Posted on 03/21/2006 1:45:55 PM PST by Travis McGee
MASSIVE WORLD SPECULATION DOMINOS
by Christopher Laird
PrudentSquirrel.com
http://www.prudentsquirrel.com/
March 20, 2006
Last year, many Asian and other foreign stock markets went up as much as 50%. There is a synchronized world housing bubble that is a very analogous follow on bubble from the Japan collapses in the early 90’s, and the Fed loosening following 9-11.
We had the tech bubble crash in 2000/1, and a have now a general US stock bubble that is yet to really pop. Right now, we are about at the same DOW level before the market collapses in 2001/2.
There is a massive US and Japanese bond bubble because interest rates are so low, and have been for over ten years, at least from Japan’s perspective. Japan has acted as a virtual central banker for the world, with their zero interest rates. That has caused both a multi trillion dollar value Yen carry trade (borrowing cheap yen then lending the money in the US for example for a net gain of about 3%). The massive Yen carry trade has also financed much of the world stock bubbles as of this point. Also, that money has found its way into the world real estate market bubbles through various forms of mortgage backed securities. This list is endless for the Yen carry trade.
For bonds, in general there is a huge increase in risk taking because interest rates world wide are so low. Fixed income investors like insurance companies, mutual funds and individual savers have no choice but to send their hard earned money into the under priced bond markets. There is no other place to get ‘safe’ returns.
The ultra low US interest rates of late have created the huge US and world real estate bubbles, and these are all synchronized and are going to crash together within 6 months of a public/investor consensus that a pop in the real estate bubble has occurred. This public and investor consensus has not completely formed yet, but is now forming. Housing data is now coming out every week with very significant statistics that prove the housing bubble is cooling. With over 30% of homes in the last few years being purchased as second homes or investment/speculation properties, the now 6 months backlog of houses on the market is going to cause a rush to the exits for speculators. That will ultimately bring down the housing market all by itself, even if many people did wish to keep their overpriced homes for a few years.
There is an unprecedented derivatives atom bomb waiting to collapse. The derivatives outstanding according to the Bank of International Settlements (BIS) has grown from roughly $20 trillion of value in the early 1990’s to about $300 trillion now. The Fed and US banking authorities have had two meetings in the last year to address the fact that there is a very large percentage of these derivatives agreements that are not closing their paperwork within even a month of their creation! The Fed and other regulatory agencies are very concerned that the Banking industry cannot handle the volume.
Warren Buffett has stated that derivatives are weapons of financial mass destruction, due to their incredible leverage. Every year now, we hear of old time banks and new ones going broke in a day or two when a derivatives trade goes south for them. The recent victims are the Chinese petroleum procuring company that lost about $700 million in some air fuel hedges gone wrong. The trader responsible has been arrested, as I recall, and probably going to rot in a Chinese work prison.
I could talk about the Barings collapse, the LTCM collapse, and others.
What would happen if there was a real interlinked derivatives domino collapse and not just one affecting two or three banks only? A financial catastrophe of unimaginable scope.
Now I am going to stop here listing the dominoes that are all synchronized world wide, because my fingers are getting tired, and I don’t plan on typing all day and night to even to begin to list all of these. I just wanted to list enough to give you a good idea because:
All of these dominoes are going to crash together in a period of less than a year of each other and perhaps even within 3 months of each other! I’ll tell you why in a moment.
Also, at this juncture, I wish to say again that there is a big ETF mania going on in all financial and commodity realms. The hot ticket is supposedly hard asset ETFs, to include gold. Many investors are turning to ETFs because they are a hot new idea. Hedge funds and other speculators are pouring money into ETFs, and increasing volatility in the metals markets.
My point is that ETFs are a hot investing vehicle, but are not suitable to people who want to own metals for monetary and wealth safety reasons. For speculators, I suppose ETFs are fine. In fact, most of the activity in ETFs now are speculators anyway and they are not in them for the monetary reasons, but to obtain speculative gains. I go into this in more detail in a special ETF report out this week at the PrudentSquirrel newsletter.
To get back to the issue of synchronized global bubbles…
The issue at hand about the world stock, bond, and real estate bubbles is that they are all peaking together. They are all at historic highs. And they are all peaking at the same time in every nation on earth. Developed nation or not, many world stock markets had incredible gains in excess of 50% just last year!
That, combined with maturing real estate bubbles world wide, and the fact that bonds are at a high peak because interest rates have been so low mean that, when any one of these lets go, it will cascade into the other like markets around the world. That cascade in the like markets will lead to stampedes out of the other bubble markets as well.
Then we will see a massive financial collapse with all the synchronized bubbles world wide, real estate, bonds, stocks collapsing in one fell swoop.
This will not be just a national or regional collapse, it will be a total world economic collapse because all these bubbles are now synchronized.
Kondratieff studied bubbles of all kinds, from population growth to economic. He found that bubbles invariably rise until a catastrophic collapse. It is my view that we are in the last stages of a world synchronized Kondratieff bubble that has subsumed all of the world stock, bond, and real estate markets. The inception of the final stage of this bubble occurred in the 1990’s when Japan opened a decade long policy of zero interest rates. That money ultimately acted like a global central bank liquidity wave that has found its way into all world markets, and has synchronized them in conjunction with the tech revolution and the emergence of globalization. The US participation since 1998 and after 911 only heightened the process and magnitude. © 2006 Christopher Laird
The tangled web is frayed.
We are all doomed to something and we don't know it...:)
[Hope can that be when there is no possible market arbitrage that is -- real estate has to be bought and sold where it is.]
I think it a stupid article regurgitating all the same stuff we always here when the American Economy is feasting. However, I did learn something and will think about and research it. How to trade realestate internationally?
Well, you would not sell and ship the realestate. However, consider this; If you take out a very low interest loan in a country whose enocomy is souring (Europe) and the value of their $$$ is dropping against the dollar, and you pay cash for a property in say the US which has an expectation of appreciation rate larger than the interest rate, what would happen? The property appreciates, you lease the property while you own it, and the sale of the property in say 5 years for US dollars allows you to clear some value after you repay the foreign loan. You make money on; 1) the property appreciation Vs. Interest 2) Hopefully the lease income pays the foreign loan 3) The value delta between the foreing currency and US currency after 5 years.
It's just brain puddy that leaked out, but I gotta research this. I never thunk it. It sounds cute.
"Doesn't that chart show 1929 as only around 140%, and the spike occurring during the depression?"
It does. And, considering the intending meaning of this chart in context, I suppose some people think the Great Depression was a "good" thing, since the deficit as a percentage of GDP declined.
That sounds a lot like J.M. Keynes philosophy, "in the long run, we're all dead." IOW, don't worry, let our grandchildren pay for our debts, we'll be dead, so who cares? Our grandchildren can deal with it, screw them, we'll be dead!
Someday one of these doomsday scenarios might come true. However, none have done so, at least since 1929-33. These scenarios are the economic equivalent of global warming. As someone said of a "hard money" advocate 25 years ago, "He has predicted 11 out of the last three recessions."
It was a play on Keynes' words, but it expresses an underlying truth. The Universe started with a Big Bang; it will end in a Big Crunch. In short, we're DOOMED!
I don't support fiat money. I support Ferrari money.
"He has predicted 11 out of the last three recessions."
Fuzzy math?
I'd prefer not to squander our legacy, and not hand our grandchildren lifetimes of poverty, trying to dig out of the hole we put them in.
Let them mock and laugh time will tell.
I hope their paper money keeps them warm and well fed
Yeah, and they were right. Unless you don't consider a 70% drop in tech-weighted 401Ks a disaster.
"and a have now a general US stock bubble that is yet to really pop. "
Yeah great grammar here - these guys cannot even conjugate a sentence and we are supposed to take their financial advice
Same for Carter. Trump once said on LKL that looking back, that late-70s period was not just a severe recession but a Second Depression.
And how did Carter fubar America? Suppressing ND as a fetish; choking off M1; and strangling growth through high interest rates.
Yoda has turned to financial advising. The gold side of the force recommends he, hmm.
Oh, sorry. Thought this was a thread about pizza.
Hundreds of people warned about the coming nazdog crash, and not many people listened. I know people who are still digging out from that bubble bust.
I have a neighbor who bought a bunch of property 5 years ago that abutts mine. He tried to subdivide and sell parcels. Few takers. I asked what he wanted for a couple of parcels abutting my western border. When he mentioned the price, I told him to give me call when he comes down from orbit.
Everyone wants to be an instant millionaire. I suspect I'll be buying his property - soon - at 25 to 30% of his asking price 5 years ago.
No, binary! He's 3 for 3 (or rather 11 for 11).
No, actually it isn't and all the revisionist history, you and others post, wont make it so!
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