Post by rmarks1 on Jun 9, 2014 14:49:00 GMT -5
The economic "recovery" of the past few years is breeding a bunch of new bubbles. This is a direct result of central banks keeping interest rates artificially low. After the housing bubble burst in 2008, politicians blamed the free market and passed a bunch of new laws to "regulate" it. That crash was caused directly by faulty government policies, but politicians never take responsibility for their failures. They blame the free market.
Now another crash is coming and once again politicians won't be blaming their bad policies. They will blame the market in spite of the fact that the market is more regulated than ever. Here are some of the many possible bubbles that can burst. Note that China is also vulnerable due to government interference.
Bob
Now another crash is coming and once again politicians won't be blaming their bad policies. They will blame the market in spite of the fact that the market is more regulated than ever. Here are some of the many possible bubbles that can burst. Note that China is also vulnerable due to government interference.
As global stock and housing prices continue to climb, an increasing number of people are becoming “true believers” in the economic recovery. But what if the recovery is really a “Bubblecovery”?
Bubblecovery is a term that I coined to describe a bubble-driven economic recovery. According to my research, growing post-2009 economic bubbles are helping to foster an illusion of economic healing by creating temporary economic growth, new jobs, and rising asset prices.
I also consider the 2003-2007 economic recovery from the early 2000s recession to be a “Bubblecovery”, as the growing U.S. housing and credit bubble led to renewed, albeit temporary, economic growth and job creation in sectors like construction, mortgage lending and other areas of finance.
As with the 2003-2007 Bubblecovery, I expect the current Bubblecovery to cause a devastating economic crisis when the post-2009 bubbles collectively pop. Unfortunately, the next bubble-induced crisis is likely to be even more severe than the last one because the global economy is in a much weaker state than it was in before the last crisis started.
Here Are Today’s Most Dangerous Bubbles
This is an overview of the primary economic bubbles that I am warning about. I will be writing about each of these bubbles in much greater detail in coming posts.
China: In recent years, China has become notorious for building countless empty “ghost cities” and other wildly ambitious infrastructure projects for the sake of boosting economic growth. China’s frantic building activity is fueled by a multi-trillion dollar debt bubble that will cause the country to replicate Japan’s experience after its bubble popped
Emerging Markets: As a side-effect of global central banks’ stimulative monetary policies, $4 trillion has flowed into emerging market assets since 2009, inflating credit and property bubbles (see charts) from Brazil to India to Turkey. Despite this past summer’s EM rout, these property bubbles have not popped yet.
Canada: Canada is currently experiencing a household debt and housing bubble that is even worse than the U.S.’ in 2006:
Australia: Similar to Canada, Australia is experiencing a household debt and housing bubble that is worse than the U.S.’ bubble (see chart). In addition, Australia’s mining sector has benefited from the unsustainable China-driven commodities boom.
Northern and Western European housing: Record low European mortgage rates have fueled growing property and household debt bubbles across Northern and Western Europe, especially in the Nordic countries.
Bonds: Investor risk aversion and central bank bond-buying and zero interest rate policies in the wake of the Great Recession have sent trillions of dollars worth of capital on a global “hunt for yield”, inflating prices for all types of bonds – including risky junk bonds.
U.S. Higher Education: The cost of attending college has risen by more than 500% since 1982, driven by an inflating student loan bubble that has almost tripled in size from 2004 to 2012, bringing the total value of outstanding student loans to $1 trillion. Today’s recent graduates are buckling under onerous student debt loads, while nearly half of them are underemployed in low-paying jobs that don’t require their level of education or experience.
U.S. Healthcare: Healthcare costs are skyrocketing and far outpacing the rate of inflation and wage growth, while total healthcare expenditures are rapidly approaching twenty percent of our GDP – up from just five percent in 1960. Healthcare is one of the few sectors to have consistently added jobs throughout the Great Recession, and is driving a construction boom.
U.S. Equities: The SP500 is up 154% from its low in early 2009, bringing it to a level of overvaluation that is comparable to levels that preceded major secular bear markets of the past century. The U.S. stock market’s frothiness is fueled by the Federal Reserve’s ZIRP (zero interest rate policy) and multi-trillion dollar QE programs, soaring margin debt, and abnormally high profit margins.
U.S. Housing Bubble 2.0: Artificially low mortgage rates, courtesy of the Fed’s QE programs, are causing U.S. housing prices to rebound at an alarmingly fast rate, with prices rising 11.2% in the first seven months of 2013 – the fastest growth rate since 2004, during the heyday of the housing bubble. Though housing prices are rising faster than stagnant incomes, flipping is a making a comeback in former bubble markets such as Arizona, Nevada, Florida and California.
Tech Bubble 2.0: The rise of social media moguls such as Facebook’s Mark Zuckerberg has sparked a gold rush as techies scramble to launch and attempt to cash in on thousands of Web 2.0 startups in recent years – a large portion of which are unprofitable. As tales of tech riches abound, startup culture has captured the public’s fascination in a time of few economic opportunities. Publicly-traded social media companies are trading at jaw-dropping valuations (even relative to their earnings growth rates), such as LinkedIn LNKD -0.45%’s 947 P/E ratio, and Facebook’s 230 P/E ratio, while many public social media companies are losing money, such as Yelp YELP +0.49%, Pandora and Zynga.
I am very concerned to see so many bubbles inflating so soon after our crisis that was caused by bubbles in the first place. Because the lessons of the last crisis were not learned, we are destined to repeat them until we finally acknowledge the errors of our ways.
www.forbes.com/sites/jessecolombo/2013/09/27/bubblecovery-why-our-economic-recovery-is-actually-an-illusion/
Bubblecovery is a term that I coined to describe a bubble-driven economic recovery. According to my research, growing post-2009 economic bubbles are helping to foster an illusion of economic healing by creating temporary economic growth, new jobs, and rising asset prices.
I also consider the 2003-2007 economic recovery from the early 2000s recession to be a “Bubblecovery”, as the growing U.S. housing and credit bubble led to renewed, albeit temporary, economic growth and job creation in sectors like construction, mortgage lending and other areas of finance.
As with the 2003-2007 Bubblecovery, I expect the current Bubblecovery to cause a devastating economic crisis when the post-2009 bubbles collectively pop. Unfortunately, the next bubble-induced crisis is likely to be even more severe than the last one because the global economy is in a much weaker state than it was in before the last crisis started.
Here Are Today’s Most Dangerous Bubbles
This is an overview of the primary economic bubbles that I am warning about. I will be writing about each of these bubbles in much greater detail in coming posts.
China: In recent years, China has become notorious for building countless empty “ghost cities” and other wildly ambitious infrastructure projects for the sake of boosting economic growth. China’s frantic building activity is fueled by a multi-trillion dollar debt bubble that will cause the country to replicate Japan’s experience after its bubble popped
Emerging Markets: As a side-effect of global central banks’ stimulative monetary policies, $4 trillion has flowed into emerging market assets since 2009, inflating credit and property bubbles (see charts) from Brazil to India to Turkey. Despite this past summer’s EM rout, these property bubbles have not popped yet.
Canada: Canada is currently experiencing a household debt and housing bubble that is even worse than the U.S.’ in 2006:
Australia: Similar to Canada, Australia is experiencing a household debt and housing bubble that is worse than the U.S.’ bubble (see chart). In addition, Australia’s mining sector has benefited from the unsustainable China-driven commodities boom.
Northern and Western European housing: Record low European mortgage rates have fueled growing property and household debt bubbles across Northern and Western Europe, especially in the Nordic countries.
Bonds: Investor risk aversion and central bank bond-buying and zero interest rate policies in the wake of the Great Recession have sent trillions of dollars worth of capital on a global “hunt for yield”, inflating prices for all types of bonds – including risky junk bonds.
U.S. Higher Education: The cost of attending college has risen by more than 500% since 1982, driven by an inflating student loan bubble that has almost tripled in size from 2004 to 2012, bringing the total value of outstanding student loans to $1 trillion. Today’s recent graduates are buckling under onerous student debt loads, while nearly half of them are underemployed in low-paying jobs that don’t require their level of education or experience.
U.S. Healthcare: Healthcare costs are skyrocketing and far outpacing the rate of inflation and wage growth, while total healthcare expenditures are rapidly approaching twenty percent of our GDP – up from just five percent in 1960. Healthcare is one of the few sectors to have consistently added jobs throughout the Great Recession, and is driving a construction boom.
U.S. Equities: The SP500 is up 154% from its low in early 2009, bringing it to a level of overvaluation that is comparable to levels that preceded major secular bear markets of the past century. The U.S. stock market’s frothiness is fueled by the Federal Reserve’s ZIRP (zero interest rate policy) and multi-trillion dollar QE programs, soaring margin debt, and abnormally high profit margins.
U.S. Housing Bubble 2.0: Artificially low mortgage rates, courtesy of the Fed’s QE programs, are causing U.S. housing prices to rebound at an alarmingly fast rate, with prices rising 11.2% in the first seven months of 2013 – the fastest growth rate since 2004, during the heyday of the housing bubble. Though housing prices are rising faster than stagnant incomes, flipping is a making a comeback in former bubble markets such as Arizona, Nevada, Florida and California.
Tech Bubble 2.0: The rise of social media moguls such as Facebook’s Mark Zuckerberg has sparked a gold rush as techies scramble to launch and attempt to cash in on thousands of Web 2.0 startups in recent years – a large portion of which are unprofitable. As tales of tech riches abound, startup culture has captured the public’s fascination in a time of few economic opportunities. Publicly-traded social media companies are trading at jaw-dropping valuations (even relative to their earnings growth rates), such as LinkedIn LNKD -0.45%’s 947 P/E ratio, and Facebook’s 230 P/E ratio, while many public social media companies are losing money, such as Yelp YELP +0.49%, Pandora and Zynga.
I am very concerned to see so many bubbles inflating so soon after our crisis that was caused by bubbles in the first place. Because the lessons of the last crisis were not learned, we are destined to repeat them until we finally acknowledge the errors of our ways.
www.forbes.com/sites/jessecolombo/2013/09/27/bubblecovery-why-our-economic-recovery-is-actually-an-illusion/
Bob