Bubble

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Will the Crazy Global Debt Bubble ever End?

We've been playing two games to mask insolvency: one is to pay the costs of rampant debt today by borrowing even more from future earnings, and the second is to create wealth out of thin air via asset bubbles. 

The two games are connected: asset bubbles require leverage and credit. Prices for homes, stocks, bonds, bat guano futures, etc. can only be pushed to the stratosphere if buyers have access to credit and can borrow to buy more of the bubbling assets. 

If credit dries up, asset bubbles pop: no expansion of debt, no asset bubble. 

These games look like a Perpetual Motion Money Machine. There is no cost, it seems, to expanding debt and assets bubbles; if future income doesn't rise enough to service the growing mountain of debt, we either print more money, lower the interest rate or create "wealth" with even grander asset bubbles. 

But there is eventually a problem. At some point, even 0.1% interest becomes unaffordable, and adding zeroes to the currency devalues the currency faster than incomes rise. Asset bubbles run out of greater fools to buy at elevated prices. 

Borrowers default, asset prices crash and everyone holding the currency is impoverished.

Mark Yusko: I'm Telling You Right Now, the U.S. is Going to have a Massive Crash! 

Demographics Are Destiny 

Mark began with the big story of the SIC 2017—demographics. 

He believes that efforts to generate growth through fiscal stimulus and tax cuts will prove futile because the working-age population in the US is declining. As such, consumption—which makes up 70% of the US—will continue to fall. 

Mark thinks instead of taking off, the US economy is on the cusp of a recession.

 “Every time a President leaves the White House after two terms, 

there is a recession within the first year of the new administration. 

I believe this time will be no different.”

 

A Stock Market Crash: A Matter Of “When,” Not “If”

Given group-think and the determination of policy makers to do ‘whatever it takes’ to prevent the next market ‘crash,’ we think that the low-volatility levitation magic act of stocks and bonds will exist until the disenchanting moment when it does not. And then all hell will break loose, a lamentable scenario that will nevertheless present opportunities that are likely to be both extraordinary and ephemeral. – Highly regarded hedge fund manager, Paul Singer, in his latest investor newsletter

New Debt ETF Introduction Could Portend a Much Overdue Stock Market Crash

Most investors are aware of indicators (if only in retrospect) indicating important market turning points: 

There was the 1979 Business Week magazine cover titled “The Death of Equities,” which kicked off a two-decade-long new bull market. 

There was a June 2005 TIME magazine cover titled “Home Sweet Home,” which came close to top-ticking the peak of the U.S. housing market. 

Other examples abound. While a potential consumer asset-backed security introduction isn’t a magazine cover, it represents a certain reckless insanity—the type that tends to foreshadow a stock market crash.

Essentially, the consumer asset-backed ETF proposed by Blackrock, Inc. (NYSE:BLK) would allow investors to bet on notes whose value is derived from collective consumer loan payments. This includes credit cards, student debt, and consumer loans. The problem? This is exactly the type of debt that is likely to become impaired in an economic downturn.

 DYI