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 June 3, 2015  Posted by at 2:02 pm Finance Tagged with: , , , , , , ,


Jack Delano Mike Evans, welder, Proviso Yard, Chicago & North Western RR 1940

We’ve been entertaining ourselves to no end the past couple days with a ‘vast array’ of articles that purport to provide us with ‘expert’ opinion on the question of whether we are witnessing a bubble or not. Got the views of Goldman’s David Kostin, Robert Shiller, Jeremy Grantham, Jeremy Siegel, Howard Marks.

But although these things can be quite amusing because while they’re at it, of course, the ‘experts’ say the darndest things (check Bloomberg ‘Intelligence’s Carl Riccadonna: “You had equity markets benefit from QE, but eventually QE also jump-started the broader recovery.. Ultimately everyone’s benefiting.”), we can’t get rid of this one other nagging question: who needs an expert to tell them that today’s markets are riddled with bubbles, given that they are the size of obese gigantosauruses about to pump out quadruplets?

Moreover, when inviting the opinions of these ‘authorities’, you inevitably also invite denial and contradiction (re: Siegel). And before you know what hit you, it turns into something like the climate change ‘debate’: just because a handful of ‘experts’ deny what’s right in front of their faces as tens of thousands of scientists do not, doesn’t mean there’s a valid discussion there. It’s just noise with an agenda.

And though the global climate system is infinitely more complex than the very vast majority of people acknowledge, fact remains that a plethora of machine-driven and assisted human activities emit greenhouse gases, greenhouse gases trap heat and higher concentrations of greenhouse gases trap more heat. In very similar ways, central banks’ stimuli (love that word) play havoc, and blow bubbles, with and within the economic system. Ain’t no denying the obvious child.

But even more than the climate ‘debate’, the bubble expert articles made us think of a Jerry Seinfeld episode called The Opera, which ends with Jerry doing a stand-up shtick that goes like this:

I had some friends drag me to an opera recently, you know how they’ve got those little opera glasses, you know, do you really need binoculars, I mean how big do these people have to get before you can spot ’em?

These opera kids they’re going two-fifty, two-eighty, three-twenty-five, they’re wearing big white woolly vests, the women have like the breastplates, the bullet hats with the horn coming out.

If you can’t pick these people out, forget opera, think about optometry, maybe that’s more you’re thing.

As far as we can figure out, all you need to know today about bubbles is displayed right there in front of you if you’re able to simply imagine what asset prices would be like without the $40 trillion or so in global stimulus measures the central banks have gifted upon the banks and forced upon the rest of us.

Does anyone honestly think that prices for stocks and bonds and houses and commodities would be anywhere near where they are now without all that zombie money?

How can you even pretend that anything at all has a fair valuation these days? Central banks buy bonds up the wazoo, and there’s no way that does not drive up prices like they’re being chased by the caucasian Baltimore police force department.

Home prices have stabilized for one reason only: the beneficiaries of QE money have done one of two things: either buy up homes wholesale themselves, or sign some poor greater sucker into a loan to procure a leaking and peeling American dream at inflated ‘value’.

As for stocks, they’re supposed to reflect the state of the economy, and their record setting highs obviously do nothing of the kind, because economic performance is just as obviously many lightyears away from any record high.

In fact, the only thing that’s ‘positive’ about the economy is home and share prices. And that is because corporations engage in M&A and in buybacks the size of which people just 10 years ago would have not deemed possible, or even legal, and because that drives up share prices to levels where the many millions of greater fools get tempted to participate. Just watch China.

The flipside of this, as they will find out soon enough, is that QE and ZIRP and that entire alphabet soup completely destroy price discovery. And that means that nobody knows what anything is really worth, everyone’s just guessing, there is no correlation left to the work that has gone into producing anything, let alone to the practical value of what’s being produced.

These companies that buy their own shares can do so with credit borrowed at very low rates, so low their actual activities don’t even have to generate anywhere near an economically viable profit. They can simply borrow it.

Where and when then will these grossly bloated monstrosities burst? The clue would seem to be closely related to what Martin Armstrong had to say:

Velocity of Money Below Great Depression Levels

Ever since the repeal of Glass-Steagall by Bill Clinton in 1999, this “new” way of making money by transforming banking from Relationship to Transactional Banking has destroyed the economy in ways we are soon to discover. The VELOCITY of money has fallen to BELOW Great Depression levels. This is the destruction of Capitalism, and I fear the response against the banks on the next downturn will lead to authoritarianism.

Taking interest rates NEGATIVE will not reverse this trend – it will accelerate the trend. This is all part of Big Bang. We seriously need to understand the nature of the problem or we will lose all rights and freedom because of what the bankers have set in motion. Transactional Banking only benefits the banks and fails to create a foundation for economic growth. This is not about Fractional Banking, this is all about the destruction of Relationship Banking which creates small businesses and employment.

The collapse in the VELOCITY of money illustrates the collapse in liquidity in the markets, which will erupt in higher volatility we have not seen before. The VELOCITY of money declines as HOARDING rises. This is how empires, nations, and city-states decline and fall.

Armstrong uses the following graph to make his point, which is a series that depicts (not seasonally adjusted) GDP/St. Louis Adjusted Monetary Base.

I’ll add the MZM graph (Money Zero Maturity = all money in M2 less the time deposits, plus all money market funds). It’s not as dramatic, but more commonly used (do note that the timescale is different):

It’s obvious that what ails the US economy, and all western economies, is that people are not spending. That’s what brings velocity of money down. And that’s also what causes deflation, and by that we don’t mean falling prices only.

Ergo: when Armstrong states that “The VELOCITY of money declines as HOARDING rises”, he’s half right, but only half. I’ve explained before that this is also where Bernanke’s preposterous claims about an Asian savings glut a few years ago failed in dramatic fashion.

In that same sense, I wrote recently that the ‘savings rate’ in the US is calculated to include debt payments. If you pay off your mortgage or your payday loan, that is jotted down as you saving, even hoarding your money. Just one in a long range of mind-numbing accountancy tricks the US utilizes to hide the real state of its economy. Makes one wonder what the double seasonally adjusted savings rate might be.

This issue shirks uncomfortably close to the contribution of each dollar of added debt to a country’s GDP, which in the west by now must shirk just as uncomfortably close to zero. And once it is zero, the game’s up.

That puts into perspective Jon Hilsenrath’s quasi-funny letter yesterday in the Wall Street Journal, which Tyler Durden presented with: “..to our best knowledge, this is not the WSJ transforming into the Onion.”

Dear American Consumer,

This is The Wall Street Journal. We’re writing to ask if something is bothering you. The sun shined in April and you didn’t spend much money. The Commerce Department here in Washington says your spending didn’t increase at all adjusted for inflation last month compared to March. You appear to have mostly stayed home and watched television in December, January and February as well. We thought you would be out of your winter doldrums by now, but we don’t see much evidence that this is the case. You have been saving more too. You socked away 5.6% of your income in April after taxes, even more than in March. This saving is not like you. What’s up?

The most glaring problem with this letter is -though granted, there’s quite a few- that Americans are not actually saving. Of course some of them are, but that’s not what drives the savings rate. Americans are paying off debt. They have no choice. They’re maxed out. They don’t want to lose their homes, or not feed their kids. The only jobs created have been low-paid ones. While home prices have been QE’d into a suspended state of Wile E. style false stability.

This is how you gut a society. It’s 101. Central banks’ largesse has indulged the rich with more than they can spend, while the rest get less than they need to spend to survive. Home prices are so high they keep people from spending, says Bloomberg.

That’s where the rubber hits the road. That’s where the asset bubbles hit the real economy. And they haven’t even started to burst yet, for real. When they do, the brunt of that will be borne by the real economy as well.

What will bring down our western economies is that people simply no longer have money to spend. While consumer spending in the US is still close to 70% of GDP. That won’t be solved by handing money to banks, or by keeping asset prices from reverting to their market values. Quite the contrary.

Home Forums How To Spot A Bubble

This topic contains 17 replies, has 12 voices, and was last updated by  mr.mud 4 years ago.

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  • #21408

    Jack Delano Mike Evans, welder, Proviso Yard, Chicago & North Western RR 1940 We’ve been entertaining ourselves to no end the past couple days with a
    [See the full post at: How To Spot A Bubble]

    #21409

    Professorlocknload
    Participant

    True to the present state of economic affairs, there Ilargi. But, markets, yes, even grossly distorted ones, tend to look forward. And RE is, along with stawks, among the few inflation hedges mom and pop America know, and can use. Most aren’t savvy in the more sophisticated techniques used in hedging futures, options etc.

    Might it be, the “bubbles” apparent in these instruments are looking at one of the most tightly compressed money supply springs in the history of a Keynesian dominated economic universe, all while moar and moar compression in being exerted? And, of course, the longer this additional pilling on of accelerant goes on, the bigger the bang when a little heat is applied?

    Put another way, having come this far into artificial stimulus, and listening to the wailing that resulted in even the suggestion we live within our means (austerity), who, or what, is willing to step forward and take away the punch bowl?

    I liken it all to a conversation that took place between members of an informal motorcycle club I ride with. A fairly new rider asked a more experienced one (?) how he knew what speed to be going into a curve that would assure him making it through it. Reply; “You can’t really know that for sure ’till you are in it, at which point, what are you going to do, lean over even farther and hang on, straighten up and run off the road, or bail off the bike in mid turn?

    Looking at history, my bet is the Fed’s of the world lay ‘er over until she is finally on the rim, loses traction and slides over the edge. What other choices do they have?

    Deflation, in the eyes of these psychopaths, is suicide. They will take their chances with the storming of the Bastille as their signal to head for the fueled up Gulf Stream sitting there on the Tarmac. That, or start WW III and be in the doomsday bunker in Pueblo, or where ever, in time for the grand finale.

    #21411

    Variable81
    Participant

    @ Ilargi,

    Thanks for referencing Armstrong’s works. Considering his and this blog are two of the primary sources I look to for what’s going on in the world these days, it’s nice to see at least one of the authors examining what the other is saying and incorporating (or pointing out flaws) into their own work.

    Also, we never hear from or about Nicole these days… but I saw this I my thoughts went out to her:

    https://theextinctionprotocol.wordpress.com/2015/06/02/strongest-earthquake-in-41-years-jolts-region-of-new-zealands-south-island/

    Hopefully she’s doing okay out there?
    An update on or an article from Nicole would be a welcome treat.

    Cheers,
    -GBV

    #21413

    Professorlocknload
    Participant

    Dear Fascist Jon,

    Could it be you and your Corporatist pals erred in your decision to take the “Moral Hazard?”

    Ever even consider that? Didn’t think so.

    #21415

    Dr. Diablo
    Participant

    The WSJ article is amazing, but far more amazing are the comments (mostly hidden now, but available here). 99.9% seem have references to rope and tall objects. Pages and pages and pages of them. Each comment of which the person knows is being recorded and/or is a possible crime. Pretty concerning stuff. More is that Hilsenrath may have meant this somewhat tongue-in-cheek. The people clearly are not in the mood.

    Link here, see for yourself:
    https://blogs.wsj.com/economics/2015/06/02/grand-central-a-letter-to-stingy-american-consumers/tab/comments/

    #21416

    Diogenes Shrugged
    Participant

    “And before you know what hit you, it turns into something like the climate change ‘debate’: just because a handful of ‘experts’ deny what’s right in front of their faces as tens of thousands of scientists do not, doesn’t mean there’s a valid discussion there.”

    Wrong. Climate science is never “settled,” as that would be antithetical to science itself. And the discussion is always valid, especially when deep pockets make plans to inject albedo-enhancing sprays into the stratosphere to permanently reduce solar radiation (the same solar radiation that makes solar panels and photosynthesis work, by the way). Give me a break – – that could backfire and kill us all – – and you just accept it because somebody claimed popular consensus in the “scientific community?” The notion that most scientists agree with Al Gore is pure propaganda. SCIENCE IS NOT SETTLED BY POLLING, and what a geologist or virologist thinks about climate change is as irrelevant as what an electrician thinks about brain surgery.

    You know, Ilargi, if you could just look objectively at the climate change evidence yourself without all the myths, propaganda and ad-hominems, you’d realize that this issue is the only one standing in your way of being right about EVERYTHING you write about.

    Again, why on Earth are you such a fan of the carbon tax frauds? After all, as Martin Armstrong repeatedly stresses, rising taxes will be the single greatest impediment to economic recovery and human freedom going forward.

    I recommend to all here that Nicole has adopted the only reasonable stance on climate change. It’s not going to affect us in the near term, and the other perils at our doorstep are monsters. Let’s focus on the monsters and address dubious threats predicted for the distant future AFTER the monsters are dead.

    #21417

    Variable, I’m working on Nicole.

    Dio, 5 against 30,000 is never a fair fight. 30,000 scientists either all being bought off or being too thick to understand their own field, is not a credible position.

    #21419

    rapier
    Participant

    There is no winning on climate and I’m trying to find a way to make this is analogous to the main topics here monetary/credit/finance or global energy I can’t quite do it except to fall back to the idea of belief vs fact. What anyone believes should be of no interest and I spend as little time as possible thinking about what others believe as it is a waste of my waning time. Hilsenrath believes what the Fed believes. Alternately he doesn’t believe it but pretends to because that’s how he makes his living, writing this stuff for major corporations.

    There is precious little money in alt economics, ask Illargi, and none in the planetary physics as it pertains to climate since there is nothing there to study physics wise about planeary climate since the physics is settled fact. All a practicing physicist can get from touting earth climate is grief. All a writer can get from touting climate/energy bubble analysis is a tiny audience on the internet.

    #21420

    jal
    Participant

    Let’s talk about something really important.

    The USA is spreading death.

    https://www.bbc.com/news/world-us-canada-33000959
    US anthrax scare widens to 51 labs in 17 states

    In addition to the US labs, samples were sent to facilities in Australia, Canada and South Korea.

    Anthrax entered the US national consciousness in 2001, when shortly after the 9/11 attacks, letters containing powdered anthrax arrived at news organizations and the offices of US senators. Twenty-two people were sickened and of those, five people died.

    #21421

    Nassim
    Participant

    Ilargi,

    Since you give some credence to Martin Armstrong and you lambast those who look objectively at climate data, here is what Martin Armstrong has to say about “climate change”

    “Climate Change – A Fraud to Justify More Taxes”

    Archives

    #21423

    Ken Barrows
    Participant

    Are those arguing against climate change doing it so carbon taxes/regulations remain off the table? If so, you also ought to work on proving that the oceans aren’t acidifying.

    #21424

    Raleigh
    Participant

    It’s all in a name. Let’s take Mark Carney. Mark: A person identified as an easy target, or “sucker”. A mark is always the short end of a joke or scam, and is never let in on what’s going on. A mark is usually being cheated out of money. Its origin is from old English traveling carnivals from the late 1800s to early 1900s, where workers would refer to people paying to see their made-up shows and games a “mark”. Carney: A carnival worker or member of such a worker’s family : outdoor show people, the ”carnies,” who travel from town to town with carnivals. Looks like he chose the appropriate profession.

    Then there’s Robert Shiller. Shill: an accomplice of a hawker, gambler, or swindler who acts as an enthusiastic customer to entice or encourage others. This sounds about right, too. The words he used in your post yesterday were: “Shiller…said a recent boom around the world was driven by anxiety. ‘I call this this the ‘new normal’ boom – it’s a funny boom in asset prices because it’s driven not by the usual exuberance but by an anxiety,’ said Shiller. ‘This is an anxiety driven world – the whole world is driven by anxiety. It is anxiety about the aftermath of the global financial crisis, it’s anxiety about inequality and about computers replacing jobs,’ he added.”

    There you have it from the Nobel (cough, cough) winner. This is all being driven by anxiety. He makes absolutely no mention of the cheap money being handed out to people above our pay grade, and how that money is sloshing around the world buying up whatever doesn’t fight back. Anxiety? Hello? Don’t you mean “greed” and “easy money”?

    I can see the wheels turning, “M-u-s-n-‘-t c-o-m-e o-u-t a-n-d t-e-l-l t-h-e t-r-u-t-h. M-y s-t-o-c-k p-o-r-t-f-o-l-i-o m-i-g-h-t g-o t-i-t-s u-p.”

    #21425

    Nassim
    Participant

    “Are those arguing against climate change doing it so carbon taxes/regulations remain off the table?”

    A more appropriate question is whether those in favour of the “global warming” hypothesis are doing so in order to justify higher taxes. Pollution is one thing – and should be taxed – whereas GW is an entirely different thing. Bringing in Ocean acidification merely confuses the matter even more.

    #21426

    Raleigh
    Participant

    Jeremy Siegel – “Siegel was born in Chicago, Illinois, and graduated from Highland Park High School. He majored in mathematics and economics as an undergraduate at Columbia University and obtained a Ph.D. from MIT in 1971. He is currently an advisor to WisdomTree Investments, a sponsor of exchange-traded funds, and as of early 2007 owns a 2% share of the $700 million market capitalization company.” ETF’s. Why, that’s $14 mil for another market shill.

    https://en.wikipedia.org/wiki/Jeremy_Siegel

    https://en.wikipedia.org/wiki/WisdomTree_Investments

    Wisdom Tree Investments – under $5.00 in 2011; today, $21.75. Go, Siegel!

    Shiller and Siegel are great friends. Shiller tends to think markets are over-priced, while Siegel thinks they’re underpriced. But the one thing you DON’T hear them saying is that there are “no markets,” that their precious market is really just a product of financial engineering by the men behind the curtain (Wall Street in collusion with the government).

    Of course, they don’t dare come out and say this, otherwise their jobs would be in jeopardy. Nothing more than two men who are profiting from the above, and then who go play in the sand together on holidays.

    #21427

    Raleigh
    Participant

    Geo-engineers ought to be put out to pasture. When are we going to learn? We can’t always solve something by adding more technology because eventually nature just turns around and slaps us upside the head. Global warming is probably something that was eventually going to happen (as it has happened before in earth’s history), but who can say (with a straight face) that we aren’t helping it along in a big way? We are completely raping this planet.

    Blah, blah, blah, blah, blah, growth, blah, blah, blah. What we need and have needed for a long time now is a slow reduction in our population, eventually down to around 500 million people. The more people, the more roads, cement, lumber, food, water, fuel, and on and on it goes until we exhaust the earth like the greedy little piggies we are.

    Over-population is the real cause of all of our problems (as will be very evident in the not too distant future). All of the rest are just effects.

    #21428

    Patricia
    Participant

    Variable 81. Truly that earthquake wasn’t that bad. Certainly not an enjoyable experience but we do have worse. Not often but with 15000 earthquakes a year here there are always some that make you rock and roll!

    #21447

    Dr. Diablo
    Participant

    Science has become embarrassingly non-responsive and non-policing. Here’s an article from the Lancet explaining how half of all published science is probably garbage:
    https://www.thelancet.com/pdfs/journals/lancet/PIIS0140-6736%2815%2960696-1.pdf
    (Also here: https://www.nybooks.com/articles/archives/2009/jan/15/drug-companies-doctorsa-story-of-corruption/ )

    This is after last year’s hilarious (though perhaps not to society) practical joke where 200 papers were published in respected journals that were made up by a computer and a dictionary assembling plausible sentences. I.e. NO ONE WAS READING THE PAPERS AT ALL, much less peer-reviewing and re-running the experiments as required. Be careful citing “science” as your support or priesthood. There’s not a lot left of it at a time we need it more than ever.

    Says Lancet (who are clearly the pinnacle of respected science):
    “The case against science is straightforward: much of the scientific literature, perhaps half, may simply be untrue. Afflicted by studies with small sample sizes, tiny effects, invalid exploratory analyses, and flagrant conflicts of interest, together with an obsession for pursuing fashionable trends of dubious importance, science has taken a turn towards darkness. As one participant put it, “poor methods get results”. The Academy of Medical
    Sciences, Medical Research Council, and Biotechnology and Biological Sciences Research Council have now put their reputational weight behind an investigation into these questionable research practices. The apparent endemicity of bad research behaviour is alarming. In their quest for telling a compelling story, SCIENTISTS TOO OFTEN SCULPT DATA TO FIT THEIR PREFERRED THEORY of the world. Or they retrofit hypotheses to fit their data.” etc, etc.

    Other articles decry how only those fashions that are popular or profitable get funded. Only the funded get research. Only researchers that support the theory of the funding organization survive even one study. Everyone else loses their job and are therefore no longer “science”, because they cannot afford independent research but also are not backed by an authorized institution. In one iteration we can see how money can, and arguably has, corrupted science, from pharmaceuticals selling known-bad products, to psych and behavioral studies, to history and archeology supporting various nation-claims, to nutrition selling product for oat bran or green tea, to God-knows-what. We have the proof of the 50% or more of science being fabricated right here in the Lancet, and if there was no motive, why bother fabricating results?

    Be careful citing “science”. Not only is it not hard to suppose a large number of scientists are wrong or on the take, we have positive evidence by the most respected journals that they provably are. And then where do we stand?

    More here in the Archdruid’s weekly, discussing other fabrications and their corrosive effect on science, and society in general. https://thearchdruidreport.blogspot.com/2015/06/the-era-of-breakdown.html

    Strangely he, like so many, decry paid and suspect science on one subject, then unquestioningly believe it concerning another subject of study. How? Wouldn’t you have to do a mass investigation and expulsion of the unsupported parties before the field could be trusted again? That’s like saying “we all know YOUR kid (bank) is corrupt, but my child (bank) would NEVER do what all the other kids are doing.” Unlikely.

    #21449

    mr.mud
    Participant

    An excellent analogy Ilargi. One of your best articles to date IMO. Don’t pay any attention to the short-sighted speculators commenting here, they are only interested in the performance of their portfolio in the next quarter, not the world that they’ll leave to their kids and grandkids.

    i agree with you that perhaps the only non-disasterous ways out of this situation is long term mild deflation. But that solution is impossible for the spittle spewing speculator class to ever embrace as it would mean them having and wanting less.

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