“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds

Bubble

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It’s Bubble Time!

Wisdom & discipline will separate winners from victims

Most of you reading this might be thinking “Hey, I’m a reasonable intelligent person. I won't fall victim to the next bubble.” Perhaps, but maybe not. The numbers say that the majority of you will. Unfortunately, being smart -- even a genius -- is no protection against being ruined by a bubble. 

Remember from the video that even Sir Isaac Newton, easily one of the most brilliant humans ever to live, got his clock cleaned by the South Sea Bubble: 

But when the bubble pops, though, action becomes much harder to take. At first, everyone assumes that the sudden drop is a temporary aberration and that the party will shortly resume. As prices fall further -- and they typically fall at a faster rate than when they were rising -- folks become paralyzed by fear on the way down, slowly realizing that their paper profits may indeed be gone for good. At first they're unwilling to give up the dream of the "sure thing" they so recently had, and then, once the losses start mounting, they find themselves resistant to locking in those losses by selling. Instead, they hold on to the increasingly threadbare hope that prices will at least recover to where they can ‘get their money back.’

Americans now Hold Over $4.1 Trillion in Consumer Debt: Last Debt Bubble Peak was at $2.5 Trillion.

Americans now hold an incredible $4.1 trillion in consumer debt.  This latest data shows that Americans are now back to having an insatiable appetite for spending beyond their means.  Unlike mortgage debt, consumer debt is not building up any future equity here.  The largest category of consumer debt is student loan debt.  Even at the peak of the last debt bubble, consumer debt totaled roughly $2.5 trillion.  While student debt makes up about $1.4 trillion of the consumer debt here, auto debt is above $1 trillion.  We’ve also seen a large rise in subprime auto debt suggesting that people are borrowing beyond their means to consume.  Delinquencies are also rising suggesting any tiny slip up in the overall economy and this credit bubble can burst too. 

Consumer debt being over $4.1 trillion is troubling when student debt, auto loans, and credit cards are leading the way forward.  Apparently we like repeating history and people may like to forget that at the root of the Great Recession was a giant credit bubble.

DYI