The ‘Everything Bubble’ has popped.
By Chris Martensen of Peak Prosperty
Now that the world’s central banking cartel is taking a long-overdue pause from printing money and handing it to the wealthy elite, the collection of asset price bubbles nested within the Everything Bubble are starting to burst.
The cartel (especially the ECB and the Fed) is hoping it can gently deflate these bubbles it created, but that’s a fantasy. Bubbles always burst badly; it’s their nature to do so. Economic suffering and misery always accompany their termination.
It’s said that “every bubble is in search of a pin”. History certainly shows they always manage to find one.
History also shows that after the puncturing, pundits obsess over what precise pin triggered it, as if that matters. It doesn’t, because ’cause’ of a bubble’s bursting can be anything. It can be a wayward comment by a finance minister, otherwise innocuous at any other time, that spooks a critical European bond market at exactly the right (wrong?) moment, triggering a runaway cascade.
Or it might be the routine bankruptcy of a small company that unexpectedly exposes an under-hedged counterparty, thereby setting off a chain reaction across the corporate bond market before the contagion quickly spreads into other key elements of the financial system.
Or perhaps it will be the US Justice Department arresting a Chinese technology executive on murky, over-reaching charges to bully an ally into accepting that unilateral US sanctions are to be abided by everyone, regardless of sovereignty.
How was it that the famous Tulip Bulb bubble came to a crashing end back in the 1600’s? No one knows the exact moment or trigger. But we can easily imagine that in some Dutch pub on the fateful night on the Feb 3rd1637, a bidder on the most-coveted of all bulbs, the Semper Augustus, had an upset stomach and briefly grimaced when hit by a ripping gas pain:
Interpreting this face as distaste for the opening bid price, the assembled crowd may have suddenly realized the absurdity of paying so much (enough to clothe and feed a family for more than half a lifetime) for an ungrown flower. The bids were pulled, and the rest is history.
The point is: it doesn’t really matter what the pin actually is. The fatal trigger is often something completely unexpected and impossible to have predicted. So obsessing over what will end the Everything Bubble is a fool’s errand.
Rather than the “pin”, what’s important to focus on is the “pop” — what the aftermath will be. The duration and height of a bubble is directly correlated with the scope of the destruction its bursting will wreak, as is the number of asset classes that get caught up in the mania.
It’s much wiser to spend our time focusing on where the damage is going to occur, what path it’s most likely to take, and how bad the losses will be — so that we can position ourselves accordingly in advance for safety and, for the more adventurous, profit.
We’ve never seen anything like the current bubble we’re in. Stocks, bonds, real estate, fine art, you name it — nearly everything has been inflated to all-time highs. When this Everything Bubble pops, the pain is going to be epically calamitous.
And it’s increasingly looking like the “pop” has sounded…