Somehow, this Idiocratic society has managed to manufacture three of history's largest asset bubbles in a row - each one of greater magnitude than the last. I assume that this is some sort of a record...
60 Years of S&P 500
Of course, each of these asset bubbles has required even more monetary stimulus than the prior one. Each one has required Wizard-of-Oz like Central Bankers to invent new forms of alchemy to yet re-inflate asset markets one more time. For the first bubble they applied standard monetary policy - manipulation of short-term interest rates and just let Technology stock speculators do the rest. For the second one, the housing bubble, Greenspan took interest rates down to 1% for several years and turned a blind eye to housing speculation. For this current one, of course it's been zero interest rates and asset monetizations for four years straight. The amount of leverage involved in this current bubble is unprecedented in world history; however, since it has all been deployed by Wall Street, it's hidden from view and therefore not as obvious as the leverage that was deployed during the past two bubbles. Only when this all starts to go sideways will everyone realize exactly how much leveraged risk has accumulated under the surface.
Bubble Surfing
The Idiocracy at large has gotten so used to these asset bubbles that many see bubble speculation as a legitimate form of investment. Just wait long enough, look around for the next bubble, and surf the wave. Unfortunately, each subsequent post-bubble crash has done greater and greater damage to the real economy and hence to real people. This bullshit is literally destroying families. After the Tech wreck, job creation was extremely slow and most new jobs went into the construction sector for you guessed it the nascent housing bubble. Those jobs lasted all of a handful of years. Now in this latest cycle, job creation has been the slowest in U.S. history. Seven million jobs have been created in the past four years, however, the U.S. debt went up by $7 trillion, so basic math dictates that each job has cost a million dollars of new debt.
The other similarity between these bubbles is that each one had its own unique set of inherently flawed and unsustainable drivers that were so fucking obvious that everyone just ignored them. Then, after the fact, the meltdown was dubbed a "Black Swan" event - and everyone conveniently forgot that the ubiquitous signs of excess had been obvious the entire time.
Below is a time warp through the past decade of serial bubble booms and busts:
2000 Tech Wreck
Everyone knows about the Tech bubble of the late 90s. It was a confluence of several factors that combined to create a massive bubble in technology stocks. Beyond tech, the overall stock market had been gradually heating up for years, with the S&P 500 clocking 15% gains per year like it was run by Bernie Madoff. Even Greenspan way back in 1996 - about four years early, said that the stock market was exhibiting "irrational exuberance". Later of course, he massively loosened policy in late 1998 after the Asian currency crisis which caused the collapse of hedge fund Long-term Capital Management (LTCM) - which once again saved Wall Street from itself and its massive carry trades. Then Greenspan greased the skids again in late 1999 right before Y2K back when we are all sitting around wondering in what time zone the world was going to end. Beyond monetary easing, the real driver of course was the hundreds of Dotcom companies that had been created out of thin air and the accompanying advent of web-based stock trading. Those two factors combined to create the most fertile environment for mass speculation, in the history of the planet. I remember when things went parabolic in late 1999 and early 2000, Cisco had a market cap of half a trillion and was projecting 30%/year growth for the next 10 years i.e. doubling every 2.5 years. I remember calculating that within 10 years, Cisco would be worth more than the entire stock market combined ! I thought, that's odd, that can't be right. But then I went back to buying stocks with both hands...The only people who made money from the Tech Boom and Bust were Wall Street who underwrote the IPOs and otherwise made huge commissions from the unprecedented numbers of trades.
2007 Housing Bubble
That bubble is too recent to go on much about, however, that time no one could claim that they didn't know what a speculative bubble looked like. Speculative fever didn't skip a beat after the Dotcom crash and merely moved on over to real estate. Greenspan of course helped things out with 1% "Patriot loans" after 9/11 which everyone knew were going straight into the housing market. Add in loosened lending standards and regulators asleep at the wheel, and the rest is history. That bubble was even better documented than the prior Tech wreck. Entire blogs were set-up to document the chicanery occurring daily in the housing markets. They were giving loans to illegal immigrants making less than minimum wage, to buy half million dollar McMansions. Meanwhile, the solvency issues on Wall Street showed up way before Lehman Brothers in 2008 - first afflicting the various mortgage lenders such as New Century Financial and Countrywide. Still, no one in leadership warned that the situation was lurching towards meltdown. Wall Street was too busy making tons of money off of the failure of the system. By 2008, Goldman was packaging and selling the various toxic housing derivatives that they knew at the time had a shelf-life of mere weeks even as they were taking the other side of the trade to profit from their collapse. Like taking life insurance out on someone and then shooting them. By mid 2008 various hedge funds were imploding, then Bear Stearns collapsed in June, Fannie and Freddie were next, then AIG collapsed and finally the tipping point occurred with the bank run on Lehman. Had the Treasury and Fed not stepped in, all of Wall Street would have been wiped out. Instead they were re-capitalized and the rest of the world was stuck with a $33 trillion dollar fiscal/monetary tab that we've been paying ever since. Goldman's toxic derivatives had contributed to the demise of AIG, but in the aftermath of bailing out AIG, the Feds paid Goldman 100 cents on the dollar for Goldman's bets that had been taken out against the junk derivatives they themselves had underwritten. The biggest theft in U.S. history.
The Current Era
No surprise, the lamestream media is in total denial about the current asset bubble. Since the speculative juices are no longer flowing on Mainstreet, then by lamestream logic, this can't be an asset bubble. After all, Wall Street couldn't be capable of inflating an all new bubble on their own, could they? Two successive bubbles in less than a decade hollowed out the capital and confidence of the middle class. So now it's up to the buffoons in leadership and their beneficiaries on Wall Street to carry the mantle. Still the issues and risks surrounding this current situation are no less obvious now than they were in the prior two episodes. The mere fact that the lamestream media has arbitrarily decided that this can't be a bubble, because mainstreet is not involved, is dubious enough. Overall, this idea that Central Banks can artificially prop up asset markets while the underlying fundamentals continue to deteriorate is exhibit A of ludicrous self-delusion. Europe is the best example, where we know with 100% certainty that debt levels and unemployment have only worsened in the past year, and yet *someone* continues to buy the bad debt of countries like Spain and Italy. We don't know the exact amounts of borrowed money involved in the current carry trades, but we know that it was enough to buy down Spain's 10 year interest rates from 8% down to 4% even as deficits grew. These carry trades involve every bit as much systemic risk as the hot money trades that caused the Asian Financial Crisis in 1997.
The Most Obvious Risk
The most obvious and overlooked risk right now is China. So many articles have been written in the past several years about the China bubble, that even I ignore them. The Chinese economy is the second largest in the world and one of the only ones that until recently was still growing. The people who know it the best say that it's a latent catastrophe on a monumental scale. China's economy was the biggest driver of global demand coming out of the downturn of 2008/2009. Without the China "stimulus program", who knows what would have happened. Unfortunately of course, the entire stimulus program was one massive make-work project with no long-term sustainable benefit. I watched a documentary the other night where they walked through an entire city full of empty buildings - all of which were recently constructed. But why ask a Westerner, when we can ask the Chinese who are voting with their feet and snapping up properties in Vancouver and Sydney as a hedge against what they clearly view as an unsustainable economy. The Shanghai Composite is the only major global stock market now approaching the lows from 2009 and somehow we implicitly assume that it can sink into oblivion without global repercussions...
The Ultimate Moral Hazard
Meanwhile, here in the U.S. one could have made the case for debt monetization four years ago, with a straight face - if only to put a floor under the collapsing markets. But now, four years later? It's fully evident from the collapsing stock market volumes that the only active participants in the markets on a daily basis are Federal Reserve employees and HFT bots. Meanwhile, apparently these esteemed economists at the Fed haven't heard of this concept of moral hazard. By levitating the markets, they've given politicians a free pass to do nothing with respect to fixing the underlying structural economy. So of course, they took that free pass and ran with it - doing absolutely nothing for four years straight. Likewise, in the corporate world, costs have been cut so much that they are now impacting revenues - two consecutive quarters have passed with declining revenues. It's a closed-loop circle jerk. You can just imagine all of the clueless buffoons leading the various companies scratching their heads as to how they can increase profits when revenues are going down, given that they outsourced profit margins to the highest level in U.S. history. Of course, that circular reference can't be resolved. So the Fed's game of 'extend and pretend' is self-imploding whether the Idiocracy admits it or not. Using printed money to levitate financial assets while shipping the real economy to China - was never going to work. It had no more chance of succeeding than giving illegal aliens cheap loans to buy mega homes in Arizona. The only people profiting from this current bubble of course are the billionaires, Wall Street, and well placed Corporate insiders. Everyone else is on the outside looking in.
Fool Me Three Times, Shame on Me
It's the exact same underlying theme in all three cases - a duplicitous Fed decides to use the Money Supply to fund Wall Street speculation, turning a blind eye in the process, and then claiming after-the-fact to have had no influence on the end result. The Fed has become an extension of Wall Street and it's going to take yet one more final crash to wake up this zombified society to do something once and for all about it...
