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Economic War with China is the Final Step Before the “Great Reset”

Economic War with China is the Final Step Before the "Great Reset"

With the pandemic dominating the news cycle, the general public has been completely distracted from a much more important crisis; namely, the economic crisis. To be sure, economic decay is not as swift or exciting, but I doubt that’s why the mainstream media mostly ignores the issue. From my experience, the media tends to omit coverage of the things they don’t want the population to notice or think about.

Right now, the only word spoken on the economy is “recovery”. Of course, if you’ve been reading my recent articles, you know that the recovery narrative is nonsense. With the small business sector on the verge of collapse, the U.S. economy has no means to recover unless we see a sudden resurgence in industrial production and domestic factories built, and with corporate debt at historic highs, there’s simply no money for that right now. Good luck trying to bankroll a manufacturing renaissance in the middle of a stagflationary environment.

That’s not to say that the rest of the world is much better off, but the U.S. suffers from the added weight of its past financial and monetary “success”. Let me explain…

Recent generations have grown up conditioned to believe that, through the power of central bank fiat currency, all problems can be solved. There has even been a concerted effort within the media to support this lie. Remember when propaganda rags like The Atlantic claimed that central bankers like Ben Bernanke were “the real heroes” saving the economy?

That’s the narrative young adults and investors today have grown up with. Now, whether they believe it is another matter, but as we can see in the world of Robinhood stock trading, there has been little concern for the concept of “bubble markets”.

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First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation

First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation

Once the pool of greater fools dries up, stocks crash regardless of what the Fed does or bleats.

The conventional view is the Federal Reserve creating trillions of dollars out of thin air will trigger inflation. Not so fast. Yes, creating trillions of dollars out of thin air will eventually devalue the purchasing power of each dollar–what we call inflation–but first all the unprecedented asset bubbles will pop and valuations will crash.

Let’s call this a deflationary deluge as unsustainable asset prices are eroded by a hard rain of reality. To understand the enormity of the current bubbles, please glance at the charts below. The first chart depicts recent stock market bubbles; note the extreme height of the current bubble.

The next chart shows the S&P 500, and the extraordinary amplification of the bubble that reached its apex in February 2020. Note that each ramp higher takes less time to reach its peak. The most recent snapback rally gained about 870 points in a mere two months–a move that took roughly 5 years in the early 2000s.

Real estate and other assets have also soared in unprecedented bubbles. Old bungalows that sold for $150,000 less than 20 years ago are now supposedly worth over $1 million.

What made this possible? An equivalent bubble in debt. Every sector–household, corporate and government–has borrowed astronomical sums of money to keep the bubble economy glued together. In this rising tide of currency and capital, whatever had scarcity value–real estate, art, stocks–was purchased with the borrowed money as a store of value and / or as a source of income in a world starved of low-risk yields by central banks that dropped interest rates to near zero.

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Sucker Traps and the Arithmetic of Risk

John Hussman has another excellent article out this week but it will be ignored. Mathematically, it must be ignored.

In the Arithmetic of Risk, Hussman posted the above chart. I added the anecdotes regarding where we are. Here are some pertinent snips.​

At present, I view the market as a “broken parabola” – much the same as we observed for the Nikkei in 1990, the Nasdaq in 2000, or for those wishing a more recent example, Bitcoin since January.

Two features of the initial break from speculative bubbles are worth noting. First, the collapse of major bubbles is often preceded by the collapse of smaller bubbles representing “fringe” speculations. Those early wipeouts are canaries in the coalmine.

In July 2007, two Bear Stearns hedge funds heavily invested in sub-prime loans suddenly became nearly worthless. Yet that was nearly three months before the S&P 500 peaked in October, followed by a collapse that would take it down by more than 55%.

Observing the sudden collapses of fringe bubbles today, including inverse volatility funds and Bitcoin, my impression is that we’re actually seeing the early signs of risk-aversion and selectivity among investors. The speculation in Bitcoin, despite issues of scalability and breathtaking inefficiency, was striking enough. But the willingness of investors to short market volatility even at 9% was mathematically disturbing.

See, volatility is measured by the “standard deviation” of returns, which describes the spread of a bell curve, and can never become negative. Moreover, standard deviation is annualized by multiplying by the square root of time. An annual volatility of 9% implies a daily volatilty of about 0.6%, which is like saying that a 2% market decline should occur in fewer than 1 in 2000 trading sessions, when in fact they’ve historically occurred about 1 in 50.

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The 5 Biggest Bubbles In Markets Today

The 5 Biggest Bubbles In Markets Today

Bubbles aren’t new—they’ve been around since Dutch tulips—but it’s only recently that they’ve worked their way into the average investor’s lexicon. That’s probably because bubbles happen much more frequently these days.

We never used to get a giant speculative bubble every 7–8 years. But that has been the case since the new millennia.

In 2000, we had the dot-com bubble.

In 2007, we had the housing bubble.

In 2017, we have the everything bubble.

Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously (I delve deeper into this topic in my free exclusive special report, Investing in the Age of the Everything Bubble).

Let’s look at some of them.

Real Estate

You can spot real estate bubbles all around the world now. Canada, Australia, Sweden, Hong Kong, China—and California—to name a few.

Home prices in California have risen by 69% since 2010. Meanwhile, Canadian housing has shot up 1040% over the same period.

Why do these bubbles exist? For starters, ultra-loose monetary policy (which is also the reason that the bitcoin bubble exists).

What will be the catalysts that deflate these real estate bubbles? I’m not sure, but usually there isn’t a catalyst. The marginal house price just gets too expensive.

It seems pretty nutty that another real estate bubble is forming just ten years after the last one that nearly wiped out the planet. But real estate has been part of the food fight in asset prices and it appears to be peaking.


You have probably heard about the madness in cryptocurrencies, like Bitcoin, Ethereum, and ripple. Ethereum is up about 3,600% this year. As for bitcoin, it is old and boring and up only 343% this year.

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Olduvai IV: Courage
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Olduvai II: Exodus
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