10 Market Bubbles That Could Soon Burst

[william the wie]

TRajan, Just before Gates retired from microsoft he bought a buttload of apple stock. Apple will surpass Microsoft if Jobs survives 5 more years.

Microsoft stock is overpriced and may be worth zero within 10 years. Trust Gates on this one. He's got the inside scoop.

Balmer has also sold over $1 b in Microsoft stock in the last few months. With earnings coming out I expect all IT stocks to crater. I have a multi-terabyte computer I bought in case I could get a programmer to set up a stock picking program but it only cost me $1,000. Apple will also collapse. With insiders at or near record levels on the sell to buy ratio only the Fed is staving off market collapse.

 

[loosecannon]

Well Apple can't possibly collapse as long as the i gadget market is thriving, which it is.

But I agree it won't last long. Nothing will be cheaper than computers and their miniatures a decade from now. Look at the calculator. In 1971 dollars I can remember $1000 calculators that can't match what you can buy for $20 today.

It is a dead end industry for sure. But it probably has 3-5 good years pending.

 

[william the wie]

Well Apple can't possibly collapse as long as the i gadget market is thriving, which it is.

But I agree it won't last long. Nothing will be cheaper than computers and their miniatures a decade from now. Look at the calculator. In 1971 dollars I can remember $1000 calculators that can't match what you can buy for $20 today.

It is a dead end industry for sure. But it probably has 3-5 good years pending.

That could be but if offered the choice of $10 k in either Apple or Minnesota Power & Light I would take MPL in a heartbeat.

 

[Norman]

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

Absolute agreement on that specie is less prone to inflation than fiat currencies but the Alexandrian and Spanish hard currency inflations destroyed both of those empires.

I don't know much (read any) about the Alexandrian inflation, but the Spanish empire's inflation really did happen because the amount of specie (gold) dramatically increased thanks to the conquistadors stripping it from the AmerIndians.

Naturally when there's more specie chasing essantially the same amount of good and services the price of things is going to rise EVEN IF YOU'RE PAYING FOR IT WITH GOLD!!!!!!!!!!!

And let's remember that Charles was also fighting wars against the Reformation (Protestantism) AND the Ottoman empire at the same time Spain was colonizing the Americas. It was sucking up so many resources that one couldn't find good GALLEY SLAVES TO MAN WARSHIPS for love nor money.

Naturally with rising demand (the outrages cost of empire), but no REAL increase in productivity (no real rise in supply of good and services), even though Charles had more HARD CURRENCY (gold) the prices of everything rose dramtically.

And how did Europe overcome this imbalance between DEMAND (driven by all that hard currency) and SUPPLY (that was essantially not rising)?

AFRICAN (and to a much lesser percent AmerIndian) SLAVERY.

Yeah that's right, Europe increased SUPPLY by turning people into THINGS to be bought, sold and EXPLOITED.

And THOSE people ten started creating REAL wealth as they were exploited to mine and farm and create SUPPLY that eventually found a new blance between SUPPLY (real stuff) and DEMAND (gold).

Yeah but the number of gold didn't change. It just got relocated.

This is kind of similar as if you destroyed supply. And I mean in the end that was kind of what they were doing.

Though in US scenario the amount of gold increased as new gold was discovered. HOWEVER, such cases do not really happen anymore, and when you factor in that mining gold is also an investment that has to be done, and has to pay for itself....

But yea obviously we are in trouble when science learns how to make gold with lower usage of energy.

 

[antagon]

i think the definition of bubble has been blurred in the article in order to get the bubble-count up above 2-3, then exceptional performance has been used to justify another couple or three. to round it out, they've resorted to redundancy ie: gold, commodities, chinese RE the dollar and the US debt. these are all the same issue.

 

[Pepe]

TRajan, Just before Gates retired from microsoft he bought a buttload of apple stock. Apple will surpass Microsoft if Jobs survives 5 more years.

Microsoft stock is overpriced and may be worth zero within 10 years. Trust Gates on this one. He's got the inside scoop.

Balmer has also sold over $1 b in Microsoft stock in the last few months. With earnings coming out I expect all IT stocks to crater. I have a multi-terabyte computer I bought in case I could get a programmer to set up a stock picking program but it only cost me $1,000. Apple will also collapse. With insiders at or near record levels on the sell to buy ratio only the Fed is staving off market collapse.

I read the other day that Cisco "Insiders" have sold some 6M plus shares of stock, some 60% of their holdings, and then this AM here comes the headline, Cisco's dismal outlook stuns Street

 

[william the wie]

Well given the market's performance I am beginning to suspect that the 900 billion total injection of cash is going to paying off putbacks on CDs with little if any leakage to the rest of the financial markets and the market may crash.

 

[loosecannon]

i think the definition of bubble has been blurred in the article in order to get the bubble-count up above 2-3, then exceptional performance has been used to justify another couple or three. to round it out, they've resorted to redundancy ie: gold, commodities, chinese RE the dollar and the US debt. these are all the same issue.

Well true enough, but if that actually matters it would be because bubbles are the result of too much money supply chasing too few assets. Money supply bubble.

We have had a huge surplus of money supply concentrated within the financial sector for almost all of the last 20 years.

 

[loosecannon]

Well given the market's performance I am beginning to suspect that the 900 billion total injection of cash is going to paying off putbacks on CDs with little if any leakage to the rest of the financial markets and the market may crash.

My eyes glaze over when I try to figure out how the Fed's buying of long term bonds can result in a nearly direct injection of capital into something like CD putbacks.

Can you explain the path that Fed money traveled to get there?

 

[william the wie]

The money spent by the Fed on treasuries either goes directly or indirectly into the banks, macro 101, and it's 52 years of continuous inflation not 20.

 

[loosecannon]

The money spent by the Fed on treasuries either goes directly or indirectly into the banks, macro 101, and it's 52 years of continuous inflation not 20.

Indirectly could indicate a long and winding road, I was interested in how this could happen within a few days.

You reconcile inflation as being excess money supply?

I always considered inflation as a requisite for a debt based currency. If there was no inflation, or even predictable steadyish inflation banks would go broke.

 

[william the wie]

The money spent by the Fed on treasuries either goes directly or indirectly into the banks, macro 101, and it's 52 years of continuous inflation not 20.

Indirectly could indicate a long and winding road, I was interested in how this could happen within a few days.

You reconcile inflation as being excess money supply?

I always considered inflation as a requisite for a debt based currency. If there was no inflation, or even predictable steadyish inflation banks would go broke.

OK now I see the disconnect between our positions.
When the fed buys treasuries several things happen

All bonds increase in price so all the bond portfolios of banks go up in value and increase capital.

Borrowing costs go down.

The value of the securitized debt banks sell go up.

All of that happens more or less simultaneously with the purchases. Write downs decrease the money supply.

The problem that can and will arise is that the Fed is trying to clean up the domestic bubble bust while ignoring the rest of the world. However the Chinese (and to a lesser degree the Australian and Brazilian) bubble is 3-4 times the size of the US bubble as a percentage of GDP and the banking strains on the PIIGS is greater in size than foreclosure gate. So the Fed monetizes the entire national debt and with counter party risks involving the Far East and EU that level of money expansion is not enough to maintain the banking system, what then? Most of the money supply are demand accounts at bank and non-bank banks.

 

[antagon]

i think the definition of bubble has been blurred in the article in order to get the bubble-count up above 2-3, then exceptional performance has been used to justify another couple or three. to round it out, they've resorted to redundancy ie: gold, commodities, chinese RE the dollar and the US debt. these are all the same issue.

Well true enough, but if that actually matters it would be because bubbles are the result of too much money supply chasing too few assets. Money supply bubble.

We have had a huge surplus of money supply concentrated within the financial sector for almost all of the last 20 years.

certainly all different perspectives of a money supply bubble. they could have just said that, but it does make for a catchy title.

how does it bust if it will at all? the money seems awfully handy for arbitrageurs.

 

[loosecannon]

actually I want to thank you for making the point. I would never have taken that perspective if you hadn't made me think about it.

"how does it bust if it will at all? the money seems awfully handy for arbitrageurs."

In my opinion speculation and leverage are inherently dangerous even as stand alone activity. But when they are intertwined within the retirement strategy of the nation, when they place at risk the financial services sector at large, when they jeopardize the real goods, services and employment economy the risks are simply far beyond acceptable.

The casino economy must be killed esp in light of it's other evils: it screws up the whole money supply equation both nationally and internationally, prevents the fed from being able to effect targeted stimulus to revive the real economy, and it creates a competing economy with far too much corrupt political clout. It also exposes us to deflation risks without remedy.

It must die, or be stuffed back into it's box.

That is just my opinion but the swath of destruction that the financial economy has wreaked is far more grave than has yet manifest. Literally every developed economy on earth is on the ropes and may indeed all fail economically.

And all of that is the result of economists "speculating" with our livelihoods. It's like doctors "practicing" medicine without any credo to "do no harm".

 

[loosecannon]

The money spent by the Fed on treasuries either goes directly or indirectly into the banks, macro 101, and it's 52 years of continuous inflation not 20.

Indirectly could indicate a long and winding road, I was interested in how this could happen within a few days.

You reconcile inflation as being excess money supply?

I always considered inflation as a requisite for a debt based currency. If there was no inflation, or even predictable steadyish inflation banks would go broke.

OK now I see the disconnect between our positions.
When the fed buys treasuries several things happen

All bonds increase in price so all the bond portfolios of banks go up in value and increase capital.

Borrowing costs go down.

The value of the securitized debt banks sell go up.

All of that happens more or less simultaneously with the purchases. Write downs decrease the money supply.

The problem that can and will arise is that the Fed is trying to clean up the domestic bubble bust while ignoring the rest of the world. However the Chinese (and to a lesser degree the Australian and Brazilian) bubble is 3-4 times the size of the US bubble as a percentage of GDP and the banking strains on the PIIGS is greater in size than foreclosure gate. So the Fed monetizes the entire national debt and with counter party risks involving the Far East and EU that level of money expansion is not enough to maintain the banking system, what then? Most of the money supply are demand accounts at bank and non-bank banks.

OK, I sort of blow off all that bubble anxiety over developing nations because they still have quite sound fundamentals. And it has recently come to my attention that what we have been calling a healthy vibrant economic climate is actually just an artificially supported bubble economy, and it has been that way since the 60's. If it was good enough for us for 50 years thru what we all consider (one of) the crowning Age(s) of Man, it's cool for the developing nations to ride the same kind of bubbles.

As per the means you listed that connect the Fed's monetizing of US debt (and I think that is the core mission of QEII) it is impossible for me to quantify how efficiently the fed's expenditures translate into a bonanza for banks. I spose I just can't wrap my head around the transaction.

The fed uses what money exactly to purchase bonds from the treasury and that money then goes where? General fund? How is this even slightly different than just monetizing US debt long term?

Isn't the real benefitiary the deficit bloated US budget?

Or am I just going soft in the head, again?

 

[antagon]

next question, how to kill or stuff the casino economy back in its box??

i dig the idea of taxing transactions in that it would slow the computer generated 'noise' and bring real decisions back into the financial system. as it is, you can cut a computer loose on $60 billion, and 7800 trades later you'll come up with $60.2 billion. not bad for a half-day's work. who'd lend that cash to a deadbeat why-renter with tasty alternatives at the push of a button?

 

[loosecannon]

Good post. I haven't given it any depth of thought but I assumed legislation and regulation would be the answer.

With 401Ks being a mainstay of the economy the stock market and clearly bonds are religious articles in the US.

But banks need to be strictly limited to being banks who lend money as they were under Glass Steagal with even some new regulatory wrinkles added to prevent them from proprietary arbitrage.

Futures should be limited to folks who actually take delivery.

More than half of all derivatives are destructive. Exchange rate swaps and perhaps some interest rate swaps are somewhat necessary to international trade.

But CDOs? CDSs? these are poisons.

Wall Street can not be given a blank authority to create whatever investment vehicles it wants with all oversight occurring after the fact and only after damage has occurred.

But like I said, those are just opinions that I have not considered deeply.

 

[loosecannon]

After thinking about it for just a minute it occured to me that the need for credit default swaps and interest rate swaps for international trade could be eliminated by just tying contracts to indexes that compensate for interest rate and currency valuation changes during the term of the contract.

But there would be some propensity to game these indexes. S Koreans did this shit all the time when I used to trade with them.

 

[antagon]

its time to look at funny-futures the same way as they look at casino operations. make your profit, pay your tax, comply with your regs. i like taxing this shit for the revenues, but mostly for the market pressures. if you can tax individual activities - even better.

 

[loosecannon]

its time to look at funny-futures the same way as they look at casino operations. make your profit, pay your tax, comply with your regs. i like taxing this shit for the revenues, but mostly for the market pressures. if you can tax individual activities - even better.

There are grave differences tho. Casinos operate on extremely narrow and predictable profit margins.

The financial sector casino industry can do irreparable harm to all the world's economy while avoiding all of the deferred costs and consequences of their trade.

If I could make a profit detonating home made nuclear bombs all over the world and the only downside was being taxed on my profits, well that is a great analogy to the casino economy of wall street.

Is that acceptable regulation of my nuking industry?