Will this bubble burst anytime soon? Will we have inflation or deflation? There are lots of questions up in the air… but they’re the wrong questions.
I’ll never understand how economists and financial analysts don’t get the most basic principle of cycles. We’ve been in this bubble era since 1995. How could so many be arguing that we’re not in a bubble when we have seen one bubble after the next rise and then burst as they always do?
Japan’s Nikkei index peaked over a quarter century ago in 1989 at its all-time high of 38,916. At the time analysts believed it would reach 45,000 by the end of 1990. Instead, it burst that year. Real estate followed next.
The stock index is still down 46% from those ’89 highs, and after 24 years real estate is still down 60% with no major bounce, even after the following generation came along to buy houses. Why? There are now more older people dying (sellers) than younger people buying!
The tech bubble crashed by 78% after peaking in 2000 (and it’ll crash again along with the broader market in the coming years). When stocks proved fallible, investors rushed into real estate — the one thing they thought couldn’t go down.
They couldn’t have been more wrong. Real estate fell by 34% between 2006 and 2012 — with the worst sectors down by 55% — leading us into the Great Recession.
The emerging markets bubble — which was as strong as the tech bubble — peaked in late 2007/mid-2008 and then dipped by 68%. It crashed 70% in China.
Commodities peaked in mid-2008. They have fallen much further and will likely go much lower, according to our 30-year commodity cycle which has been consistent for nearly 200 years.
The last bastion was held by gold and silver. They were supposed to be the ideal investment strategy that would protect you in a downturn… according to the gold bugs, not us.
That quickly turned into a not ideal strategy. When we gave a major sell signal for the precious metals in early 2011, we saw gold drop by 40% from its peak in September and silver 63% from its peak in April, and these golden metals still have not been able to bounce much higher.
Bubble after bubble, they all end the same. See below:
So why do we keep kidding ourselves into thinking this bubble is the one that will keep going?
I’ve debated Ron Insana on CNBC many times. He categorizes the Fed’s “enlightened” policy in creating endless amounts of money as the solution to all of our financial crises and problems.
Ron Insana is actually one of the most intelligent people I debate on this topic but his view is still simply insane to me. Paul Krugman is the leading liberal economist and he thinks we should have printed much more money than we did.
If I’m not debating the “enlightened” ones, I’m hashing it out with the gold enthusiasts. They see hyperinflation, gold going to $5,000 plus and the dollar crashing to near zero. Did this happen in the last financial crisis? No, it didn’t. The dollar went up and gold and silver crashed.
Inflation is not the consequence of QE. The consequence is preventing our economy from rebalancing unprecedented debt, financial leverage and speculation. The inevitable consequence is creating an even bigger bubble that will have to burst.
Deflation is now the trend. We actually saw the money supply in the U.S. contract 6% for a few months before the Fed stepped in with its unprecedented stimulus. It’s inflating to fight deflation.
Central banks can’t keep this bubble going forever, although they are mounting the greatest defense against an inevitable downturn and depression.
You need to prepare for another across-the-board bubble burst and the deepest downturn since the Great Depression, with deflation… not inflation. Gold will not be your defense, like others such as Jeff Clark might tell you… it will be your downfall. The economy and stocks will fall deeper and it will last longer than it did in 2008.
This isn’t the time to listen to those leading politicians, economists and pundits who say we’re not in a bubble and we’re finally seeing a sustainable recovery. We’re not.