Home » Posts tagged 'financial bubble'

Tag Archives: financial bubble

Any one of these would be enough to make the case

The idea that the world’s central banks can inflate the biggest financial bubble in human history — appropriately called the everything bubble — and then deflate it gently into a soft landing is mathematically and philosophically impossible. So the question is not if but when we get a bust that’s commensurate with the boom.

Based on the following three indicators, that bust is imminent.

Massively inverted yield curve
When short-term interest rates rise above long-term rates, a slowdown usually follows. That’s because traditional banks (though not necessarily the monstrous hedge funds that the biggest banks have evolved into) make most of their money by borrowing short and lending long. In normal times, long-term rates are higher than short-term, reflecting the higher risk of lending into the distant future, so the spread between a bank’s borrowing and lending rates produces a nice spread, which translates into a decent profit.

Invert the yield curve by pushing short-term rates above long-term rates, and this business model breaks down. Banks stop making suddenly-unprofitable loans, their customers have less money to spend and invest, and the economy shrinks.

Note two things on the following chart, which depicts the spread between 10-year and 2-year Treasury bond yields. First, when this spread went slightly negative (i.e., 2-year rates higher than 10-year) in 2000 and 2007, recession followed within a year or so. Second, today’s yield curve is a lot more than slightly negative. It is, in fact, one for the record books, implying that the credit markets expect a dramatic slowdown.

Shrinking money supply
A Ponzi scheme needs ever-greater amounts of money flowing in to avoid collapse. Today’s global economy is a classic example of a Ponzi scheme. Therefore, it needs an increasing money supply to function.

…click on the above link to read the rest…

China Warns Global Financial Bubble Could Burst

May 30, 2021

China Warns Global Financial Bubble Could Burst

Almost three months after markets stumbled when after China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets (and China’s property sector) sparking concerns about further tightening in the world’s second-biggest economy and slamming risk assets, China has done it again and on Saturday Liang Tao, vice chairman of China Banking and Insurance Regulatory Commission, said at the International Finance Forum in Beijing that recent interest rate hikes by emerging economies could lead to a bursting of global financial asset bubbles which have been made even bigger by unprecedented pandemic easing measures by developed countries (i.e., Biden’s trillions). And just in case it wasn’t clear whose fault this is, Tao added that developed countries are sticking with ultra-low rates even as emerging economies raised their borrowing costs, “potentially resulting in the re-pricing of global assets.”

In short, China is already pre-emptively pointing the finger at the US and western central banks as the parties responsible not only for bursting the biggest asset bubble in history, but for creating it in the first place.

*Liang Tao, Vice Chairman of China Banking and Insurance Regulatory Commission*

Tao’s comments are almost a verbatim repeat of what his boss, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said during a briefing back on March 1 when he said he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector. Again blaming everyone but China, Guo said that bubbles in U.S. and European markets could burst because their rallies are heading in the opposite direction of their underlying economies and will have to face corrections “sooner or later.”

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

Signs, Signs, Everywhere Signs

April 26, 2021

SIGNS, SIGNS, EVERYWHERE SIGNS

“Fools, as it has long been said, are indeed separated, soon or eventually, from their money. So, alas, are those who, responding to a general mood of optimism, are captured by a sense of their own financial acumen. Thus it has been for centuries; thus in the long future it will also be.” ― John Kenneth Galbraith, A Short History of Financial Euphoria

132 Trouble Ahead Sign Photos - Free & Royalty-Free Stock Photos from Dreamstime

The signs of an epic bubble of historic proportions are everywhere. The stock market is a bubble, with valuations exceeding 2001. Margin debt is at all-time highs. The bond market is a bubble, with the Fed artificially suppressing rates and pumping trillions of QE into Wall Street. Housing is experiencing another bubble, with prices now far exceeding the 2005 peak. Bitcoin and the rest of the crypto-currencies are a bubble, being driven by the excess liquidity sloshing around the system. A joke crypto currency like Dogecoin soars into the stratosphere because money has no meaning anymore.

This dogecoin chart offers the clearest explanation for the buzz surrounding the 'joke' crypto - MarketWatch

Corporate, government and personal debt are at all-time highs and heading higher. Clueless millennial dolts are using their stimmy checks to day trade on Robinhood. Now the shysters have come up with a ridiculous concept called Non-fungible tokens (NFT), which has created a further frenzy of greed and fleecing. We are busy selling worthless electronic concepts to each other at higher and higher prices. The world has truly gone mad.

Are NFTs Dumb, a Scam, or Secretly Useful? – Reason.com

The herd will surely be separated from their money when this everything bubble bursts. The concept of risk has been bastardized and ignored, for now. Greed will surely turn to fear and no one sees it coming. The “experts” will continue to declare “buy now or miss out on the riches”. I’m sure these bubbles will burst, but I have no idea when…

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

Disoreder Will Come–As Confucious Warned

April 5, 2021

DISORDER WILL COME – AS CONFUCIUS WARNED

When bubbles burst, we will discover how very few superior men there actually are – as defined by Confucius:

“The superior man, when resting in safety, does not forget that danger may come. When in a state of security he does not forget the possibility of ruin. When all is orderly, he does not forget that disorder may come. Thus his person is not endangered, and his States and all their clans are preserved.” – Confucius

Superior man can exist at many different levels in society, not necessarily linked to money or investments. There will be many people without money who are prepared at an intellectual or psychological level. These people are probably the happiest since sadly many wealthy people worry about their money all the time rather than enjoy it.

In this piece I am talking primarily about preparedness in relation to one’s wealth.

PS Important Postscript at the end of the article.

FOCUS ON WEALTH PRESERVATION

The investors we meet in our business are people who are risk averse and therefore very much focus on wealth preservation. These investors buy physical gold because they are concerned about the excessive risks in markets. They want to protect and insure their wealth against unprecedented financial and currency risk. Like ourselves, these investors consider physical precious metals, stored outside a fragile banking system, as the ultimate form of wealth preservation.

But investment gold represents less than 0.5% of world financial assets. This means that a minuscule percentage of investors insure their wealth in gold. This is clearly surprising bearing in mind that over 5,000 years gold is the only money that has survived.

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

Egon von Greyerz, gold switzerland, inflation, risk, gold, precious metals, wealth, financial bubble, bubble, currency, banking system

The Dystopian Bubble: George Orwell Meets Charles Mackay

February 11, 2021

The Dystopian Bubble: George Orwell Meets Charles Mackay

herd mentality

“Threats to freedom of speech, writing, and action, though often trivial in isolation, are cumulative in their effect and, unless checked, lead to a general disrespect for the rights of the citizen.”

~ George Orwell

In early December I asked Jim Grant how to reconcile exuberant financial markets with economic reality that reads like dystopian fiction. He responded,

I’m not sure there’s much distinction. To me, the current form of dystopia is the bubble form. So I think this is the year of the dystopian bubble.

The opening pages of the new decade feel like we’re living through a combination of George Orwell’s 1984 and Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds. On the day the 2020 election results were to be certified in the Senate, a mob from the losing side surrounded and actually breached the Capitol. The outgoing president was accused of inciting a riot, threatened with impeachment, and banned for life on Twitter. Despite the chaos, stocks shrugged it all off and rallied to new highs.

The following weekend cover of Barron’s, “The Case for Optimism,” captured the manic side of the dystopian bubble perfectly. Its editorial staff sees a silver lining in practically every cloud:

[T]his is a market determined to march higher, and it’s not about to be derailed—even by historic mayhem in the nation’s capital. Stocks are rallying on the trillions of dollars in stimulus that may only be accelerated under the new administration. A chaotic political season is winding down, while the economy is gearing up for a postpandemic reopening.

Investors need to keep their eyes forward and look ahead to a Joe Biden presidency: to more-predictable domestic policies, smoother trade relations, and additional efforts to revive the economy. Now might not be a good time to own anything defensive.

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

Weekly Commentary: Scorched Earth

November 27, 2020

Weekly Commentary: Scorched Earth

November 18 – Reuters (Rodrigo Campos): “Global debt is expected to soar to a record $277 trillion by the end of the year as governments and companies continue to spend in response to the COVID-19 pandemic, the Institute of International Finance said in a report… The IIF… said debt ballooned already by $15 trillion this year to $272 trillion through September. Governments – mostly from developed markets – accounted for nearly half of the increase. Developed markets’ overall debt jumped to 432% of GDP in the third quarter, from a ratio of about 380% at the end of 2019. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP.”

Covid’s precision-like timing was supernatural – nothing short of sinister. A once in a century international pandemic surfacing in the waning days of an unrivaled global financial Bubble. A historic experiment in central bank monetary management already floundering (i.e. Fed employing aggressive “insurance” QE stimulus with stocks at record highs and unemployment at 50-year lows). A Republican administration running Trillion-dollar deficits in the midst of an economic boom. Yet, somehow, reckless U.S. fiscal and monetary stimulus appeared miserly when compared to the runaway excess percolating from China’s epic Credit Bubble. Monetary, fiscal, markets, at home and abroad: Covid bestowed end-of-cycle excess a hardy additional lease on life.

From the FT: “Global debt rose at an unprecedented pace in the first nine months of the year as governments and companies embarked on a ‘debt tsunami’ in the face of the coronavirus crisis… From 2016 to the end of September, global debt rose by $52tn; that compares with an increase of $6tn between 2012 and 2016.”
…click on the above link to read the rest of the article…

The Greatest Financial Crisis & Hyperinflation

April 18, 2020

THE GREATEST FINANCIAL CRISIS & HYPERINFLATION

A Hyperinflationary Depression has always been the inevitable end to the biggest financial bubble in history. And this time it will be global. Hyperinflation will spread from country to country like Coronavirus. It could start anywhere but the most likely first countries are the US and the EU or ED (European Disunion). They will quickly be followed by many more like Japan and most developing countries. Like CV it will quickly jump from country to country with very few being spared.

CURRENT INTEREST RATES ARE A FALSE INDICATOR

Ever since the last interest cycle peaked in 1981, there has been a 39 year downtrend in US and global rates from almost 20% to 0%. Since in a free market interest rates are a function of the demand for credit, this long downtrend points to a severe recession in the US and the rest of the world. The simple rules of supply and demand tell us that when the price of money is zero, nobody wants it. But instead debt has grown exponentially without putting any upside pressure on rates. The reason is simple. Central and commercial banks have created limitless amounts of credit out of thin air. In a fractional banking system banks can lend the same money 10 to 50 times. And central banks can just print infinite amounts.

Global debt in 1981 was $14 trillion. One would have assumed that with interest rates crashing there would not have been a major demand for debt. High demand would have led to high interest rates. But if we look at global debt in 2020 it is a staggering $265 trillion. So debt has gone up 19X in the last 39 years and cost of debt has gone from 20% to 0% – Hmmm!

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

Doug Noland: There’s No New Bubble Coming To Save Us

March 22, 2020

Doug Noland: There’s No New Bubble Coming To Save Us

In this week’s Credit Bubble Bulletin, Doug Noland points out the ominous truth that the world’s governments have run out of new financial bubbles to inflate.

The result, as John Rubino sums up perfectly, “This time is different, in a very bad way.”

Here’s an excerpt from the much longer article, that should be read in its entirety:

Please Don’t Completely Destroy…

I’ve been dreading this. In the midst of all the policy responses to the collapse of the mortgage finance Bubble, I recall writing something to the effect: “I understand we can’t allow the system to collapse, but please don’t inflate another Bubble.” It was obvious early on that policymakers had every intention to reflate Bubbles.

There was a failure to grasp the most critical lessons from that terrible boom and bust episode: Aggressive monetary stimulus foments market distortions, while promoting risk-taking, leveraged speculation and latent risk intermediation dysfunction. Years of deranged finance ensured unprecedented economic imbalances and deep structural impairment. There was no predicting a global pandemic. Yet today’s acute financial and economic fragility – and the risk of financial collapse – are directly traceable to years of negligent monetary management.

I have to adjust my message for this post-Bubble backdrop: I understand we can’t allow the system to collapse, but Please Don’t Completely Destroy the Soundness of Central Bank Credit and Government Debt. Does anyone realize what’s at stake?

I don’t see another Bubble on the horizon. Each reflationary Bubble must be greater in scope than the last. Mortgage finance was used for post-“tech” Bubble reflation. Policymakers unleashed the “global government finance Bubble” during post-mortgage finance Bubble reflation. Massive international inflation of central bank Credit and sovereign debt went to the heart of global finance – the very foundation of “money” and Credit.

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

Black Swans, Dead Cats, Live Bats, and Goodbye to All That

March 13, 2020

Black Swans, Dead Cats, Live Bats, and Goodbye to All That

Had enough excitement yet? At least the stock markets are following an established script: the bubble pops, the elevator drops, for a while it stops… and then investments sink to the deepest sub-basement, where they linger for a long, long time. Hello, next great depression…. We know how that story goes, even if it hurts.

This corona virus is something else. It engulfs whole populations in a fog of confounding narratives. Is it no worse than a bad common cold, except for old folks already half-gone with chronic illness? Or does it really slam people even in the midst of life? Well, Wuhan hospital director Liu Zhiming, 51, went down two weeks ago, and gastroenterologist Xia Sisi, 29, and Dr. Peng Yinhua, also 29, and some prominent Iranian politicians, and lots of very sick healthcare workers from Korea to Italy. Whatever corona virus is, I’m not persuaded that it’s a hoax.

One monster banging around in that fog is the narrative that China started this thing simply to get rid of Mr. Trump. There’s a real baby-and-bathwater proposition. Would China, in effect, blow up its export economy for that, i.e. commit suicide? Because a lot of those prior arrangements will probably not come back — the manufacturing supply lines for this-and-that, the fabulous cornucopia of plastic goodies extruded from all those smoking factories and flushed out to the world, the whole glorious let’s-get-rich extravaganza that Deng Xiaoping kicked off forty years ago. It’s looking like the global economy is on the rocks, perhaps for good, as we knew it. Is China as plumb crazy as, for instance, America’s political Left?

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

Capitalism in America: How a Dismal Decimal is Robbing Americans Blind

January 17, 2020

Capitalism in America: How a Dismal Decimal is Robbing Americans Blind

31 Facts Showing How the Rich are Getting Richer and Everybody Else Poorer

There is no hiding anymore, the United States has become an oligarch owned banana republic with nukes, and with a monopoly currency which has allowed it to rig the markets for half a century. But now we are only a couple of hours from curtain – Midnight in America.

With the stock market at all-time highs, virtually no unemployment (or so they say), and brisk GDP growth (supposedly) in the last decade, economic analysts would declare that the US economy is in excellent shape. But, it isn’t. The stock market is a central bank inflated asset bubble, and what GDP growth there has been, is an illusion brought about by the very same financial bubble and by pumping the economy up with record federal borrowings to finance the deficits that America cannot afford. Rigged statistics showing artificially low inflation serve to hold together the Trumped-up American economic narrative. (About the rigged inflation statistics, see this report https://www.awaragroup.com/blog/the-inflation-measurement-scam/?fbclid=IwAR0qmpe4i0sp5Uce9UlyEDt0_NkIv-aiDTSgvzHh5EMfZn5WQboZz_mB-XU). And the low unemployment figure is nothing but a chimera based on misleading statistics.

In reality, the US economy is failing – and the country with it. At least two-thirds of the population has seen dramatic declines in living standards and half are back to levels of developing nations – without the development.

The big story covered up by all the happy macroeconomic figures repeated by rote by the US establishment – everybody from the president to cable television pundits and Trump fanboys – is the gradual impoverishment of the American worker. That’s an inconvenient truth increasingly difficult to hide as the American dream has turned into a nightmare for huge swathes of the population.

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

Peter Schiff: Why the Fed Won’t Be Able to Rescue the Economy the Next Time Around

September 19, 2019

Peter Schiff: Why the Fed Won’t Be Able to Rescue the Economy the Next Time Around

Peter Schiff has been saying that the Federal Reserve is going to take interest rates back to zero and launch another round of quantitative easing in order to reinflate the bubble economy after the next crash. The central bank successfully pulled this off after the 2008 crisis. By dropping rates to zero and holding them there for nearly a decade, and running three rounds of QE, the Fed has reinflated the real estate bubble, blown up a bond bubble and pumped up the stock market. But Peter said it’s not going to work the next time around. Instead, Fed monetary policy will tank the dollar and lead to an inflationary recession.

So, why can’t the Fed pull off another rescue? Peter explained why he thinks it’s not possible during an interview on the Tom Woods Show.

Peter admitted he didn’t think the Fed could rescue the economy in 2008.

I underestimated the ability of the Fed to get away with quantitative easing and for the world to basically accept this and to enable this.”

So today, we have even bigger bubbles than we did in 2006-2007.

The question is — the Fed did it before, can it do it again? Peter said he wouldn’t bet on it.

I would not want to bet that is possible given the enormity of the problem now.”

Peter said you just have to consider the sheer amount of intervention that would be necessary to reinflate the bubbles once they pop the next time.

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

Wealth Bubble Leaves U.S. Economy in Uncharted Territory

April 24, 2019

Wealth Bubble Leaves U.S. Economy in Uncharted Territory

There have been numerous signs that the U.S. is likely to go through another major recession at some point. And regardless of when or if a recession happens, it won’t change the fact that the U.S. economy is already in hot water.

At MarketWatch, the “hot water” is explained in terms of a U.S. “wealth bubble” that reveals a peculiar pattern:

Today the United States sits in the midst of the largest wealth bubble in post-World War II history, as measured by household net worth (or wealth) relative to gross domestic product. As I showed in detail recently in the Journal of Business Economics, only two other postwar bubbles come close, with peaks in 1999 and 2006, just prior to the tech stock crash and the Great Recession.

The largest wealth bubble (household net worth relative to GDP) is shown in a chart from the same article. (Shaded areas are recessions):

As you can see at the bottom, the wealth bubble is “5 times the size” of the GDP.

But notice how the wealth bubble “pops” just before the 2000 and 2008 recessions. If you look at the end of the blue line, it appears the largest wealth bubble since World War II may already be popping.

Also notice how the green line dips before the 2000 tech stock “recession,” and the red line before the 2008 recession (caused mainly by subprime mortgages).

But according to the MarketWatch report, there’s another crucial detail to point out:

In both prior bubbles, the crashes led to a drop in the value of net worth to about 4 times GDP. Even that level remained high relative to prior history, since in no single quarter before 1998 had the household net worth-to-GDP ratio ever reached 4.0 or higher.

With that being said, according to the chart above:

…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…

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…

We Witnessed The 3rd Largest Point Crash In Stock Market History On The Same Day That The 3rd Most Powerful Hurricane To Ever Hit The U.S. Made Landfall

October 12, 2018

We Witnessed The 3rd Largest Point Crash In Stock Market History On The Same Day That The 3rd Most Powerful Hurricane To Ever Hit The U.S. Made Landfall

If you don’t believe in “coincidences”, what are we supposed to make of this? On Wednesday, the 3rd most powerful hurricane to ever hit the United States made landfall in the Florida panhandle. Entire communities were absolutely shredded as Hurricane Michael came ashore with sustained winds of 155 miles per hour. You can find the entire article that I just posted about this massive storm right here. In this article, I am going to focus on what just happened on Wall Street. At the exact same time that Hurricane Michael was causing chaos in the Southeast, an October stock market crash was causing havoc in the Northeast. The Dow Jones Industrial Average was down 831 points, which was the 3rd largest single day point crash in stock market history. Of course it isn’t as if we hadn’t been repeatedly warnedthat this was coming, and the truth is that it looks like this is only the start of the financial shaking.

In fact, international financial markets are in a state of chaos as I write this article. Asian markets are a sea of red, and at this moment Dow futures are way down.

So it appears likely that Wednesday’s nightmare may extend into Thursday as well.

But before we look ahead too much, let’s talk about the utter carnage that we just witnessed.

According to Bloomberg, the 500 wealthiest people in the world lost 99 billion dollars on Wednesday…

Plunging global markets lopped $99 billion from the fortunes of the world’s 500 wealthiest people on Wednesday, the year’s second-steepest one-day drop for the Bloomberg Billionaires Index.

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

Tag Archives: financial 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

Mismatch

Post navigation

Latest Posts