Authored by Jared Dillian via MauldinEconomics.com,
It wasn’t always this way. We never used to get a giant, speculative bubble every 7–8 years. We really didn’t.
In 2000, we had the dot-com bubble.
In 2007, we had the housing bubble.
In 2017, we have the everything bubble.
I did not coin the term “the everything bubble.” I do not know who did. Apologies (and much respect) to the person I stole it from.
Why do we call it the everything bubble? Well, there is a bubble in a bunch of asset classes simultaneously.
And the infographic below that my colleagues at Mauldin Economics created paints the picture best.
I don’t usually predict downturns, but this time I bet my reputation that a downturn is coming. And soon.
When there’s nothing left but systemic risk, everyone’s portfolio is on the line.
To that end, I’ve put together a FREE actionable special, Investing in the Age of the Everything Bubble, in which I discuss ways to prepare for the coming bloodbath (download here).
What are the odds?
Way back when I had some money burning a hole in my bank account I planned for a doomsday economic scenario and bought a boatload of stock that shorts the Dow and put it in my oldest son’s name. My thinking was that if the economy was humming along he’d always have plenty of opportunity to make his way and so far, so good. But if things ever really went south he could cash out and have a nice little stake to buy up all the devalued whatever with his windfall.
The only other time I ever took a risk like that was the first day the market opened after 9/11. I was sitting in the broker’s waiting room when they opened the doors and handed the teary-eyed metrosexual a check for everything I could scratch up and told him which Military Industrial stocks to buy. You can speculate how that worked out.
Money is made when the market is up, money is made when the market goes down. Life, however, isn’t all about money. It is about being prepared for any eventuality and having the skills to navigate your way through the world whatever it brings.
Over the long haul, there are TWO and only TWO ways to profit consistently in the stock market.
1. Own part of the casino.
2. Tell the marks how to beat the casino.
Anyone who PLAYS in the casino will, sooner or later, leave poorer than they entered.
Any idea how many of these prognosticators have been predicting a downturn over the last 7 years? As long as the central bankers keep printing, it might be quite a bit longer to wait.
“The market can stay irrational longer than you can stay solvent.”
– John Maynard Keynes
Interestingly, it is Keynesian economic theory that got us into this everything bubble in the first place. And the last two bubbles, BTW.
7 years? Try 22. (At the Crest of the Tidal Wave, by Robert Prechter.) Or 24. (Crisis Investing for the Rest of the 90’s, by Doug Casey.)
The sky is always about to fall. The avalanche is always ready to begin. The volcano is always about to erupt.
Conditions portending disaster last long enough to train us to ignore them. This is why disasters happen. If people could heed the warnings, there would never be significant losses (of life, of wealth, etc.)
Regarding stocks: This one I know beyond doubt to be true; stocks rise until they don’t, but they decline until people capitulate. This means that tops are impossible to predict, but bottoms (at least temporary ones) are easier.
Ironically, I believe when this supervolcano does blow, stocks will fall all the way down to eliminate the ENTIRE CREDIT BUBBLE. That’s back to mid-1970’s prices, or 95-98%.
The only way for this to happen is for people to be TRAINED to never capitulate. We have experienced massive declines in stocks TWICE in the last 17 years, after which all the declines were completely erased in NO TIME. What has this taught Pavlov’s Dog-investors?
NEVER, EVER capitulate.
There are two absolutely necessary preconditions for an historic stock market collapse:
1. A society-wide buildup in non-self-liquidating debt.
2. A society taught by recent experience to never sell.
We’re there. All we await is the end, and while The End Is Near, that could mean 1 month or it could mean a decade. I gave up trying to short a lot time ago.
BTW, making money in a down market is possible. I doubled my capital-at-risk in 2008. From bitter experience, however, betting on the downside ALWAYS ends up losing in the long run. The math works against the short-seller. And if you’re smart, NEVER EVER put a dime in inverse leveraged index investments.
PS: Elliott Wave International coined the term “All The Same Market” (i.e., that everything rises and falls largely together) long before this clown coined “The Everything Bubble.” That said, they’re both in the business of selling that which no one has….a look into the future.
Buffet says the Dow will hit 1,000,000.
please don’t worry , Mr Yellen just said the [fraud] Fed would unwind their position in such a way “that it will be as boring as watching paint dry “. I always believe Mr. Yellen and all the Fed [or Feds] Chairman , spookspersons when they impart such wisdom to us ignorant masses . We could never even understand the secret formulas that they invent to become all wise and powerful economissed and what not — on your knees peasants the great and powerful Oz [ Mr. Yellen–the Fed] has spoken!
Either everything is bubble or …… the value of the dollar is dropping like a stone due to excessive money printing.
It isn’t printing. And what it is (credit creation) is fundamentally different from “printing.”
Printed banknotes (Zimbabwe Inflation) physically exist until someone burns them.
Credit money exists as a collective state of mind. When the herd decides that the mountain of IOU’s isn’t worth jack, it’s monetary value evaporates. It has NO PHYSICAL EXISTENCE.
The distinction cannot be overstated.
I suspect that circus man has just imparted some wisdom to us troglodytes. He is most likely to be correct and none of us has seen this as the underlying truism of the economy.
It does not seem to matter that more money is called into existence. There is no inflation? Of course not. There is only inflation when us prols seek to turn our mystery money into real dollars at the store. And if we don’t have jobs we can’t have any mystery money and by extension, we have nothing to spend at the store…so no inflation. We are the point in the flow of money where mystery money turns into real dollars. If we have no access to mystery money then there can be no inflation.
There’s MONSTER inflation. It just mostly flowed into asset prices, hence the Rich get Richer.
While the poor will surely get poorer, take some solace in the likelihood that when all this inevitably goes into reverse, the biggest losers will be those who have the most to lose. I’m not sure that will mean much, though. If Warren Buffet’s heirs go from billionaires to 50-millionaires it won’t mean much if I go from the Gravy Train to eating Gravy Train(tm).
That’s it Barnum!! You got it……
That’s why banks get so rich. They charge usury on a “state of mind” that they, and only they can create, while we get paid very little usury on physical banknotes deposited! Credit creation is a promise to pay, backed by nothing but the “value” of the property invested in. If the value of the investment goes up, (bubble) then all is fine…. if it goes down… watch out!! This is why going off the gold standard in ’72 was a good thing for the banksters…..it insured that the physical banknotes were essentially worthless, other than the public exchange factor, and their worth, was less than credit instruments. If it were the other way around, physical banknotes would probably have become the “insurance” against credit creation.
banks charge “rent” on something they create out of thin air.
Great business if you can get into it.
“I don’t usually predict downturns, but this time I bet my reputation that a downturn is coming. And soon.”
What the fuck is that supposed to mean????
I predict it will rain – and soon.
There are some predictions you can make that are always going to be right.
Make them often enough and you get perceived as some kind of guru or something.
Aside from that and on a serious note, I’m predicting a great deal of social, political and economic turmoil over the next decade. Be ready for it.
No one knows the timing.
By saying, over and over, “This is THE Top!” they can put in future marketing materials, “LOOK, we nailed the top! Give us your money so we can tell you your fortune.”
Been there, done that. Cost me a lot of money to learn I was being STUPID.
Will someone figure this OUT?
1964. The money Americans USE was cut loose of a consistent metallic commodity.
1971. The dollar floated free from any consistent standard for the world.
1981. A 35 year bear market in BONDS ended, and a 35 year rally began.
What this meant was that holding the long term debt of a government or corp was a guaranteed way to reap capital gains. Lenders (bondholders) could not get enough bonds, so
1. Congress could spend like mad while cutting taxes.
2. Hand-wringing about the National Debt was meaningless.
3. Corporations could issue debt, use the proceeds to buy back stock, and each corporation would sit on PILES of IOU’s from other firms, and people called it “Cash.” (See AAPL.)
4. We witnessed the largest credit bubble in human history inflate.
5. For every dollar borrowed and spent into the GDP-additive economy, a SECOND dollar appeared, (MAGIC!!), in the bond market where it was feted as WEALTH!!
We are sitting on a supervolcano of Debt, and interest rates appear to be poised to RISE. Anyone who thinks rates can be controlled is a moron. The debt market is thousands of times larger than the stock market, and the stock market cannot be controlled.
The Fed now has reversed course. Its mouthpieces used to claim that they could hold their $4.5 T in IOU’s to maturity, but now they’re promising to “unwind” this position. Why? Because they don’t want to be holding a mountain of eroding IOU’s as rates rise. The Fed is a private bank, owned by a consortium of private banks, in turn owned (mostly) by multigenerational dynasties. They have no interest in banking losses.
Stock prices are “here” because people FEEL rich. They FEEL optimistic (sort of, that’s actually complicated.) But when rates rise and the value of $200 T (or $1.25 Q) in debt begins to collapse in earnest, that whole system that drove asset prices into orbit will reverse.
And not 1 person in a million seems to know why.
https://en.wikipedia.org/wiki/Triffin_dilemma
What no one seems to grasp (how F-ing stupid are they?) is that the Fiat dollar is nothing more or less than T-bonds. There was no imbalance, the USA exported IOU’s in exchange for goods and stuff and Walmart junk.
The entire system turned the USA into a PAWN SHOP, where Americans hocked everything in exchange for cheap manufactured goods, while Congress put vast dollar demand into industries that CANNOT POSSIBLY be sustained at current levels.
I simply do not understand how this is not self-evident to anyone with an IQ above 110.
Eventually, what WILL happen is that all those “reserves” will evaporate all around the world. The chaos should be epic. Eventually, people will cite “being robbed” by the USA as part of the reason for the coming World War.
Question:
If stocks, bonds, real estate, emerging markets and every other thing on his list fall in price, to where are “investors” going to pull their capital?
If it all goes down, won’t the banks fail? I’d think so.
If so, then from where will people get MONEY to bid up the price of gold or silver?
Hint: they won’t.
By axiom, if you price X in terms of Y, if the value of X in terms of Y is falling, what is the inverse? The quantity of Y needed to buy X is declining. Y buys more of X as time passes, exactly the opposite of the last 100 and especially the last 50 or 36 years.
So if Y is rising in purchasing power, isn’t Y the stuff to have now?
That’s how I see it, but I seem to be in a minority of One.
So, what is Y?
“So if Y is rising in purchasing power, isn’t Y the stuff to have now?”
Stacy is great. Max admits he has ADD, and Rickards explains the fed. Y’all need to see this one.
He looks gaunt compared to the last time I saw him.
It took 8 months for the top I called at the end of 2014 to actually manifest into a meaningful decline. It also took several quarters of really bad profit declines. This could be the top right here right now, but even if it is, it is once again going to take several months for market internals to break down. There really isnt much point in speculating until you start to see real breakdowns in key indicators, such as $NYA200R going below 40. The 50 dma of $NYHLR needs to be below 0.5. The $SPX 20 week moving average should at least be approaching the 50 week moving average. Nothing like that is happening now, so we’re looking at next spring at the earliest before any possible bear market is going to occur
As was stated above, the Fed, and Mr. Yellen cannot control the debt market. The debt market controls the Fed. Same with the stock market. They are simply too large and unruly to control. Yes, I do believe that the SNB, ECB and JCB will attempt to keep buying equities until they can no more. But the no more will come when they buy, and everyone on the other side of that buy is selling to continue servicing more expensive debt. Then, at best the markets will be flat.
Jesse Livermore said it best when he said that no person, or group of people can manipulate markets over longer periods of time. The Feds know this too.
We have had a 30 year bond rally, now it is in the process of reversing. And this is a process. The Fed sees it, and is acting accordingly. It is little coincidence that the Fed is suddenly deciding to quit their “stimulus” operations. They are simply attempting to get ahead of it to try and stem the damage. The Fed is like someone seeing storm clouds far on the horizon from a tower. You just see blue skies on the ground. They say that they will make a storm come. Then you see the storm come, and attribute the storm to the person on the tower.
The next down turn, I believe is not going to be a sharp drop, (it may be initially) but a consistent draw down in prices, assets and bond values (hike in interest rates). Few will capitulate because of the slow nature of the draw down. The only capitulation will come as a result of simple disgust from buying something and it just sitting there, slowly draining value over months and years.
Those with currency (cash), hard assets (gold) and little debt will find that they begin gaining traction. Those with debts, stocks and other assets that have been in the stratosphere will find frustration. Not a crash, but simple frustration with slowly being bled dry from lofty values that far exceeded the true value of the asset by many multiples due to failure to recognize intrinsic asset value.