Are we in another bubble about to burst?

[Tippit]

Yield to maturity

 

[PartSkeptic]

Not quite a bubble - but at the top?

https://www.cnbc.com/2017/12/20/uks...t-is-time-to-get-out-of-stocks-and-bonds.html

Jim Mellon of the Burnbrae Group says U.S. equities are close to a top, there are ominous signs for the bond market, and profits at large tech companies will likely sag in the face of new regulation.

"We are pretty close to a top. I have been in this market for 30, 40 years and I would say it is extremely fully-valued by most measures," he told CNBC Wednesday.

For fixed income, Mellon said global debt was in a bubble-like territory. The investor said he expected bond values to fall further having now broken through key resistance levels.

"The dividend yield on the S&P 500 is below the 2-year Treasury note for the first time and that's an ominous sign," Mellon added.

 

[Roger Ramjets]

So no bubble. Outflows from bond funds and overseas funds into the market
for the next eight years. In other words, just a rebalancing that no one will
find interesting.

The shocking truth about stock returns

What is the S&P 500’s inflation-adjusted return this century?

If you’re like most investors, your guess will be way too high. Believe it or not, the S&P 500 after inflation has produced just a 0.9% annualized price-only return since its March 24, 2000, top.

How can this be, you might ask, given that we’re experiencing the second strongest and second-longest bull market in U.S. history? The culprits, needless to say, are the two severe bear markets that occurred along the way. The S&P 500 dropped by 49.1% during the 2000-2002 bear market, for example, and an additional 56.8% in the 2007-09 downturn. It takes a lot more than a powerful bull market to overcome them.

But we are in a bubble for sure, and sooner or later it will burst. It's called the Business Cycle, and like the tides nobody knows what causes it.

The average length of an expansion has increased significantly since the 1990s. The three business cycles from July 1990 to June 2009 had an average expansion phase of 95 months – or almost 8 years – compared with the average recession length of 11 months over this period.

It's now 8 years since 2009...

 

[Trebuchet]

I've just allowed the broker to invest a quite large sum that was previously in cash, so we are almost certainly heading for a crash.

 

[Tippit]

But we are in a bubble for sure, and sooner or later it will burst. It's called the Business Cycle, and like the tides nobody YOU dont knows what causes it.

It's now 8 years since 2009...

Many of us are well aware that it is central banks and their nonstop issuance of fiat money that cause asset bubbles and crashes.

 

[Roger Ramjets]

Many of us are well aware that it is central banks and their nonstop issuance of fiat money that cause asset bubbles and crashes.

Riight.

Business cycle

The first systematic exposition of periodic economic crises, in opposition to the existing theory of economic equilibrium, was the 1819 Nouveaux Principes d'économie politique by Jean Charles Léonard de Sismondi...

Sismondi and his contemporary Robert Owen, who expressed similar but less systematic thoughts in 1817 Report to the Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption, caused in particular by wealth inequality. They advocated government intervention and socialism, respectively, as the solution.

Central bank

Although central banks today are generally associated with fiat money, the 19th and early 20th centuries central banks in most of Europe and Japan developed under the international gold standard, elsewhere free banking or currency boards were more usual at this time. Problems with collapses of banks during downturns, however, led to wider support for central banks in those nations which did not as yet possess them

Tulip Mania

Tulip mania (Dutch: tulpenmanie) was a period in the Dutch Golden Age during which contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels and then dramatically collapsed in February 1637. It is generally considered the first recorded speculative bubble...

The modern discussion of tulip mania began with the book Extraordinary Popular Delusions and the Madness of Crowds... by the Scottish journalist Charles Mackay; he proposed that crowds of people often behave irrationally, and tulip mania was, along with the South Sea Bubble and the Mississippi Company scheme, one of his primary examples...

in the early 17th century caught the attention of the entire nation; "the population, even to its lowest dregs, embarked in the tulip trade".[10] By 1635, a sale of 40 bulbs for 100,000 florins (also known as Dutch guilders) was recorded.

Dutch guilder

The Dutch guilder (Dutch: gulden, IPA: [ˈɣɵldə]) or fl. was the currency of the Netherlands from the 17th century...the name indicates the coin was originally made of gold.

The truth is, central banks and their 'nonstop issuance of' fiat money are not the cause of asset bubbles, speculators are - even when the money supply is constrained by a gold standard.

 

[Tippit]

The truth is, central banks and their 'nonstop issuance of' fiat money are not the cause of asset bubbles, speculators are - even when the money supply is constrained by a gold standard.

Where do you think speculators get their money? Where does it come from? If the supply of money were static, then we could point to an asset or group of assets which have declined in order to provide the funds for the current stock and bond market bubbles. We can't.

You are utterly and completely ignorant about this subject. I'm sorry.

 

[thaiboxerken]

I like how Tippit thinks he shut you down without offering any actual facts or evidence, Roger.

 

[Tippit]

I like how Tippit thinks he shut you down without offering any actual facts or evidence, Roger.

It's simple reasoning based on a priori knowledge. Bubbles are defined by abnormally high prices, which are not only functions of the supply and demand of the assets in the bubble, but of the supply and demand of money itself. If we can't identify a trough in some other asset class which corresponds to a peak in another asset class which we deem to be in a "bubble", then it means the money supply has increased, which has absolutely zero to do with "speculators", and everything to do with central banks.

 

[thaiboxerken]

More "theory" but no evidence. Nicely done!

 

[Tippit]

More "theory" but no evidence. Nicely done!

https://plato.stanford.edu/entries/rationalism-empiricism/

I'll give you a hint: you're an empiricist. Empiricism is great, as long as we can use the scientific method to perfectly measure what we're testing, but in this case, we can't. We can't perfectly measure the value of every asset, good, and service, nor can we know how much money has really been created (despite published central bank figures), or how much is sitting on the sidelines, ready to influence prices. But we do know a priori that the supplies and demand for both assets and money are what affect prices, and high prices are the definition of "bubbles". We have gained that knowledge through past experience, ie: empiricism. So I know through rationalism, that central banks are the primary cause of bubbles, just as I know that 2+2=4, independently of what my kindergarten teacher taught me.

You are free to remain skeptical, and believe whatever you want to believe concerning bubbles, including the fantasy that "speculators" cause them. Good luck with that. I will continue to get rich and/or avoid poverty with what I know.

 

[Tippit]

https://media.algebris.com/wp-content/uploads/2017/10/2017-10-31-the-bubblecovery-bursts-1.pdf

 

[thaiboxerken]

I'll give you a hint: you're an empiricist. Empiricism is great, as long as we can use the scientific method t....

This is the kind of nonsense woo that allows for the belief in spirits, psychics, medium, gods and conservatism. Good day, sir, you are dismissed!

 

[Craig B]

Many of us are well aware that it is central banks and their nonstop issuance of fiat money that cause asset bubbles and crashes.

Then many of you are completely wrong. You are pumping out ridiculous ultra libertarian nonsense. The former bubbles recently cited here: the 1637 tulip mania, the 1720 South Sea Bubble, the 1845 railway mania and the 1929 stock boom happened at times when precious metal was the basis of value of the currencies then circulating. See also https://www.thoughtco.com/financial-panics-of-the-19th-century-1774020

What stops bubbles and ensuing panics is effective regulation and control. When that is relaxed, swindles and scams abound.

It was not the abandonment of precious metals that caused the bubble and ensuing panic and slump. Quite the contrary: it was the excesses of 1929, and the consequent disasters, that forced the U.K. and USA to abandon the gold standard in 1931 and 1933 respectively.

 

[Tippit]

You are clownishly ignorant. It's obvious that the supply of money is a factor in the price of everything, and the Fed controls the supply of money. The Fed even admits it caused the Great Depression, by - get this - not increasing the money supply even more after the roaring twenties:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
​

And then there is what incoming Chairman Powell said:

"[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position."
​

Oh, and then he said:

"I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy."
​

So yes, booms, busts, bubbles, and the business cycle existed before central banks and will always exist, but central banks and fiat money vastly increase the magnitude of them because of their monopoly on money creation and destruction. Take it from their own mouths, or keep your head in the sand, ostrich.

 

[Craig B]

You are clownishly ignorant. It's obvious that the supply of money is a factor in the price of everything, and the Fed controls the supply of money. The Fed even admits it caused the Great Depression, by - get this - not increasing the money supply even more after the roaring twenties:

"Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
​

And then there is what incoming Chairman Powell said:

"[W]hen it is time for us to sell, or even to stop buying, the response could be quite strong; there is every reason to expect a strong response. So there are a couple of ways to look at it. It is about $1.2 trillion in sales; you take 60 months, you get about $20 billion a month. That is a very doable thing, it sounds like, in a market where the norm by the middle of next year is $80 billion a month. Another way to look at it, though, is that it’s not so much the sale, the duration; it’s also unloading our short volatility position."
​

Oh, and then he said:

"I think we are actually at a point of encouraging risk-taking, and that should give us pause. Investors really do understand now that we will be there to prevent serious losses. It is not that it is easy for them to make money but that they have every incentive to take more risk, and they are doing so. Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy."
​

So yes, booms, busts, bubbles, and the business cycle existed before central banks and will always exist, but central banks and fiat money vastly increase the magnitude of them because of their monopoly on money creation and destruction. Take it from their own mouths, or keep your head in the sand, ostrich.

Not long ago you were telling us that bubbles and depressions could occur only on account of fiat money. Nowyoure telling us they can occur any time, and always will, but they're the Feds fault for not expanding the Money supply. That is plain stupid. How do you increase the supply of gold coin? In 1933 the USA came off gold and increased the money supply. They should have done it more, but how could that happen unless the Fed controlled it? You're contradicting yourself.

That ubbles can happen under gold is plain. The meaning of the Dutch word "guilder", current in 1637, has already been explained to you. In Britain the gold standard was adopted in 1717, and the South Sea Bubble happened in 1720. The stock boom was in 1929 and the gold standard prevailed until 1933 in the USA.

 

[Tippit]

Not long ago you were telling us that bubbles and depressions could occur only on account of fiat money. Nowyoure telling us they can occur any time, and always will, but they're the Feds fault for not expanding the Money supply. That is plain stupid. How do you increase the supply of gold coin? In 1933 the USA came off gold and increased the money supply. They should have done it more, but how could that happen unless the Fed controlled it? You're contradicting yourself.

Nope, I claimed that the Fed is the primary cause of bubbles and depressions, now that there are no limits to the amount of money and credit that they can create. You see, as I've explained before, absent new money, a bubble can only be created by assets first being sold somewhere else, because the money to fuel a bubble has to come from somewhere. What the Fed should have done is not caused the Roaring Twenties with an artificially fueled and unfair credit boom, and then contracted the money supply as much as 33% according to Milton Friedman thus causing the Great Depression. I just linked you a partial admission and apology from the Federal Reserve itself, as well as the admission that it is behind the current "everything" bubble, but you're still in denial.

That ubbles can happen under gold is plain. The meaning of the Dutch word "guilder", current in 1637, has already been explained to you. In Britain the gold standard was adopted in 1717, and the South Sea Bubble happened in 1720. The stock boom was in 1929 and the gold standard prevailed until 1933 in the USA.

Bubbles can happen at any time, but without an unlimited supply of money and credit, their scope is limited due to a finite supply of money, and they don't always result in central bank-caused global depressions. You also clearly don't understand what a "gold standard" represents, or the difference between fiat and fiduciary money. Here's a hint. There was nothing stopping the Fed from creating a ton of fiduciary "gold backed" money to cause the Roaring Twenties, and the redemptions didn't occur until the general public caught on to the scam after the Fed induced Great Depression, at which point FDR swindled the people by expropriating their gold, and then devaluing the dollar.

 

[Craig B]

It's simple reasoning based on a priori knowledge.

Maybe your knowledge is "a priori", but your expression of the facts may be described as "de posteriori", if you follow my meaning.

Bubbles are defined by abnormally high prices, which are not only functions of the supply and demand of the assets in the bubble, but of the supply and demand of money itself. If we can't identify a trough in some other asset class which corresponds to a peak in another asset class which we deem to be in a "bubble", then it means the money supply has increased, which has absolutely zero to do with "speculators", and everything to do with central banks.

It has almost nothing to do with central banks in the context of speculative bubbles. Not at all.

Most of the money in our economy is created by banks, in the form of bank deposits – the numbers that appear in your account. Banks create new money whenever they make loans. 97% of the money in the economy today is created by banks, whilst just 3% is created by the government ... “Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.” ...
Of course, the flip-side to this creation of money is that with every new loan comes a new debt. This is the source of our mountain of personal debt: not borrowing from someone else’s life savings, but money that was created out of nothing by banks. Eventually the debt burden became too high, resulting in the wave of defaults that triggered the financial crisis.​

 

[ServiceSoon]

I've just allowed the broker to invest a quite large sum that was previously in cash, so we are almost certainly heading for a crash.

Currently, I'm laughing, but I fear I'll be crying with you later and so goes the cycle...

 

[Craig B]

Nope, I claimed that the Fed is the primary cause of bubbles and depressions.

No, you stated that

Many of us are well aware that it is central banks and their nonstop issuance of fiat money that cause asset bubbles and crashes.

No qualification there about "primary causes". And also you asserted that the fed

caused the Roaring Twenties with an artificially fueled and unfair credit boom, and then contracted the money supply as much as 33% according to Milton Friedman thus causing the Great Depression.

So there never was any gold standard, and the Fed created the boom of 1929 and then intentionally engineered the ensuing slump for the purpose of creating an excuse to end the gold standard scam so that the President could steal the general public's gold stocks. I see. Nothing is what it seems in your deranged world, is it? It's quite impossible to argue with conspiracy theorists. After all, President Kennedy was never murdered. He merely blew his own brains out to frame Oswald, so that Oswald would be arrested; in order to give Jack Ruby the opportunity to bump him off.