May 07, 2007

Bubble to bubble to bubble to bubble

Since we've lost our manufacturing base, perhaps the way out of this mess short term is just to keep inflating bubbles


Nasdaq - nice bubble. Popped.

Housing - REALLY nice bubble. Popped.

So, it it time to reinflate the stock market bubble? No bubble and we got trouble. And it feels like Wall Street knows this.

27 comments:

Anonymous said...

Like a private equity bubble???

Anonymous said...

Those bubbles are fun when they're made out of champagne. 7 out of 10 blonds have demonstrated so.

Anonymous said...

If Bernanke doesn't raise rates you'll have a stock bubble at the same time as the value of the dollar crashes

Vamacharic Archbishop said...

On a philosophical level, the economy is an interesting phenomenon for a number of reasons. For one, it is a totally human (as opposed to biological, chemical, etc) phenomenon; that is to say, it is created by intereactions among humans rather than growing from organic tissue or emerging from a weather system. And yet, despite its human origins, it is too complex for the human mind to truly grasp, much less predict. The whole is much, much greater than the sum of its parts.

But the flip side of this "man-made-ness" is that the economy is not really limited by forces of nature: as long as humans agree to the conditions, just about anything goes. If people decided for wahtever reason that candy bars were more desirable than bars of gold, there is no logical inconsistancy in the possibility of a Milky Way bar going for more than a brick of solid gold. Bizzare, certainly. Impossible, no. You don't get that kind of rtange in other massively complex phenomena tied more directly to the physical world like weather systems or protein folding.

Therefore, as long as everyone is willing to play along with it, it is technically possible to have an economy supported by bubble after bubble. And this is what we are seeing now. How long will it continue? Who knows! It's already gone on much longer than I would ever have imagined possible twenty or thirty years ago.

Much of the surreal quality of the "bubble after bubble after bubble" economy is due to the odd psychological meshing of Asian mercantalist economies and the U.S. consumer society. On the one hand, you have fundamentally conservative, risk-averse Confucian cultures (China, Japan, etc.) full of people who fear risk, love savings, and would rather work today. On the other hand, you have the wild-eyed live-for-today optimism and eye-popping go-for-broke risk-saturated double-down and let the dice roll style of the U.S. As long as both cultures retain these qualities PLUS a belief in international capitalism, there is theoretically no reason the situation can't go on for another 1,000 years. Realistically, this is highly improbabale for all sorts of reasons, but on paper, the sky is the limit...

Anonymous said...

Methanol bubble, corn Bubble, Web 2.0 bubble...the sky is the limit with these crooks.

Anonymous said...

The dollar already crashed. The new benchmark used now is "dragging the dollar on a pile of s***".

Paul E. Math said...

I don't think the stock bubble ever fully crashed back in 2000. The nasdaq did but the dow did not. The dow took a bit of a pause while we all piled into real estate and now that real estate has been shown to be a bad investment we're all piling back into stocks. The bubble is 'baaaaack'.

I expect a crash in the stock market. GDP growth is really slow right now and getting slower due to much lower home building activity. You get the multiplier effect in reverse as people are unable to 'use their house as an atm', as everyone is fond of saying. The consumer has hit the wall. The smart money will soon realize that profit growth among dow-listed companies will be slow and they will abandon ship.

Next likely bubble: commodities. If you're looking for a relatively low risk way of hedging your bets on stocks and housing then I suggest Prudent Bear and Prudent Bear Global Income - they are a mixture of short and long positions taking advantage of a declining usd and dow and rising commodity prices.

Anonymous said...

currency bubble. If every major currency inflates they balance each other out, right? Honestly, I believe this may be the plan worldwide.
joey in NH

Anonymous said...

The entire history of our capital based economy has been one of bubble to bubble to bubble. This has stretched back into the eighteenth century and perhaps before.

One could argue that the relatively stable post World War II era (1945-2000 roughly) has been an anomaly. It's back to the normal boom-bust cycle now.

Anonymous said...

Keith,

Sometimes your doom and gloom forecast for every market, rather than just the stock market, gets a bit old.

PE's for the Dow and S&P are relatively low. Doesn't that make valuations reasonable and NOT in-line with your doom and gloom for housing?

GDP growth has been slow but S&P companies have been meeting or beating Wall Street expectations. HOW MAY YOU ASK? Almost 40% of revenue for S&P companies comes from outside the US.

So it doesn't matter if the US grows 0% as long as the rest of the world grows at 6%. And this could go on for a long time considering, until about 4 years ago the valuation of the US stock market (5% of the world population) had 50% of the world stock market valuation.

As is often said, even when a bubble is popping, there's always a bull market happening somewhere. And hyping up the possibility for a systematic event, a possibility always but highly unlikely, just makes you miss where all the good opportunities lie.

Anonymous said...

Metals bubble in the making, per Bloomberg:

http://tinyurl.com/2kby4m

Yes, bubbles are a manifestation of human nature, as greed is the driving force: everyone's looking for the hot new investment... It seems as if you either play along, or get left behind.

As far as the traditional view that Asians don't like risk, that's not what I've seen. Many Asians will say that drinking is a vice that is frowned upon in most Asian cultures, whereas gambling has always been a popular pastime. If they can couch risk-taking as 'speculative investment', then so much the better! But make no mistake: Chinese are hardly risk-averse, and not frowning on making lots of $$$....

Anonymous said...

So, it it time to reinflate the stock market bubble?
_____
You're kidding, right? There's been a large-scale ongoing inflation of the stock market.

Anonymous said...

Reactive-corrective trading, folks.

When you climb the mountain of understanding and finally know what it is, you'll look back on your rants here and think you were children.

Anonymous said...

The gold and silver bubble has just begun

Anonymous said...

As long as both cultures retain these qualities PLUS a belief in international capitalism, there is theoretically no reason the situation can't go on for another 1,000 years.
____________________

Really? What about that ugly term INFLATION? When the worker bees die off, who will support the Queen and her babies????

Anonymous said...

Paul E Math said "The consumer has hit the wall."

Where? How? Who? I simply do not see this supposed lack of spending. I needed to book a last minute flight this weekend. Everything was booked solid and I ended up spending $800 for a 675 mile flight. For a supposed recession/depression out there people sure are travelling a lot.

Anonymous said...

The stock market hasn't gone anywhere for 7 years now. Nor does the stock market provide much "wealth" ala MEW with housing. If the big fry is propping up the market by buying their own stocks and propping up the pysch of the small fry, further propping up the market BUT NO INVESTMENT is going on, forget about any "stock market bubble" meaning much for the US economy. The 90's Nas bubble at least created millions of jobs.

This one taint doing crap and won't. The economy is slowing, contraction is nearing. That is when big fry will pull out and utterly destroy small fry sending the market tumbling. It happend 2 months AFTER the Great Depression had started.

Anonymous said...

"Reactive-corrective trading, folks.

When you climb the mountain of understanding and finally know what it is, you'll look back on your rants here and think you were children. "

God you're an idiot

Anonymous said...

Yes the Private equity leveraged buyout bubble.My company is owned by Blackstone.

Anonymous said...

$1 Trillion In Real Estates Losses Are "Tip of the Iceberg"
May 7 (EIRNS)--Realty fund manager Kenneth Heebner has estimated to Bloomberg that losses in U.S. real estate bubble collapse "will approach $1 trillion--that dwarfs anything that has ever happened"--in a home price drop of up to 20%, market by market, during 2007. Heebner says hedge funds, not investment banks or brokerages, will take the bulk of those losses over a period of time, and this will create a massive pensions crisis because pension funds are the big-volume sucker-money pouring into hedge funds,-- which is true. Henry Liu in Asia Times just published essentially the same estimate.

Lyndon LaRouche has said that the true extent of losses is being hidden to such an extent, that no such estimate being made, however high, can be considered an exaggeration.

Such figures are backed up by the fact that New Century Financial's loans and mortgage-backed securities are starting to sell off at 30 cents on the dollar; $170 million worth were bought by Ellington Management Group hedge fund for $51 billion. The total mortgage-backed securities market has been estimated at $1.5 trillion.

Anonymous said...

I was looking at the P/E's fo the hottest stocks. 25-30 for most even 50+ for some.....jeez.

Anonymous said...

So it doesn't matter if the US grows 0% as long as the rest of the world grows at 6%. And this could go on for a long time considering, until about 4 years ago the valuation of the US stock market (5% of the world population) had 50% of the world stock market valuation.
-------

AAAHAHAHAHAH. oh It matters. It matters to the Dollar. It matter to the Chinese. It matters to the Japanese. America has start doing more than just producing laywers, Anna Nicole Smiths and bball playas.

Anonymous said...

Anonymous said...
Paul E Math said "The consumer has hit the wall."

Where? How? Who? I simply do not see this supposed lack of spending. I needed to book a last minute flight this weekend. Everything was booked solid and I ended up spending $800 for a 675 mile flight. For a supposed recession/depression out there people sure are travelling a lot.

May 07, 2007 7:30 PM


And you talked to everyone one of those passengers and they all told you they are going to Vegas, right? fool. Look at GM's numbers. The Housing ATM is over. People are mortgged to their hair lines and consumer spending will first to go.

Anonymous said...

Gas costs threaten to curb spending
Consumers are wary of urge to go on sprees
Elliot Spagat
Associated Press
May. 6, 2007 08:42 PM

Craig Gardner of San Diego is eating at home more to save a few bucks. He cringes at paying $100 to fill his truck with gasoline, so he no longer drives with a full tank.

The 30-year-old National Guardsman from Fayetteville, Ark., has taken the cost-cutting measures even though he is earning and spending more money than he was a year ago.

Consumers such as Gardner are showing flashes of frugality as high gasoline prices and shrinking home equity make shoppers count every penny

Anonymous said...

U.S. Consumer Confidence Index Falls to 8-Month Low (Update2)

By Bob Willis

April 24 (Bloomberg) -- Consumer confidence in the U.S. declined to the lowest level in eight months in April, sapped by concerns about rising gasoline prices and a wave of mortgage defaults.

The New York-based Conference Board's index of consumer confidence fell to 104.0 this month from 108.2 in March. The index averaged 105.9 last year.

The share of consumers who said jobs are plentiful declined, and the proportion who said they plan to buy a house was the lowest in more than two years. The Federal Reserve is counting on an expanding job market to keep consumers spending and the economy growing at a ``moderate'' pace.

``The run-up in gas prices is the biggest near-term drag on the consumer,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``There was some further deterioration in plans to buy homes and appliances, which suggests the weakness in the housing sector is not going to go away.''

Sales of previously owned homes declined to the lowest level in almost four years last month, a separate report from the National Association of Realtors showed today. Purchases dropped 8.4 percent to an annual rate of 6.12 million.

Economists expected the confidence index to fall to 105 in April from an originally reported 107.2 in March, according to the median of 67 forecasts in a Bloomberg News survey. Estimates ranged from 102 to 107.5.

The Conference Board's measure of present conditions fell to 131.3 from 138.5. The gauge of expectations for the next six months fell to 85.8 from 87.9.

Anonymous said...

"Hedge Funds Pose Biggest Threat To Investors" Warns New York Fed
The New York Fed warned this week that hedge funds posed the biggest threat to investors since the LTCM crisis of 98. Returns are increasingly correlated, says the Fed, which is the Feds way of saying they are all doing the same thing. So, when one blows up...they all might blow up. And when they all blow up...its likely to send a cloud of smoke and debris over the entire worlds financial markets....

a.creampuff said...

This "next bubble" talk belies an unjustified pessimism. Invest in things that offer hope for a better future - Green tech, nanotech, socially responsible companies.