The Care and Feeding of Bubbles
The Care and Feeding of Bubbles by Gary Christenson for Deviant Investor
Oops, the coronavirus expanded into a bubble of illness and deaths. Like all bubbles, financial or otherwise, this one will expand, burst, collapse and cause collateral damage. When will the “everything” bubble collapse? When will the coronavirus be contained? How much damage will these bubbles inflict upon the economy, people and personal savings? We don’t know. Stay tuned.
BUBBLES IN THE PAST—WHAT HAPPENED? (weekly data)
Market Low Date High Date Subsequent Loss
NASDAQ 100 956 Jan. 1998 4,691 Mar. 2000 82%
Silver 6 Jan. 1979 50* Jan. 1980 89%
Bitcoin 30 June 2011 19,343 Dec. 2017 69%
Deutsche Bank 25 Mar. 2003 111 May 2007 84%
Microsoft 10 Dec. 1997 37 Dec. 1999 62%
Dow in 1929 137 Apr. 1926 380 Aug. 1929 89%
Crude Oil 53 Jan. 2007 145 July 2008 75%
Palladium 180 Feb. 2005 572 Feb. 2008 71%
JDSU 70 Oct. 1998 1,200 Mar. 2000 100%
Apple 0.41 Dec. 1997 4.30 Mar. 2000 79%
GRAPHS –EXAMPLES OF PAST BUBBLES AND COLLAPSES
GRAPHS –EXAMPLES OF CURRENT BUBBLES AND COMING COLLAPSES
WHY DO BUBBLES HAPPEN?
Bubbles expand for many reasons, but they always include:
- TOO MUCH EASY CREDIT. Examples: Central bank levitations via massive QE, fractional reserve commercial banking, leverage in futures markets, and margin loans for stocks.
- COMPELLING STORIES WE WANT TO BELIEVE. Examples: House prices always go up, the Fed has our back, the Greenspan put, the Powell put, a strong economy, we owe the debt to ourselves, unlimited potential with internet stocks, more eyeballs mean huge profits, tax the rich, global warming, lots of cash on the sidelines, fear of missing out (FOMO), low interest rates forever, government stimulus, shovel ready projects, necessary wars, anonymous crypto currencies, the damage will be contained, the virus will not spread… and the beat goes on, but it’s mostly false.
“Find the Trend Whose Premise is False and Bet Against It.”
- Continual growth on a finite planet. Obviously false. Trouble coming.
- Debt and deficits don’t matter – they can always grow larger. Clearly false. Hyperinflation anyone?
- The Fed will digitally create trillions of currency units with minimal long-term consequences. Not true.
- The shale oil boom produces no profits while creating massive and expanding debt. What could go wrong?
Read: Charles Hugh Smith “The Pandemic Isn’t Ending”
“The more authorities try to mask reality to maintain confidence, the more they destroy credibility, confidence, trust and faith. Once these intangibles are lost, the loss of confidence is self-reinforcing.
Depression isn’t just an economic number. It’s a self-reinforcing loss of confidence. Do you really think quarantining 400 million people will stop the pandemic?”
- Bubbles always implode. Many bubbles exist now in early 2020. Expect implosions. There will be collateral damage.
- The Fed and other central banks blow bubbles by creating excessive credit—new currency units—and manipulating interest rates too low via their central planning. When has central planning by a team of bureaucrats (or economists) worked well for anyone but the political and financial elite?
- The coronavirus pandemic will have direct and secondary consequences for individuals, countries, markets and economies. The risk of bubble implosions will increase. Coronavirus consequences could be the “pin” that pops many bubbles. The virus will be used as a believable scapegoat for a stock market crash, currency weakness and failing central bank policies.
- Ayn Rand: “We can ignore reality, but we can’t ignore the consequences of ignoring reality.” We can ignore bubbles and pandemics, but we can’t ignore the consequences of bubbles and pandemics.
- Gold will be the “last man standing.” Central banks, “inflate or die” policies, and their fake currencies cannot protect markets from a spreading virus, shale oil depletion rates, overwhelming debt, ever-increasing losses, diminishing solar output, unwise governments, failed banking policies, environmental destruction, and expensive wars.
Miles Franklin will sell gold and silver in exchange for fiat currency units that devalue every year. Bubble implosions will increase global demand for real money—gold and silver. Protect your savings and net worth with real money.
The Deviant Investor