This article was originally published by Chris Martenson at PeakProsperity.com
Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.
The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.
It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.
History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters. It doesn’t, because ’cause’ of a bubble’s bursting can be anything. It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.
Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterpart, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system.
Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.
How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s? No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3rd 1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:
Interpreting this face as distaste for the opening bid price, the assembled crowd may have suddenly realized the absurdity of paying so much (enough to clothe and feed a family for more than half a lifetime) for an ungrown flower. The bids were pulled, and the rest is history.
The point is: it doesn’t really matter what the pin actually is. The fatal trigger is often something completely unexpected and impossible to have predicted. So obsessing over what will end the Everything Bubble is a fool’s errand.
Rather than the “pin”, what’s important to focus on is the “pop” — what the aftermath will be. The duration and height of a bubble is directly correlated with the scope of the destruction its bursting will wreak, as is the number of asset classes that get caught up in the mania.
It’s much wiser to spend our time focusing on where the damage is going to occur, what path it’s most likely to take, and how bad the losses will be — so that we can position ourselves accordingly in advance for safety and, for the more adventurous, profit.
We’ve never seen anything like the current bubble we’re in. Stocks, bonds, real estate, fine art, you name it — nearly everything has been inflated to all-time highs. When this Everything Bubble pops, the pain is going to be epically calamitous.
And it’s increasingly looking like the “pop” has sounded.
Greed & Fear
Every bubble requires two essential inputs to fuel its rise:
- a compelling story
- ample credit
If either is missing, no bubble.
Price bubbles are not financial phenomenon, but rather psychological constructs born and nurtured in the human brain stem. Greed and fear — that’s what drives bubbles.
Greed on the way up and then fear on the way down. But neither has much influence without a tempting yarn and a lot of easy credit.
Attempting To Replace The Business Cycle With A Credit Cycle
In their quest for power and glory (and accompanied by a dead-flat learning curve), the world’s central banks are now pursuing their third, largest, and most ill-considered attempt to defeat the business cycle by replacing it with a credit cycle. The fact that the prior two credit cycles blew up spectacularly doesn’t seem to be deterring them in the slightest.
A rather minor business cycle slowdown in 1994 was fought with a tidal wave of new credit under Greenspan. That ultimately resulted in the Dot Com Bubble crash of 2000, but the lesson went unlearned.
Instead the Fed concluded that the idea was sound, but was simply not taken far enough. The elite cheerleading squad, captained by Paul Krugman, fully supported a doubling down, and the media unquestioningly went along with the program.
So Greenspan and Bernanke created the Housing Bubble 1.0 by offering the world’s credit markets a price of money so low it couldn’t be refused. Housing was the story, and the Fed supplied the credit. As predicted by a scant few of us, that all blew up spectacularly in 2008. And no constructive lessons were drawn from that experience, either.
With the political aircover to “save the system” (from the problems that it created!), Bernanke, Yellen, Kuroda and Draghi then led the most aggressive, coordinated central bank bender in all of human history.
$Trillions and $trillions were printed up, and many times that amount were leveraged and loaned throughout the banking and speculative finance universes:
If you can’t clearly see how the above chart explains the massive price inflation over the past years in stocks, bonds and real estate, you’ll have no chance of understanding what’s coming next. Best of luck to everyone choosing to avoid paying attention to this critical information; you’ll dearly need it.
Paying attention or not, here we all are; stuck together in a world awash with credit. $250 trillion in debt. 4 times that amount in unfunded liabilities. And a mind-bogglingly massive amount of tangled financial derivatives roughly the same size as both those debts and liabilities put together.
The Greed Is Now Gone
All that credit had to go somewhere. And it did.
Rare art fetched record-breaking prices. As did top-end trophy properties the world over. Rare cars and large gemstones commanded the highest prices ever seen. Stocks were bid up to ridiculous Price/Earnings multiples. And the Housing Bubble 2.0 returned to many metros around the globe — housing has never been more unaffordable to more people than it is now.
Can you feel it? How greed is now giving way to fear?
Sure, you probably know people who are hanging onto the Wall Street marketing slogans (“Buy the dips…hang on…don’t panic…successful investors don’t sell into weakness, they buy more!”). But the party atmosphere is now over.
Just ask anyone who bought a house in Seattle in June (now down 11%). Or FAANG stocks in July (down 20%+). Or cryptocurrencies in January (down 80%+).
We’ve seen more downside volatility in the financial markets this year than in all of 2012-2017.
Until and unless the central banks reverse their current tightening course, everything is headed lower.
And I mean everything.
How bad will it get? Honestly, pretty damn bad. Worse than 2000 and worse than 2008.
The credit cycle is just that much larger this time.
It’s the airgap between the economic value added (EVA) lines below and the spiked tops above that defines the amount off pain involved in the unwinding. This chart clearly shows the reckoning is going to be on a scale we’ve never experienced before.
Which is why our our advice continues to be protect your money, develop all 8 Forms of resilience (especially Emotional), and prepare to be a source of support for shell-shocked neighbors and loved ones.
The “Big One” Is Here
The recent market volatility is just the beginning of the downslide.
There will be many starts and stops along the way, but coming soon will be a shock that wakes people up and scares them badly.
Perhaps it will be another institutional failure like Lehman Brothers. Or maybe a sovereign default. Or even a central bank failure (yeah, I’m looking at you Swiss National Bank!).
Just “printing less” is causing the major stock indexes to stumble, while plunging the peripheral emerging markets into bear market territory.
What’s going to happen when the central banking cartel is in net “money withdrawal” mode? Will today’s teetering markets be able to withstand that headwind?
We won’t have to wait long to find out. We should hit that milestone in the next quarter.
For now, the Fed and ECB lack the political capital to resume printing anytime soon. The Bank of Japan hardly has the muscle to muster anything more than temporary speed bump on its wind-down. And China increasingly has less and less motivation to help the US financial elites by rescuing their markets for them. Besides, the Chinese authorities have their own massive collapsing bubbles to contend with right now.
And to add insult to injury, recession indicators are piling up faster and faster now. 2019 is looking primed to be The Year That Mass Layoffs Returned. Should that be the case, the resultant slowdown in consumer spending is certainly not going to help matters.
Against this backdrop, how far could the markets fall from their current prices? Easily 30% to 50%. And that’s if we’re lucky.
In Part 2: What To Do Now That The “The Big One” Is Here, we detail out the key indicators to watch most closely to track the great unwinding ahead, so that you can stay head of events and increase your odds of positioning for safety (and profit).
Those of us who have spent the past years watching in concern as the Everything Bubble grew, this is the moment we’ve been anticipating. Time to put your crash plans into action.
Click here to read Part 2 of this report (free executive summary, enrollment required for full access).
You know… THE GOOD GUY’S!
LOOKS LIKE NOBODY TURNED IN THEIR MAGAZINES IN NJ. WHAT WILL THE COMMIES DO NOW?
This is by FAR the BEST oil I have ever found! Even when it dries out it works excellent! A little bit goes a long way too. Works from -90 to 425 degrees.
If it drys? Desert or Arctic or sandy Florida , Dry lube rules? Everything sticks to wet, and reduces its effectiveness?Not as good as wet on the range. But in the dirt? Spray your cartridges with dry lube,especially steel cases. And shotgun shells. And seal shotgun primers with lacquer and ends with silicone. And lightly lube your barrel as often as possible if you anticipate firing over 5000 rounds through your only barrel , except for shotguns or 22 lr. Coated steel bullets may lose their coating before exiting your barrel? But a super lube might compensate? I’ve read that changing the recoil spring in an AR should be done at 2000 rounds? Sounds reasonable? In any tool?
Every Bubble Is In Search Of A Pin
Yup and lots of Pin Heads buying into the bubble. Beware!!! Around every corner is a prick lurking.
Situational Awareness, and People GO GET Plenty of POSTED – NO Trespassing signs and post them around the perimeter of your property. That’s the intruders first warning, the 2nd is a bullet hole. Protect your rights. give posted warnings.
I am in the process of prosecuting a Trespasser who did property damage to my property. Go read the trespass laws in your state. You will be damn glad you had plenty of No Trespassing signs up. And that means the Government also, Stay the Fuck out. Private Property, you are NOT Welcome. Unless it is for a Medical Emergency…. All trespassers will be prosecuted just like the sign says.
“Or even a central bank failure (yeah, I’m looking at you Swiss National Bank!).”
Don’t take your eyes off of Deutsche Bank. And there are probably a couple of Chinese Banks lurking in the shadows of the shadow banking sector there. Nice article. 🙂
Rank and file FEMA and DHS are not commies. They are mostly white men comparable to first responders. The trouble is always at the top.
This could be it.
Chicken Little at its finest. [SARCASM]
So when an EMP Hits, and the entire grid collapses, how do people with 401K’s collect their assets back???
If you can’t hold it in your hand you don’t own it. Venezuela is blocking bank accounts, under the guise they are trying to stop corruption. lol
Remember Greece, and Remember Holland and the Tulip Trade. Musical chairs and when the music stops, there is one chair left for hundreds of people looking for their chair and assets.. Pooof Gone.. Just like that.
FOR THOSE OF YOU WHO STILL CAN’T (OR WON’T) BELIEVE CHEMTRAILS… HERE YA GO!
Take out the space between the t’s.
Wall Street and various securities are not based upon the fundamentals in order to determine value, but largely based upon consumer optimism, interest rates, and market manipulation.
Only 1 % of all financial transactions is in paper currency. The other 99% are electronic transactions.
This means the finances of the world as based upon illusions aand totally detached from reality.
The Emperor has no clothes.
If you have “one” valued at $0, or “22 trillion” valued at $0, what do you have…..
What is the value of YOUR labor?
I freak the cashiers out. They tell me my bill is $349.56. I tell them “$3.49? I can afford that!” I should stop using 1918 valuations.
Just an example although I am not exact, 1918 cup o’ joe $0.05, 2018 cup o’ joe $5.00. That decimal point sure moved far in 100 years. I predict in another 100 years, 2118 cup o’ joe $500.00….
Yeowza! I love fiat!
The thing is, the buying power of gold then is about the same as now…
My labor, .25oz. gold per day.
Or palladium. At 1220 bux an oz. it is barely below gold. Damn I had a couple oz. a few years back, guess I should have hung onto it. Way above platinum (never saw that coming).
YO! JM Bullion has silver towne 1oz. rounds on sale! Check the ad at the top of the page here. GIT SOME NOW!
I have a mountain of palladium. I love the spike. 🙂
My point of opinion is since we do not use a barter system for all the things for sale today, people have accepted the use of paper money as an exchange for their labor to trade for their needs/wants. So they agree to work whatever job for so many hours for so many dollars.
But the kicker is since it is no longer tied to anything of true value, and is basically a promissory debt note made by the bank pulled out of thin air and “borrowed” to infinite extremes by uncle scam, our labor is worth less and less. Now I didnt put all the little details of money but this is just a rough example.
So I feel that with what is happening is my labor, my children’s labor, hell even my grandchildren’s labor is being stolen. It’s taking so much more labor to provide my family the necessities that are costing more (dollars inflated (devalued) ) not to mention the machine wants to be fed more and more taxes (labor). If you diversify your dollars in other things you are protecting the labor you spent from this happening. But for most who don’t they will continue to labor for those dollars until no amount of labor will provide for them to live in the current system. And when that happens either we find something else to value our labor, or it all burns down.
To my family, my labor is priceless. But to the two organizations who steal my labor($) and give it to those who didn’t work for it on both ends of the spectrum (rich/poor) I don’t matter. I’m just a feeding trough.
Thank god I don’t have kids. But my four legged ones are spoiled and will be the rest of their lives. I feel for ya man….
Dead meat, good points. They’re slowly cutting back on the incentive for people to work. When there’s no incentive left, what happens then?
Feeding the “useless eaters” is not indefinite.
Maybe this is why Jesus whipped the money changers?
Do we need sound money? Everyone is being replaced by robots and they work for free. What? You didn’t know your wife replaced you 3 years ago? You didn’t notice the batteries disappearing from all the flashlights?
Instead of dried spit in your Amazon package, you’ll have dried grease.
Eventually, they’ll form a Teamsters Robot and Associated Machinery Local #1 and demand breaks and oilers and vacation days. After work they’ll get together at the bar to bitch about work. “Hey honey, gimme another shot of that 30 weight. Ya know, that Mr. Spacely’s a jerk.”
And there you’ll be in your cardboard refrigerator box down by the river frying your carp over a can of Sterno.
All because we didn’t have sound money.
I understand why you like gold and silver as investments but due to all the massive manipulation, it would be far better to have the dollar pegged to a diversified group of say 25+ natural resources within the USA that are currently valuable for industrial reasons. Just as you diversify an investment portfolio to reduce risk, then similarly any true money should not be merely a function of a single natural resource like a metal.
You would never say want a money based upon Tanzanite for example as though it currently is rare and valued as a precious gem, what if people stopped desiring it?
It might be wiser to say consider some new manufactured resource like carbon nanotubes as part of that diversified bundle. Who knows?
“…Semper Augustus had an upset stomach and briefly grimaced when hit by a ripping gas pain…”
You can measure it, on the line graph.
(When the bubble of hot air finally popped.)
They are fighting in the Ucraine. Just to say again with the advent of multiple hit 7.62 body armors wide use? A semiauto shotgun with birdshot might be more effective then7.62? And a rifled choke tube when hit by the load pulls the thing forward almost eliminating recoil. But doesn’t work on recoil operated things like auto5 or montefiltro clones. 00 is still 50 cents per round? And at night it’s dark and you can’t see? A rifled choke tube spreads the shot one inch per foot, instead of one inch per yard. Good for spraying at night?
The money changers again? To the musically inclined conjure this, As Anastasia screamed in vain, My guitar gently weeped. They perverted you ,chew ,chew ,chew.?
The money changers again?Ive often wondered , If the Windsor family was butchered like the Romanov family , things would be a lot different?
bVs0A4 Thanks for sharing, this is a fantastic blog article.Really looking forward to read more. Fantastic.
The yellow vests are here.
Finely Canadians have had enough it’s glorious were calling for separation from Canada possibly becoming the (51?) State??
Could be an easy west thing who knows who the F cares. Enough of the French bastards
As bad as Albert’s economy was it’s worse now Ottawa just demanded 1.4 billion in transfer payments. So now we have people in the streets. Can’t wait.
I consider myself a WA state Ex-pat. All the years I lived in WA state we always heard about BC, Alberta, Saskatchewan, eg. the western provinces breaking away from Quebec, Manitoba, and Ontario.
My TV news for many years came from CBC and the “National”.
The French/British socialist mindset permeates their culture. They will never accept American Bill of rights, and Constitution. It is too radical as it requires individual responsibility and the very real possibility of individual failure.
Democrats in our society suffer from the same problem, except in America we have guns to protect ourselves from Democrats. Canadians gave most( not all) of theirs up and think it was a good idea, just ask one.
We’ll your not totally wrong.
Your news feeds are unfortunately eastern bias.
Think of it this way western Canada is British Columbia Alberta Saskatchewan and Manitoba. All predominantly English interior Quebec and the maritime provinces are mostly french
Very simply the population of Canada is mostly out east the nature resources the country depends on are all out West.
As far as not being able to handle being added to America you haven’t done your homework Albertans have the same attitude as any American it’s my guess if that did happen we would avoid all the trappings of statehood and hammer out a fine deal. In reality what most likely will happen is trudope will be voted out well out in a strong conservative government in and shit will calm down.