Home » Posts tagged 'bubble' (Page 4)

Tag Archives: bubble

Every Bubble Is In Search Of A Pin

December 8, 2018

Every Bubble Is In Search Of A Pin

The ‘Everything Bubble’ has popped

Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.

The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.

It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.

History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters. It doesn’t, because ’cause’ of a bubble’s bursting can be anything. It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.

Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterparty, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system.

Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.

How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s? No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3^rd1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:

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

The Psychological Bubble That Has Been Propping Up The U.S. Economy Is Starting To Implode

December 4, 2018

The Psychological Bubble That Has Been Propping Up The U.S. Economy Is Starting To Implode

Optimism can be a very powerful thing. For a long time Americans believed that things would get better, and that caused them to take action to make things better, and that actually resulted in things moving in a positive direction. But now things have abruptly shifted. In late 2018, an increasing number of Americans believe that an economic downturn is coming, and they are taking actions consistent with that belief. As a result, they are actually helping to produce the result that they fear. And without a doubt, any rational person should be able to see that signs that the U.S. economy is slowing down are all around us. So it isn’t as if those that are preparing for the worst are being irrational. It is just that when large numbers of people all start to move in the same direction, it has a very powerful effect. We witnessed this in the stock market in recent years when people just kept buying stocks even though they were massively overvalued. The collective belief that there was money to be made in the stock market became a self-fulfilling prophecy which pushed stock prices up to absurd heights. But now that process is beginning to reverse as well, and ultimately the unwinding of that bubble will be quite painful.

Over the past couple of years the dominant economic narrative that the mainstream media was pushing was that the U.S. economy was “booming”, and this encouraged businesses to expand and consumers to go out and spend money.

But now the dominant economic narrative has changed, and businesses are starting to take actions that are consistent with the new narrative.

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

The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2

December 3, 2018

The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2

Instead of “bubble” or “collapse,” it uses “valuation pressures” and “broad adjustment in prices.” Business debt, not consumer debt, is the bogeyman this time.

Preventing another financial crisis – or “promoting financial stability,” as the Federal Reserve Board of Governors calls it – isn’t the new third mandate of the Fed, but a “key element” in meeting its dual mandate of full employment and price stability, according to the Fed’s first Financial Stability Report.

“As we saw in the 2007–09 financial crisis, in an unstable financial system, adverse events are more likely to result in severe financial stress and disrupt the flow of credit, leading to high unemployment and great financial hardship.”

Financial firms are OK-ish, except for hedge funds.

The largest banks are “strongly capitalized” and are better able to withstand “shocks” than they were before the Financial Crisis; and “credit quality of bank loans appears strong, although there are some signs of more aggressive risk-taking by banks,” the Financial Stability Report says.

Also, leverage at broker-dealers is “substantially below pre-crisis levels.” And “insurance companies have also strengthened their financial position since the crisis.”

A greater worry are hedge funds that are now being leveraged up to the hilt. “A comprehensive measure that incorporates margin loans, repurchase agreements (repos), and derivatives – but is only available with a significant time lag – suggests that average hedge fund leverage has risen by about one-third over the course of 2016 and 2017.”

“The increased use of leverage by hedge funds exposes their counterparties to risks [that would include banks and broker-dealers] and raises the possibility that adverse shocks would result in forced asset sales by hedge funds that could exacerbate price declines.”

But here is why they won’t get bailed out: “That said, hedge funds do not play the same central role in the financial system as banks or other institutions.”

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

Foundation and Empire

November 12, 2018

Foundation and Empire

**Thomas Cole, “The Consummation of Empire” (1836)**

Every vice of the Empire has been repeated in the Foundation. Inertia! Our ruling class knows one law; no change. Despotism! They know one rule; force. Maldistribution! They know one desire; to hold what is theirs.

That quote is the narrative crux of Isaac Asimov’s second book of the Foundation trilogy, Foundation and Empire (1952). It’s the fatal flaw of the Foundation, formed originally as a noble form of galactic government, but now no better than (and easy pickings for) the Empire.

Hold that thought.

The narrative crux of the second note of the Things Fall Apart trilogy, Things Fall Apart (Part 2), can be found in the following chart. It’s the relationship between U.S. household net worth (how rich we are) versus U.S. GDP (how much our economy has grown) from 1951 through today.

Both data sets are in nominal dollars (meaning neither is adjusted for inflation), both are compiled by the same people (the Fed) using the same methodology, and both are normalized at 100 to show growth rates. It’s an apples-to-apples comparison, so don’t @ me about semi-log charting – it adds nothing here.

For 46 years, from 1951 to 1997, we were no more and no less rich than our economy grew. Which makes sense. That’s the neutral vision of monetary policy, where you’re not trying to pull forward future growth through leverage and easy money in order to create more wealth today.

For the past 20 years, however, we have had a series of wealth bubbles – first the Dot-Com bubble, then the Housing Bubble, and today the Financial Asset Bubble – that have made us richer than our economy grows. Each of these bubbles was intentionally “blown” by the Fed through monetary policy.

Global GDP Still Propped Up By A Massive Amount Of Debt

November 10, 2018

Global GDP Still Propped Up By A Massive Amount Of Debt

While the government agencies and economists continue to publish strong GDP figures, they seem to overlook how much debt it took to produce that growth. Or should I say, the “supposed growth.” The days of adding one dollar of debt to get one dollar of GDP growth have been long gone for more than 40 years. And, as global debt has increased, it has forced governments to lower interest rates.

Yes, it’s really that simple. I get a good chuckle when I hear analysts talk about rising interest rates to 10-15%. If the U.S. Government interest rate on the Treasury Bonds increased to just 5%, Uncle Sam would be paying over a trillion dollars a year just to service the debt. So, no… we aren’t going to see 10-15% rates again.

Well, we could… but, most of the global debt would have to collapse or be forgiven. Unfortunately, if global debt vaporizes or is forgiven, then the entire economy collapses as well. We must remember, GDP growth is also driven by oil production growth. There is no way in HADES that the oil industry can fund future production with 10-15% interest rates. IT JUST AIN’T GONNA HAPPEN.

Why? If it weren’t for the Fed dropping rates down to nearly zero, the Great U.S. Shale Oil Ponzi Scheme and the six million barrels per day of unprofitable shale oil production would have been a pipe dream. I can assure you that the shale oil industry could not fund operations or service their debt with 10-15% interest rates.

Most shale oil companies are paying on average between 4-5% interest to service their debt. If the companies’ interest rates double or triple, then it would make it extremely difficult to service the shale industry debt that is estimated to be $280-$300 billion.

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

Mike Maloney: “One Hell Of A Crisis”

November 7, 2018

Mike Maloney: “One Hell Of A Crisis”

Crashing stocks, bonds, real estate & currency all at once?

Mike Maloney, monetary historian and founder of GoldSilver.com, has just released two new chapters of his excellent Hidden Secrets Of Money video series.

In producing the series, Maloney has reviewed several thousand years of monetary history and has observed that government intervention and mismanagement — such as is now rampant across the world — has alwaysresulted in the diminishment and eventual failure of currency systems.

As for the world’s current fiat currency regimes, Mike sees a reckoning approaching. One that will be preceded by massive losses rippling across nearly all asset classes, destroying the phantom wealth created during the latest central bank-induced Everything Bubble, and grinding the global economy to a halt:

Gold and silver are tremendously undervalued right now, and I dare you to try to find another asset that is tremendously undervalued. There just is not. By all measures, everything is just in these hyper-bubbles. OK, real estate is not quite a hyper-bubble; it’s not quite as big as 2005 and 2006, but by all measures, it’s back into a bubble. But now, we’ve got the bond bubble, the biggest debt bubble in the world. These are all going to pop.

We had a stock market crash in the year 2000, and then in 2008, we had a crash in stocks and real estate. The next crash is going to be in stocks, real estate and bonds — including a lot of sovereign debt, corporate bonds and a whole lot of other bonds that will be crashing at the same time. So, it will be all of the standard financial asset classes, including the traditional ‘safe haven’ of bonds that are going to be crashing at the same time that the world monetary system is falling apart.

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

Bubble-Watcher, Bob Shiller Warns “We’re Primed To Repeat 2008” As Housing Momentum Slows

November 5, 2018

Bubble-Watcher, Bob Shiller Warns “We’re Primed To Repeat 2008” As Housing Momentum Slows

The US housing market is anything but healthy and even most bullish of realtors (especially since “it is difficult to get a man to understand something, when his salary depends upon his not understanding it”) is admitting that all is not well.

As interest rates have soared, US housing data has collapsed at a pace not seen since 2008…

Construction has slowed, sales have dropped, home prices have decelerated, and sentiment in the sector has deteriorated. The sharp underperformance of homebuilder stocks suggests that investors expect the sector to continue to struggle.

And, as famed housing-watcher Robert Shiller notes, the weakening housing market is similar to the last market high, just before the subprime housing bubble burst a decade ago.

The economist, who predicted the 2007-2008 crisis, told Yahoo Finance that current data shows “a sign of weakness.”

“This is a sign of weakness that we’re starting to see. And it reminds me of 2006 … Or 2005 maybe,”

Housing pivots take more time than those in the stock market, Shiller said, adding that:

“the housing market does have a momentum component and we’re seeing a clipping of momentum at this time.”

The Nobel Laureate explained:

“If the markets go down, it could bring on another recession. The housing market has been an important element of economic activity. If people start to get pessimistic about housing and pull back and don’t want to buy, there will be a drop in construction jobs and that could be a seed for another recession.”

When reminded that 2006 predated the greatest financial crisis in a lifetime, RT notes that Shiller acknowledged that any correction would likely be far less severe.

“The drop in home prices in the financial crisis was the most severe drop in the US market since my data begin in 1890,” the Yale economist said.

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

Did The Nasdaq Bubble Just Burst?

October 26, 2018

Did The Nasdaq Bubble Just Burst?

Regular readers will recall when back in March, Bank of America cautioned that after the tech bubble in 2000, the housing bubble in 2006, we were witnessing the third biggest bubble of all time: the e-Commerce bubble.

Well, after several weeks of sharp volatility which has hammered tech stocks, slammed momentum trades and hurt growth factors, the tech sector is once again sharply lower after hours largely on the back of disappointments from Google and Amazon, with the ETF which tracks the Nasdaq 100 dropping about 2%, and threatening to slide back into a bear market.

The reason for this latest weakness in the QQQs may be that investors are finally realizing that the latest Nasdaq bubble may have popped, if for no other reason than what is shown in the Bloomberg chart below: namely revenue growth at the two e-commerce titans, Google and Amazon, appears to have finally peaked.

Granted, the decline is not in revenue but in revenue growth, however when investors are already beyond skittish about peak earnings, a slowdown in the second derivative may be all they need to sell now and ask questions later. Which may explains why FANG stocks are all sharply lower after hours as the market begins to reasses just how much longer the “e-commerce bubble” as defined by Bank of America has left before it pops…

Weekly Commentary: Rude Awakening Coming

October 15, 2018

Weekly Commentary: Rude Awakening Coming

Please join Doug Noland and David McAlvany this Thursday, October 18th, at 4:00PM EST/ 2:00pm MST for the Tactical Short Q3 recap conference call, “Market Contagion is Back.” Click here to register.

There’s little satisfaction writing the CBB after a big down week in the markets. Motivation seems easier to come by after up weeks, perhaps my defiant streak kicking in. I find myself especially melancholy at the end of this week. There’s a Rude Awakening Coming – perhaps it’s finally starting to unfold.

Many will compare this week’s market downdraft to the bout of market tumult back in early-February. At the time, I likened the blowup of some short volatility products to the June 2017 failure of two Bear Stearns structured Credit funds – an episode marking the beginning of the end for subprime and the greater mortgage finance Bubble. First cracks in vulnerable Bubbles. Back in 2007, it took 15 months for the initial fissure to develop into the “worst financial crisis since the Great Depression.”

I posited some months back that tumult in the emerging markets marked the second phase of unfolding Crisis Dynamics. I have argued that the global government finance Bubble, history’s greatest Bubble, has been pierced at the “periphery.” More recently, the analytical focus has been on “Periphery to Core Crisis Dynamics.” I’ve chronicled de-risking/deleveraging dynamics making headway toward the “Core.” This week the “Core” became fully enveloped, as the unfolding global crisis entered a critical third phase.

Today’s backdrop is altogether different than that of February. For one, back then “money” was flowing readily into the emerging markets – too much of it “hot money.” “Risk on” was still dominant early in the year. Speculative leverage was expanding, with resulting liquidity abundance on an unprecedented global scale. With such a powerful global liquidity backdrop, a fleeting dislocation in U.S. equities proved no impediment to the hard-charging U.S. bull market.

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

Peter Schiff: The Next Economic Crash Will Be “Far More Painful” Than The 2008 Recession

October 15, 2018

Peter Schiff: The Next Economic Crash Will Be “Far More Painful” Than The 2008 Recession

Euro Pacific Capital CEO Peter Schiff is sounding the alarm after this week’s market selloff, saying Wall Street and the U.S. economy are on the verge of a recession.

“I think as Americans lose their jobs, they are going to see the cost of living going up rather dramatically, and so this is going to make it particularly painful,” Schiff said.

“This is a bubble not just in the stock market, but the entire economy,” he told Fox News Business.

Schiff is predicting a recession, accompanied by rising consumer prices, that will be “far more painful” than the 2007-2009 Great Recession.

As SHTFplan.com’s Mac Slavo notes, President Donald Trump blamed the recent stock market woes on the Federal Reserve and the rising of interest rates.

“I think the Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” Trump told reporters on his way to a rally in Pennsylvania on Wednesday.

Trump said that the United States’ central bank is solely responsible for the worst stock market selloff since February, saying the Federal Reserve “has gone crazy.”

Schiff said it isn’t entirely the Fed’s fault, however, because they have been acting “irrationally” for a very long time while slowly adding nails to the economy’s coffin.

“What is crazy is for the Fed to believe that they can raise interest rates without pricking their own bubble,” he said.

“All bear markets start off as corrections. I think this one is probably a bear market. It’s long overdue,” Schiff said on FOX News Business.

Schiff said investors are on the edge of a precipice that foresees a bear market far worse than the stock market crash of 2008.

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

Market crash? Another red card for the economy

October 13, 2018

Market crash? Another red card for the economy

A few months ago I wrote this article at the World Economic Forum called “A Yellow Card For The Global Economy“. It tried to serve as a warning on the rising imbalances of the emerging and leading economies. Unfortunately, since then, those imbalances have continued to rise and market complacency reached new highs.

This week, financial markets have been dyed red and the stock market reaction adds to concerns about a possible impending recession.

The first thing we must understand is that we are not facing a panic created by a black swan, that is, an unexpected event, but by three factors that few could deny were evident:

Excessive valuations after $20 trillion of monetary expansion inflated most financial assets.
Bond yields rising as the US 10-year reaches 3.2%
The evidence of the Yuan devaluation, which is on its way to surpass 7 Yuan per US dollar.
Global growth estimates trimmed for the sixth time in as many months.

Therefore, the US rate hikes – announced repeatedly and incessantly for years – are not the cause, nor the alleged trade war. These are just symptoms, excuses to disguise a much more worrying illness.

What we are experiencing is the evidence of the saturation of excesses built around central banks’ loose policies and the famous “bubble of everything”. And therein lies the problem. After twenty trillion dollars of reckless monetary expansion, risk assets, from the safest to the most volatile, from the most liquid to the unquoted, have skyrocketed with disproportionate valuations.

(courtesy Incrementum AG)

Therefore, a dose of reality was needed. Monetary policy not only disguises the real risk of sovereign assets, but it also pushes the most cautious and prudent investor to take more risk for lower returns. It is no coincidence that this policy is called “financial repression“. Because that is what it does. It forces savers and investors to chase beta and some yield in the riskiest assets.

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

People Will Be Dumping Dollars & Buying Gold – Peter Schiff

October 4, 2018

People Will Be Dumping Dollars & Buying Gold – Peter Schiff

Money manager Peter Schiff was in a small group warning of a coming financial meltdown that happened in 2008. Schiff says, “I was kind of a fixture on financial cable TV giving these warnings. My thought was the bubble would burst, and I knew that it would. Once the housing bubble burst and we had this financial crisis, I knew it would follow along with the Great Recession. I thought the Federal Reserve would try the best it could to reflate the bubbles in the stock markets and housing markets. But my thought was that their efforts would fail. The markets would not allow it and that a dollar collapse would intervene and would prevent new debt from being issued to fully reflate those bubbles. I was actually wrong. They didn’t just try to reflate the bubbles, they actually succeeded in blowing them bigger than ever.”

Ten years later, Schiff is warning of another financial calamity bigger than the last one. Schiff says, “The problem is now we are on the precipice of a much bigger crisis than before. The next time, if they try to reflate those bubbles, which they will, it will be a spectacular failure because the markets are now prepared for the opposite. Everybody, right now, assumes the Fed is going to be able to keep raising rates. They assume they are going to shrink its balance sheet and that we have this booming economy that will never bust. When the Fed has to reverse course abruptly, acknowledge the underlying weakness that everybody has been oblivious to and they start cutting rates and launching another round of quantitative easing (money printing), I think the dollar is going to fall through the floor. I think the inflationary fires that are already burning pretty hot are going to ignite.

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

Weekly Commentary: Portending an Interesting Q4

September 30, 2018

Weekly Commentary: Portending an Interesting Q4

“Those who do not learn history are doomed to repeat it.” I’ll add that those that learn the wrong lessons from Bubbles are doomed to face greater future peril. The ten-year anniversary of the financial crisis has generated interesting discussion, interviews and scores of articles. I can’t help but to see much of the analysis as completely missing the critical lessons that should have been garnered from such a harrowing experience. For many, a quite complex financial breakdown essentially boils down to a single flawed policy decision: a Lehman Brothers bailout would have averted – or at least significantly mitigated – crisis dynamics.

I was interested to listen Friday (Bloomberg TV interview) to former Treasury Secretary Hank Paulson’s thoughts after a decade of contemplation.

Bloomberg’s David Westin: “It’s been ten years, as you know, since the great financial crisis that you stepped into. Tell us the main way in which the financial system is different today than what you faced when you came into the Treasury?”

Former Treasury Secretary Hank Paulson: “Well, it’s very, very different today. So, let’s talk about what I faced. What I faced was a situation where going back decades the government had really failed the American people, because the financial system had not kept pace with the modern financial markets. The protections that were put in place after the Great Depression to deal with panics were focused on banks – protecting depositors with deposit insurance. Meanwhile, the financial markets changed. And when I arrived (2006), half or more of the Credit was flowing outside of the banking system.

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

The Great Financial Crisis: Bernanke and the Bubble

September 25, 2018

The Great Financial Crisis: Bernanke and the Bubble

Ben Bernanke responded to Paul Krugman’s post last week, which agreed with my argument that the main cause of the Great Recession was the collapse of the housing bubble rather than the financial crisis. Essentially, Bernanke repeats his argument in the earlier paper that the collapse of Lehman and the resulting financial crisis led to a sharp downturn in non-residential investment, residential investment, and consumption. I’ll let Krugman speak for himself, but I see this as not really answering the key questions.

I certainly would not dispute that the financial crisis hastened the decline in house prices, which was already well underway by September of 2008. It also hastened the end of the housing bubble led consumption boom, which again was in the process of ending already as the housing wealth that drove it was disappearing.

I’ll come back to these points in a moment, but I want to focus on an issue that Bernanke highlights, the drop in non-residential investment following the collapse of Lehman. What Bernanke seemed to have both missed at the time, and continues to miss now, is that there was a bubble in non-residential construction. This bubble essentially grew in the wake of the collapsing housing bubble.

Prices of non-residential structures increased by roughly 50 percent between 2004 and 2008 (see Figure 5 here). This run-up in prices was associated with an increase in investment in non-residential structures from 2.5 percent of GDP in 2004 to 4.0 percent of GDP in 2008 (see Figure 4).

This bubble burst following the collapse of Lehman, with prices falling back to their pre-bubble level. Investment in non-residential structures fell back to 2.5 percent in GDP. This drop explains the overwhelming majority of the fall in non-residential investment in 2009. There was only a modest decline in the other categories of non-residential investment.

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

There’s a New Crash Coming

September 25, 2018

There’s a New Crash Coming

Donald Trump is the epitome of irrational exuberance.

You might remember that phrase from the 1990s. Alan Greenspan, the head of the Federal Reserve at the time, was describing how the tech boom was creating a bubble by generating enthusiasm way out of proportion to the actual value of the new companies.

Such an unwarranted economic boom was hardly something new, so it was easy to predict what would happen next. Periods of irrational exuberance — whether the dot-com expansion, Dutch tulipmania in the 17^th century, or the housing bubble in America of the 2000s — have always led to a sudden crash and a serious hangover.

And now, here we go again.

Trump, always exuberant when talking about himself and his putative accomplishments, loves to boast about how well the American economy is chugging along. The stock market reached its all-time high at the end of August. In its second quarter this year, U.S. economic growth was 4.1 percent. Unemployment remains below 4 percent, and inflation remains moderate. Even wages are going up.

Irrationality enters the picture because there’s little if any connection between the president’s policies and the outcomes he lauds (since these trends began before he took office). Also, the prosperity that has resulted from this economic expansion has largely been enjoyed by the wealthier sectors of society. Finally, Trump’s economic fever dream is fueled by an enormous and growing amount of debt.

When it comes to irrational exuberance, it’s never if there will be a bust but when. On the tenth anniversary of the financial collapse of 2008, it’s worth looking at the potential pinpricks that will pop Trump’s hot-air balloon and send America crashing back to earth.

Mountains of Debt

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

Tag Archives: bubble

Content

Post categories

Economic Links

Energy/Resource Links

Environmental Links

Geopolitical Links

Liberty Links

News Links

Other Links

Survival Skills

Post Archives by Category

Post navigation

Latest Posts