after the failure of one’s reserve parachute.

As I’ve often repeated, I truly wish this weren’t the case.  I don’t have a “bummer gene” that relishes bad news nor do I enjoy being “that guy” who says what no one wants to hear.

Many of you reading this know exactly what I’m talking about.  You, too, had to keep your lips zipped over the holidays lest the strained family small talk and opening of cheaply-made forgettable gifts be ruined by any talk of ‘reality’.  Sure, everyone can inwardly wince at uncle Jack’s sixth bourbon and tolerate the buffoonery and social awkwardness sure to follow because  “it’s only once a year.”

But collapsing insect populations, species loss, shrinking aquifers, and the utter betrayal of the younger generations by the “olders” running the fiscal and monetary policies of the world are not as easily dismissed. There’s no relief at the end of the day when the problem drives itself home.

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

Nothing Goes to Hell in a Straight Line, Not Even Stocks

December 23, 2018

Nothing Goes to Hell in a Straight Line, Not Even Stocks

But a whole generation of investors has never been through a Nasdaq-bubble unwind, and they’re shocked.

I just dug out my “Dow 20,000” hat, but I might not need it for a while because nothing goes to hell in a straight line. And I still have my “Dow 10,000” hat somewhere just in case, though I doubt I’ll need to go look for it anytime soon for the reasons I’ll explain in a moment.

I have to admit, this was a beauty of a Santa rally. We were promised a Santa rally by the buy-buy-buy hype organs on Wall Street, so here we go with our Santa rally:

The Dow dropped 6.9% this week, to 22,445, and is down 9.2% for the year. It’s down 16.3% from its all-time peak in September. It’s only about 11% away from my “Dow 20,000” hat. The last time we saw 20,000 on the way up was in January 2017. But rolling back 21 months of gains in the stock market — from September 2018 back to January 2017 — is nothing. The big deal is how much the Dow has surged over those 21 months from 20,000 to the peak in September: 35%.

Over the same period, the economy grew maybe 5%. So going back to 20,000 will just surgically remove the very tippy top off the bubble.

The S&P 500 Index dropped 7.1% this week and is down 9.6% year to date, down 17.5% from the peak in September, and back where it had first been on June 1, 2017.

The chart is not exactly pretty, with that nearly straight red line south, but let me assure you again: Nothing goes to hell in a straight line, and in a moment, I’ll get to why this one won’t either.

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

The Bubble’s Losing Air. Get Ready for a Crisis

December 16, 2018

The Bubble’s Losing Air. Get Ready for a Crisis

Investors need to focus on their response to financial stresses in an era in which policymakers will be constrained.

Not much to do once it pops.

Photographer: Spencer Platt/Getty Images

The “everything bubble” is deflating. The fact that it’s happening relatively slowly shouldn’t blind us to the real threat: The world is dangerously underestimating how hard it’ll be to deal with the fallout once it pops.

Frothy markets can’t disguise the warning signs. The shift to tighter monetary policies in the West is putting pressure on global equity and real-estate values. Even more critically, it’s weakening credit markets. Over-indebted emerging markets face headwinds from rising borrowing costs and dollar shortages.

At the same time, investors are underestimating how disruptive trade conflicts and sanctions could turn out to be. That’s not to mention rising non-financial risks — from the legal difficulties of the U.S. administration, to the U.K.’s Brexit debacle, to political instability in France, Germany, Italy and even Saudi Arabia. Uncertainty will impact the real economy, primarily through the wealth effect of declining asset values and a reduced supply of credit.

Investors need to start focusing on how best to respond to a new crisis. The choices are more limited than many realize. Historically, central banks have needed to slash official rates as much as 4-5 percent in order to offset the effects of a financial crisis or an economic slowdown. That’s why former U.S. Federal Reserve Chair Janet Yellen talked about the need to raise rates in good times — to provide room to cut when necessary.

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

Post navigation

← Older posts 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