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In the second week of October, after the “partial” U.S.-China trade deal was announced to much fanfare, I made this prediction:

US and Chinese officials rarely waste an opportunity to use trade talk headlines to head-fake markets with false hope. Rumors of a “partial” or tentative trade deal are circulating today, with MORE trade talks in a month or two. In other words, “more trade talks” means there is no deal of any substance and there’s plenty of time for the whole thing to fall apart once again. I give it less than a month. In the meantime, there will be plenty of other distractions for the general public, including the impeachment circus, tariffs against Europe, tensions in Syria, the Brexit mess, etc, etc.

My estimate was incorrect; it took a little over one month for the whole thing to fall apart. That said, I think the primary point remains the same. The trade war is not going to end anytime soon and there is a very good reason why this is the case: It serves the globalist agenda as a perfect distraction for the collapse of the “Everything Bubble” and the launch of the global economic reset into a what the elites call a “new world order”.

But let’s go back for a moment to understand what just happened. A month ago, the trade deal was treated as essentially done. China had partially folded on most of Trump’s demands and Trump was going to pull off a major economic victory just in time for the 2020 election season. The Dow was going to rocket past 30,000 and Trump’s second term was now assured. This was the narrative in the majority of the alternative media, and I have to say, it is sad to see so many otherwise intelligent analysts make such a huge blunder.

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

The Economic Bubble Bath

July 2, 2019

The Economic Bubble Bath

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…

What happens when the Yellow Vests meet European Debt Crisis II?

January 17, 2019

What happens when the Yellow Vests meet European Debt Crisis II?

There is a lot of talk about which economic bubble will burst first and burst the worst (sounds like a gangsta rap song, no?)

The stock market, real estate, luxury goods, corporate debt and government bond bubbles, and other lesser bubbles, all jockey for the titles. It’s the “Everything Bubble” for good reason.

The “good reason” is: the 1% owns everything of high value, so if Western governments make it their policy to inflate those valuations even higher, then the 1% regains everything they lost in 2008. Welcome to Western Liberal Democracy – if you have a seat in the House of Lords I’m sure you’re not suffering too badly.

Because of that “good reason” I listed all of these bubbles are worse now than in 2008. Nothing was learned and nothing was delivered: I am not a doomsdayer, but these kind of facts make me write that Great Recession II (Great Depression II?) is around the corner.

However, not all bubbles are created equal:

The luxury goods bubble, for example. It’s mildly interesting, from a sensational news aspect, that the most expensive bottle of wine is now worth $558,000…but the luxury goods market is a minuscule part of every nation’s “real” economy, excepting France, Italy and Switzerland. Back in 2008 a half-million dollars set the record for largest lot of wine ever – 27 bottles – so these stories only prove the existence huge asset inflation (bubbles) – 1/27th in the area of wine sales.

The stock market bubble is also mainly a rich-person’s problem – we only hear about it so very often because…the rich own the media in the West, and the coverage thus reflects their interests.

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

Weekly Commentary: Portending an Interesting Q4

September 29, 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…

Weekly Commentary: Anbang and China’s Mortgage Bubble

February 24, 2018

Weekly Commentary: Anbang and China’s Mortgage Bubble

The Shanghai Composite traded as high as 3,587 intraday on Monday, January 29th, a more than two-year high. This followed the S&P500’s all-time closing high (2,873) on the previous Friday. On February 9th, the Shanghai Composite traded as low as 3,063, a 14.6% decline from trading highs just nine sessions earlier. In U.S. trading on February 9th, the S&P500 posted an intraday low of 2,533, a 10.7% drop from January 26th highs. Based on Friday’s closing prices, the Shanghai Composite had recovered 43% of recent declines and the S&P500 70%.

Global equities markets demonstrated notably strong correlations during the recent selloff. Few markets, however, tracked U.S. trading closer than Chinese shares. From the Bubble analysis perspective, tight market correlations provide confirmation of the global Bubble thesis. It’s also not surprising that Chinese markets were keenly sensitive to the abrupt drop in U.S. stocks. The U.S. and China are dual linchpins to increasingly vulnerable global Bubble Dynamics. Moreover, intensifying fragilities in Chinese Credit – and finance more generally – ensure China is keenly sensitive to any indication of a faltering U.S. Bubble.

February 21 – Bloomberg: “China stopped updating its homegrown version of the VIX Index, taking another step to discourage speculation in equity-linked options after authorities tightened trading restrictions last week. State-run China Securities Index Co. didn’t publish a value for the SSE 50 ETF Volatility Index on its website Thursday. An employee who answered CSI’s inquiry line said the company stopped updating the measure to work on an upgrade. The move was designed to curb activity in the options market, said people familiar with the matter… It’s unclear when the index will resume.”

Derivatives rule the world. Of course, Chinese authorities had few issues with booming options trading when markets were posting gains. Here in the U.S., regulators will supposedly now keep a more watchful eye on VIX-related products.

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

5 Charts that Prove this Market Bubble is Not Slowing Down

August 16, 2017

5 Charts that Prove this Market Bubble is Not Slowing Down

The stock market continues to show volatile signs of a market bubble. Here’s five charts that show that a very real bubble is on the horizon.

1. Economic Bubbles and The Breadwinner Economy

Former Congressman and Reagan’s budget director, David Stockmanhighlights that, “Another month has passed in which the number of Breadwinner jobs remain below where it was when Bill Clinton was in the White House. Since then two presidents have come and gone, and now possibly a third. Yet there are still 300,000 fewer jobs in the productive center of the U.S. economy than there were in early 2001.”

Stockman levels, “This suggests something isn’t right, and that point is further driven home by the pancaking of the industrial economy over the last decade. Specifically, industrial production in June was still lower than at the pre-crisis peak”

What all of this equates to is a crisis of economic stagnation. It bolsters national debt and puts forward a threat to fiscal governance. Stockman summarizes that, “You can’t justify a healthy economy purely on the claim that jobs grew by 209,000 in July or that GDP is up at a minimal 1.9% rate in the first half of the year.”

2. Of Market Bubbles and Bank Loans

Financial market analyst, Lee Adler highlighted in mid-June that we have entered a period of calm before the storm. He argues that the storm is due to begin when the Federal Reserve starts to shrink its massive balance sheet.

Bank Loans

Adler writes, “Some of the increase in debt that had driven the economy and the asset bubbles has bled off. With the Fed announcing that it will reduce its balance sheet, that’s likely to deter speculative borrowing even more.”

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

Bubbles? Schiller P/E Ratio Nears Roaring ’20s Bubble High as Home Prices Increased 43.6% Since Feb ’16

April 30, 2017

BUBBLES? SHILLER P/E RATIO NEARS ROARING ’20S BUBBLE HIGH AS HOME PRICES INCREASED 43.6% SINCE FEB ’16

Supreme Court Justice Potter Steward said in 1964 in the Jacobellis v. Ohio case, “I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [hard-core pornography]; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it, and the motion picture involved in this case is not that.”

Asset bubbles too are difficult to define, but I know it when I see it.

Take Robert Shiller’s P/E Ratio measure for stocks. There was a Roaring ’20s bubble which burst in 1929 (Black Tuesday), there was the infamous Dot.com bubble. On March 10, 2000, the NASDAQ Composite peaked at 5,132.52, but fell 78% in the following 30 months.

Now we are seemingly in yet another stock market bubble and almost at the P/E Ratio level of the Roaring ’20s bubble (but not near the dizzying heights of the Dot.com bubble … yet).

Stocks do seem awfully “frothy.” But what about home prices? The Case-Shiller 20 composite home price index has grown 43.6% since February 2012. While home prices are not growing as fast as they did during the home price bubble of the last decade, they are going at a rate that is twice as fast as earnings (wage) growth.

These certainly look like asset bubbles. If it looks like a bubble and acts like a bubble, it probablyis a bubble.

“Shhh. Don’t say the word “bubble!”

This bubble finally burst. Which one’s next?

April 26, 2017

This bubble finally burst. Which one’s next?

Like so many other high-flying Silicon Valley startups, Clinkle was supposed to ‘make the world a better place’.

Founded in 2011 by a guy barely out of his teens, the company picked up early buzz after proclaiming they would disrupt mobile payments. Or something.

Silicon Valley venture capital firms were apparently so impressed with the idea that they showered the company with an unprecedented level of cash.

(Given that investing in an early stage company is high-risk, investors might provide a few hundred thousand dollars in funding, at most. Clinkle raised $25 million.)

The company went on to burn through just about every penny of its investors’ capital.

There were even photos that surfaced of the 21-year old CEO literally setting bricks of cash on fire.

At the end of the farce, Clinkle never actually managed to build its supposedly ‘world-changing’ product, and the website is now all but defunct.

This is rapidly becoming a familiar story in Silicon Valley.

For the last 6-7 years, Silicon Valley startups have been able to raise unbelievable amounts of cash.

Yet so many of those companies haven’t managed to turn a profit. Ever.

There’s some of the big names like Uber and AirBnb which are supposedly worth tens of billions of dollars despite having racked up enormous losses.

(Last year ride-sharing company Lyft promised investors that it would cap its losses at ‘only’ $600 million per year. . .)

But there are countless other examples of startups being anointed with absurd valuations and continually replenished with fresh capital even though they keep losing money… and have no plan to ever make money.

Snapchat’s investment prospective summed it up best:

“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.”

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

Sizing Up the Bubble

October 4, 2016

Sizing Up the Bubble

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.”

Chicago Tribune, April 1890

Presently, the broad NYSE Composite Index is at a lower level than it set more than 2 years ago, in July 2014. Including dividends, the index has gained hardly 2%. Several indices dominated by large capitalization or speculative growth stocks, particularly the S&P 500, have performed better, but even here, the index is only a few percent above its December 2014 high. Over the past two years, the behavior of the stock market can be described less as an ongoing bull market than as the extended topping phase of what is now the third financial bubble since 2000.

The chart below shows the current setup in the context of monthly bars since 1995. After the third longest bull market advance on record, fresh deterioration in key trend-following components within our measures of market internals (see Support Drops Away) recently joined this extended, overvalued, overbought, overbullish peak, even as the S&P 500 hovers at the top of its monthly Bollinger bands (two standard deviations above the 20-period average) and cyclical momentum rolls over from a 9-year high. Taken together with other data, we continue to classify present conditions within the most hostile expected market return/risk profile we identify.

The great victory of the Federal Reserve in the half-cycle since 2009 was not ending the global financial crisis; the crisis actually ended in March 2009 with the stroke of a pen that changed accounting rule FAS157 and eliminated mark-to-market accounting for banks (instantly removing the specter of widespread insolvencies by allowing “significant judgment” in valuing distressed assets).

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

Please Don’t Pop My Bubble!

June 24, 2016

Please Don’t Pop My Bubble!

So ride your bubble of choice up–stocks, bonds, housing, bat guano, take your pick–but it’s best to keep your thumb on the sell button.

One person’s bubble is another person’s “fair market value.” What is clearly an outrageously overvalued asset perched at nosebleed levels of central-bank fueled speculative euphoria is to the owner an asset at “fair market value.”

But beneath the euphoric confidence that valuations can only drift higher forever and ever is the latent fear that something could stick a pin in “my bubble”— that is, whatever bubblicious asset we happen to own and treasure as a source of our financial wealth could be popped, destroying not just our financial bubble but our psychological bubble of faith in permanent manias.

Consider housing prices, which are clearly in an echo-bubble of the Great Housing Bubble of 2000-2007. (Chart courtesy of Market Daily Briefing.)

The psychological underpinning of all bubbles and echo bubbles is on display here. In the first bubble, those benefiting from the stupendous price increases are not just euphoric at the surge in unearned wealth–they believe the hype with all their hearts and minds that the bubble is not a bubble at all, it’s all just “fair market value” at work.

In other words, the massive increase in unearned personal wealth is not just temporary good fortune–it is permanent, rational and deserved.

Alas, all bubbles, no matter how euphoric or long-lasting, eventually pop. All the certainties that seemed so obviously true and timeless to the believers melt into air, and their touching faith that the bubble valuations were permanent, rational and deserved dissipates in a wrenchingly painful reconciliation with reality.

The agonized cries of those watching their bubble-wealth vanish do not fall on deaf ears.

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

This Bubble’s Days Are Numbered—–Market Tops Are Sprouting Up Everywhere

September 26, 2015

This Bubble’s Days Are Numbered—–Market Tops Are Sprouting Up Everywhere

I have an important update regarding how far we could see the market drop in the short days and weeks ahead…

I’ve been warning for months that it looks like this bubble may finally be peaking.

I’ve warned that it’s best to get out of stocks a little early rather than a bit late. That’s because, when bubbles finally break, they burst rapidly – as much as 40% in the first few months. It can make markets very volatile, up and down, hence harder to predict and adjust to. If this is indeed the end, we’ve only taken the first step down a long ladder.

In retrospect, the odds keep going up that we saw a major long-term top on May 19.

The first warning sign was that, as stocks made little progress from late December into May, we saw a series of major tops around the world. And that to me is no small matter.

Dow Transports peaked in late November and are down 20% since.

Dow Utilities peaked in late January and are down 18%.

The German DAX and British FTSE both peaked in April and are down 24% and 19%, respectively.

The Dow and S&P 500 appear to have peaked in late May. The Dow’s down 16% since then.

Then in June came China’s Shanghai Composite index – one of the leading dominoes to fall – and it’s crashed 42%. The Russell 2000 index also peaked in June and is down a little more than 12%.

And finally, our Nasdaq, which peaked in late July, is recently down 21%.

Four of those are undeniably in bear territory. The Shanghai, DAX, Nasdaq and Dow Transports have crossed that 20% threshold that literally defines a bear market. A drop like that only raises the chances that a bubble is finally over. But thus far technical indicators only show that the Shanghai and DAX have peaked for good.

And all of this is just the first warning sign…

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

A Major Bank Just Made Global Financial “Meltdown” Its Base Case: “The Worst The World Has Ever Seen”

September 12, 2015

A Major Bank Just Made Global Financial “Meltdown” Its Base Case: “The Worst The World Has Ever Seen”

When it comes to the epic bubble in China’s economy, it really boils down to one – or rather two – things: a vast debt build up (by now everybody should be familiar with McKinsey’s chart showing China’s consolidated debt buildup) leading to a just as vast build up of excess capacity, also known as capital stock accumulation. And/or vice versa.

It is how China resolves this pernicious, and self-reinforcing feedback loop, that is a far greater threat to the global economy than even what happens to China’s bad debt (China NPLs are currently realistically at a 10-20% level of total financial assets) or whether China successfully devalues its currency without experiencing runaway capital flight and a currency crisis.

One bank that is now less than optimistic that China can escape a total economic meltdown is the Daiwa Institute of Research, a think tank owned by Daiwa Securities Group, the second largest brokerage in Japan after Nomura.

Actually, scratch that: Daiwa is downright apocalyptic.

In a report released on Friday titled “What Will Happen if China’s Economic Bubble Bursts“, Daiwa – among other things – looks at this pernicious relationship between debt (and thus “growth”) and China’s capital stock. This is what it says:

The sense of surplus in China’s supply capacity has been indicated previously. This produces the risk of a large-scale capital stock adjustment occurring in the future.

Chart 6 shows long-term change in China’s capital coefficient (= real capital stock / real GDP). This chart indicates that China’s policies for handling the aftermath of the financial crisis of 2008 led to the carrying out of large-scale capital investment, and we see that in recent years, the capital coefficient has been on the rise. Recently, the coefficient has moved further upwards on the chart, diverging markedly from the trend of the past twenty years. It appears that the sense of overcapacity is increasing.

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

Central Banks Ready To Panic — Again

July 26, 2015

Central Banks Ready To Panic — Again

Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging-market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see. Here’s a representative take from Bloomberg:

Cheap Money Is Here to Stay

For decades, central banks lorded over markets. Traders quivered at the omnipotence of monetary authorities — their every move, utterance and wink a reason to scurry for safe havens or an opportunity to score huge profits. Now, though, markets are the ones doing the bullying.The Fed’s Countdown
Take New Zealand and Australia. Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks.

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

Diminishing Returns on Central-Planning Policy Extremes = 2016 Crash

July 14, 2015

Diminishing Returns on Central-Planning Policy Extremes = 2016 Crash

The problem with these policy extremes is that they are so painfully visibly acts of central-planning desperation.

It is perhaps fitting that I am posting a call for a financial crisis that fails to respond to the usual central-planning manipulations on Bastille Day. There are two main lessons for the present era we can draw from the storming of the much-hated Bastille fortress-prison by a revolutionary mob in 1789 Paris:

1. The authorities can only keep a lid on a simmering stew of injustice, inequality and structural imbalances for so long before the pot boils over.

2. Last-minute baby-step reforms designed to placate the masses (i.e. simulacra reforms that are all show and no substance) cannot resolve the crisis; rather, they only reveal the full depth of the injustices, inequalities and imbalances.

We are in the endgame of central planners’ attempts to keep the lid on the simmering stew of profound imbalances that characterize the status quo. As I have described many times, Maintaining the Illusion of Stability Now Requires Ever-Greater Extremes of central-planning policies.

Mortgage/housing market melting down due to systemic fraud? Nationalize the mortgage market. This is what the federal/Federal Reserve central planners did post-2008, as 97% of all mortgages were guaranteed by federal agencies and the Fed bought $2 trillion of the $10 trillion outstanding mortgages in the U.S.–fully 20% of the entire mortgage market.

Stock market bubble popping? Ban short-selling, criminalize negative comments in the media, and withdraw half the companies on the stock exchange from trading. This is partial list of the extremes China’s central planners recently imposed in an panic-driven orgy of central-planning.

Another way to understand the increasing reliance on central-planning extremes and their declining effectiveness is diminishing returns: more treasure, capital, time, energy and labor must be expended to keep the status quo from falling off a cliff.

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

A Much Bigger Threat Than Our National Debt

June 3, 2015

A Much Bigger Threat Than Our National Debt

The markets are acting as though it was already summer. They are wandering around with little ambition in either direction.

Meanwhile, we’ve been wondering about… and trying to explain… what it is we are really doing at the Diary.

We expect a violent monetary shock, in which the dollar – the physical, paper dollar – disappears.

But why?

Credit Bubble, the Sequel

As you know, we tend to take the side of the underdogs… as well as half-wits, dipsomaniacs, and unrepentant romantics.

But currently, we are standing up for the young, the poor, and all the others the credit bubble has hurt and handicapped.

It’s not that we are saints or do-gooders. We are just trying to make a living, like everybody else.

But we come at it from a different direction than most. Almost all the movers and shakers have the same bias: They want to see the credit extravaganza continue.

The Federal Reserve has already “invested” (if that’s the right word for throwing phony money down the drain in a futile and jackass effort to hold off the future) $4.5 trillion to protect the balance sheets of the elite.

This money has been amplified by zero-interest-rate policies to something like $17 trillion of stock market gains… and umpteen trillion in bond and real estate profits.

Naturally, the people who own these things – and not coincidentally provide early stage funding for congressional and presidential candidates – do not want to see a new movie.

They want to see the sequel, Credit Bubble 5. Then Credit Bubble 6. And so on…

And the show goes on! They buy their candidates. They place their ads. The newspapers they support voice their opinions. Their corporations wheel and deal on Wall Street, spinning off bonuses, fees… and even higher stock prices.

And the pet economists appointed to run central banks do their bidding.

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

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