In a stunningly honest admission from a member of the elite, Zhou Xiaochuan, governor of China’s central bank, exclaimed multiple times this week to his G-20 colleagues that a bubble in his country had “burst.” While this will come as no surprise to any rational-minded onlooker, the fact that, as Bloomberg reports, Japanese officials also confirmed Zhou’s admissions, noting that “many people [at the G-20] expressed concerns about the Chinese market,” and added that “discussions [at the G-20 meeting] hadn’t been constructive” suggests all is not well in the new normal uncooperative G-0 reality in which we live.
With the Nasdaq sitting at new highs having finally eclipsed the previous record of 5,048 set in March of 2000 and with consumers not-so-eagerly awaiting their chance to get in on the supposed wave of the wearables future by purchasing their very own Apple Watch, we learn that the fate of the tech bubble now rests entirely on the shoulders of Tim Cook because as FactSet notes, “blended Q1 Y/Y EPS growth for the Information Technology sector is 0.7% [but] excluding Apple, the blended earnings growth rate for the sector would fall to -5.1%.”
That rather disconcerting statistic makes this the scariest chart in the world for tech investors:
And as it turns out, it’s not just the tech space. Y/Y EPS growth for the entire S&P 500 is expected to come in at -2.8% — excluding Apple knocks more than a full percentage point off the already negative results: “The blended earnings decline for the entire S&P 500 is -2.8%. Excluding Apple, the blended earnings decline for the S&P 500 would increase to -3.9%.”
In other words, the market better hope there are a lot of these people out there: Continue reading »
About a year ago, when the Chinese housing bubble had just begun to burst (as a reminder Chinese house prices are now crashing at a faster pace than in the US after Lehman) and forcing the real estate bubble blowers to consider a different venue, namely the stock market, another housing bubble several thousand miles away was in full blown escape velocity mode – that of the UK. In fact, as we showed in the following table from last June, the appreciation in UK home prices had surpassed that of China as recently as 10 months ago. Continue reading »
“This is not going to be a 1921-style two-year recession that we bounce back from after a little bit of pain and unpleasantness. After a 50-year global economic boon involving what is now a $59 trillion expansion of credit in 50 years, this isn’t going to be a one or two-year hard recession. This is going to be a multi-decade global depression and I’m not sure that anyone alive today would live long enough to see the recovery. I mean, it’s like Rome: when Rome fell, there was a recovery, but it was 1,000 years later. This is the kind of depression we’re looking at if we allow this $59 trillion credit bubble of ours to implode.”
Essentially, he sees the past 50 years of economic prosperity fueled by globalization and easy credit in serious danger of being unwound, as the doomed monetary policies currently being pursued by the word’s central banks result in a massive multi-decade depression that spans the globe.
The first version of The Dollar Crisis, the hardback, came out in 2003, so I wrote it in 2002. And at that time, the dollar against gold was $300. So the dollar has lost more than 75% of its value since The Dollar Crisis was written, and I don’t think it’s going to stop here. I expect it to continue to lose value over the years and decades ahead.
But what we’re seeing is that the real theme of The Dollar Crisis was that the post-Bretton Woods international monetary system was fundamentally flawed because it couldn’t prevent trade imbalances between countries. And the US had developed an enormous trade deficit with the rest of the world and this blew the trade surplus countries like Japan and China into bubbles. And then, the dollars boomeranged back into the United States and blew it into a bubble, as well. I didn’t know when the housing bubble was going to pop in the US but I knew it would. And I wrote in The Dollar Crisis that when it did, we would have a severe global economic recession/depression that would involve a systemic banking sector crisis in the United States and necessitate trillion-dollar budget deficits and unorthodox monetary policy to prevent a Great Depression from occurring. Continue reading »
Energy accounts for 10% of Canadian GDP and around 25% of exports and the swift fall in oil prices is having a profound effect in the nation’s oil producing regions where home sales are collapsing by as much as 65%.
Talk of a massive bubble in the red hot world of private tech companies is getting louder of late. As we noted last week, Prem Watsa recently highlighted what he called excessive “speculation” in tech stocks and predicted that at the end of the day, habitually slapping billion-dollar valuations on unproven companies that often have little more than an app and a dream will end “very badly.” This comes on the heels of Mark Cuban’s warning that stretched valuations in private tech companies are far more dangerous than any perceived Nasdaq bubble 2.0, as at least with overvalued publicly traded firms there’s liquidity.
Well, now that everyone is jumping on the “there’s no way that app is worth $50 billion” bandwagon, Bloomberg is out with a startling revelation:“Snapchat, the photo-messaging app raising cash at a $15 billion valuation, probably isn’t actually worth more than Clorox.”
No, probably not, but it sure is more fun than doing laundry, which is why it absolutely makes sense that the number VCs are putting on the app makes absolutely no sense.
We are witnessing a profound secular sea-change: the failure of expanding debt and leverage to lift the real economy of wages and household income.
When push comes to shove, you only need one chart to predict the future: debt and wages ( credit and compensation). This chart displays debt and wages as a ratio: debt/wages. What it reveals is the endgame of financialization: creating more debt no longer pushes wages higher.
I have broken the past five decades into easily recognizable economic periods. During the organic growth of the 1960s that many view as the ideal–what I term the pre-financialized economy, the line is almost flat, as debt and wages expanded in a balanced fashion.
“We’re more leveraged today than in 2006-2007,” warns Thomas von Koch – managing partner at EQT, the largest buyout fund in the Nordic region, adding that “there are financial bubbles being built up and how they’ll be solved, I don’t know.” As Bloomberg reports, von Koch concludes, an unprecedented era of monetary stimulus is inflating asset prices across markets to extreme levels, with history offering little help in predicting how it will all end – “The problem is global, not just for Europe. It’s the asset bubbles in general that concern me. It’s wherever we look.”
An increasing number of borrowers are falling behind on their car payments, even as the total amount of outstanding debt reaches new heights, according to the latest report by Experian, the credit and research firm.
In a presentation on Wednesday, Experian said the balance of loans that were 60 days delinquent increased 27 percent, to roughly $4 billion, in the third quarter from the same period a year ago.Continue reading »
The 2008 crisis was a banking and equities crisis. In the simplest terms, investment banks, leveraged to the hilt with garbage mortgage derivatives, became insolvent and began to collapse.
This collapse triggered a selling panic throughout the financial system as every financial entity questioned the quality of the assets backstopping its derivatives trades. The derivative market was over $700 trillion at the time. So just about every major global bank had broad exposure to this market. Continue reading »
The student loan debt bubble in America is spiraling out of control, and it is financially crippling an entire generation of young Americans. At this point, the grand total of student loan debt in the United States has reached a staggering 1.2 trillion dollars, and an all-time record high 40 million Americans are currently paying off student loan debts. Just when our young people should be planning on buying homes and starting families, they find themselves financially paralyzed by oppressive levels of debt. What makes all of this even worse is that only some of our college graduates are able to get the “good jobs” that we promised them. So with limited job prospects and suffocating levels of debt, this generation of young Americans is increasingly putting off major life commitments such as buying a home and getting married. As a society, we really need to rethink how we are “educating” our young people, because what we are doing now is clearly not working. The following are 18 sobering facts about the unprecedented student loan debt crisis in the United States… Continue reading »
When all is said and done, it all basically boils down to this: from Deutsche Bank’s Jim Reid.
The bubble probably needs to continue in order to sustain the current global financial system and the necessary future deleveraging. However with yields moving ever lower in many parts of the world in recent times, partly due to weak growth, and with debt levels still moving higher, the chances are that most government bondholders are unlikely to achieve a positive real return over the medium to long-term from this starting point. Inflation or even the risk of sovereign restructuring will likely prevent this.
So there you have it: either the bubble goes on, or the “current global financial system” gets it. Continue reading »
The auto loan subprime bubble may be the latest to burst (after student loans) as the rate of car repossessions jumped 70.2 percent in the second quarter, with much of that increase coming from finance companies not run by automakers, banks or credit unions. “The number of delinquencies and repossessions rising is what we would expect as the auto industry sells more vehicles,” “But this slight uptick is one to keep an eye on.” The surge in delinquencies and repossessions is being driven primarily by borrowers with subprime and deep subprime credit scores.
Did you know that a major event just happened in the financial markets that we have not seen since the financial crisis of 2008? If you rely on the mainstream media for your news, you probably didn’t even hear about it. Just prior to the last stock market crash, a massive amount of money was pulled out of junk bonds. Now it is happening again. In fact, as you will read about below, the market for high yield bonds just experienced “a 6-sigma event”. But this is not the only indication that the U.S. economy could be on the verge of very hard times. Retail sales are extremely disappointing, mortgage applications are at a 14 year low and growing geopolitical storms around the world have investors spooked. For a long time now, we have been enjoying a period of relative economic stability even though our underlying economic fundamentals continue to get even worse. Unfortunately, there are now a bunch of signs that this period of relative stability is about to end.
The following are 14 reasons why the U.S. economy’s bubble of false prosperity may be about to burst:Continue reading »
Ron Paul, the former U.S. representative from Texas and perhaps America’s most popular libertarian voice, has long said that the nation’s monetary and fiscal policies would result in massive inflation. According to the common measures of inflation, this has not yet occurred. But Paul maintains that the inflation he has warned of has indeed come to fruition in asset prices, and that once it unravels, a market crash will ensue. Continue reading »
Depending on blowing the next bubble to temporarily prop up the economy is the height of foolhardy shortsightedness. Yet that’s our Status Quo, increasingly dependent on inflating bubbles to evince “economic strength” when the Ponzi paint will soon peel off the rotten wood of the real economy.
It’s one thing for a tinfoil fringe blog to repeat, month after month, that nothing in Europe has been fixed, that Draghi’s disastrous policies are merely concentraing and stockpiling even more unresolved problems – for now ignored courtesy of the gentle sprinkle of ZIRP, or rather NIRP “fairy dust” – and that just like Portugal showed panic can grip the entire continent literally overnight because everyone knows this. It is something entirely different for the CEO of Europe’s largest insurer to make the same statement.
When asking Allianz SE’s chief investment officer about the euro area’s sovereign debt woes, be prepared for an emphatic response.
“The fundamental problems are not solved and everybody knows it,” Maximilian Zimmerer said at Bloomberg LP’s London office. The “euro crisis is not over,” he said.
While extraordinary stimulus from the European Central Bank has encouraged investors to pile into the region’s government bonds this year, that’s not a sufficient remedy for Zimmerer, who oversees 556 billion euros ($757 billion) at Europe’s largest insurer. Countries are still building up their debt piles, and that’s storing up trouble for the future, he said.
It’s the question investors everywhere are wrestling with: Are asset prices in a bubble, or do they simply reflect the fact that the global economy is growing once again?
For Marc Faber, editor of the Gloom, Boom & Doom Report, the answer is clear. In fact, he says the bubble may already be bursting.
“I think it’s a colossal bubble in all asset prices, and eventually it will burst, and maybe it has begun to burst already,” Faber said Tuesday on CNBC’s ‘Futures Now’ as the S&P 500 lost ground for the second-straight session. Continue reading »
More of the same from Janet Yellen in her latest speech, but her focus on “resilience” caught my attention as it relates to very recent developments. The taper threat experience last year may have been a warning, but it doesn’t seem like it resonated with her or policymakers. The major bond selloff, which led to global ripples of crisis in credit, funding and currencies, was the opposite of flexibility. Perhaps a better definition of the word would be a place to start.
But her meaning was a bit different, in that it is clear (from this speech and prior assertions, wrong as they were, about the mid-2000’s housing bubble) she sees bubbles as “market” events in which the central bank’s role is primarily shock absorption. In other words, idiot investors wholly of their own accord create bubbles and it’s the job of the munificent and enlightened Federal Reserve to help ensure that such “market” madness is “contained” without further economic destruction.
While the growth of China’s ghost cities of entirely derelict and unlived-in residential real estate have become anathema; the story of the nation’s ‘if we build it they will come’ commercial real estate bubble has been less exposed but is no less incredible. As Bloomberg reports, China’s project to build a replica Manhattan is taking shape against a backdrop of vacant office towers and unfinished hotels, underscoring the risks to a slowing economy from the nation’s unprecedented investment boom. Stunningly, the development has failed to attract tenants since the first building was finished in 2010 leaving one commercial real estate investor to proclaim, “Investing here won’t be better than throwing money into the water… There will be no way out – it will be very difficult to find the next buyer.”
China’s own Big Apple may be rotting from the core. A new central business district modeled after New York City is going up in Tianjin…but the nation’s slowing economy is exacerbating the risks from its unprecedented credit binge…and that’s putting China’s Manhattan project in jeopardy. Bloomberg TV’s China Correspondent Stephen Engle reports.
While US central bankers shudder at the idea of admitting their could be a bubble in real estate or stocks (unless its obvious in hindsight); and England’s Bank of England explains ‘if there is a bubble, it’s not their fault, but there isn’t so there’; it appears the Chinese are more comfortable with the truth. As Bloomberg BusinessWeek reports, China’s central bank Governor Zhou Xiaochuan said, China may have a housing bubble only in “some cities,” – an issue that’s difficult to resolve with a single nationwide policy. As concerns mount of dramatic over-supply on the back of extrapolated urbanization dreams, Zhou notes, “The economy has slowed down a bit, but not very much,” adding that “we should keep vigilance on whether it continues to slow down.” Which is odd because US talking heads have made up their minds that China is fixed…
We have covered the topic of the student loan bubble extensively in the past so we won’t waste more digital ink on where it comes from or what it means for the troubled US consumer, suffice to report that according to the Fed, in Q1 total Federal student loans rose by another $31 billion to a record $1.11 trillion, and up a whopping $125 billion, or 12% from this time last year.
While the housing bubble for anything but the ultra luxury segment has long since popped with $1.1 trillion of student loans playing a significant role in the burst, (as explained in “Stick A Fork In The “Housing Recovery“), as can be seen in the chart below which shows that the only increase in existing home sales from a year ago is that for the $500 and over price range (which accounts for only 10% of all actual transactions)….
… when it comes to the luxury segment, things have moved beyond the simply bizarre and have entered outright surreal territory. Continue reading »
When it comes to real estate, we know that Californians enjoy drinking from the gold cup of mania. Lusting over real estate seems to be as common as traffic on the 405. People in California have a deep rooted cultural and economic amnesia. I bet half the population has very little idea regarding the history of many cities in Southern California. Heck, most don’t even know where their drinking water comes from. So trying to discuss Fed policy, skewing based on investors, or market manipulation with a large portion of people is like talking to your dog about Hemmingway. Some people only understand “real estate goes up!” and when it doesn’t, they only understand “buying is bad!” California real estate is overvalued by most economic measures. Sure, people are willing to pay insane prices but they did this as well in 2006 and 2007 and people also paid crazy prices for tech companies in a previous delusion based boom. Investors are pulling back because they simply don’t perceive value at current prices. We are now seeing more reports putting a price on how overvalued the region is. Fitch Ratings and Trulia both point to SoCal as being massively overpriced. In fact, Fitch Ratings has Orange County overvalued by a whopping 30 percent. Congratulations to Orange County for being the most overpriced county in the entire United States. Continue reading »
Since the bursting of the first US housing bubble in 2007, one of the primary explicit goals of the Fed has been to reflate the very same housing bubble (whose pop, together with the credit bubble, nearly wiped out the western financial system) as housing, far more than stocks, is instrumental to the “wealth effect” of the broader population (as opposed to just the 1%).
Sadly for the Fed, instead of recovering previous highs, median housing prices (not to be confused with the ultraluxury high end where prices have never been higher) have stagnated and are now in the downward phase of the fourth consecutive dead cat bounce, curiously matching a like amount of Fed monetary injection episodes.
“Loan forgiveness creates incentives for students to borrow too much to attend college, potentially contributing to rising college prices for everyone,” is a study’s warning over government plans that allow students to rack up big debts and then forgive the unpaid balance after a set period. As WSJ reports, enrollment in student debt forgiveness plans have surged nearly 40% in just six months, to include at least 1.3 million Americans owing around $72 billion. The administration is looking to cap debt eligible for forgiveness, as President Obama’s revamped Pay As You Earn scheme has seen applications soar and is estimated to cost taxpayers $14bn a year. The ‘popularity’ of the student loan bailout plan surged after Obama promoted it in 2012, and now the administration must back-track as costs have massively outpaced government predictions.
We have been aggresively focused on the government’s blowing of the student loan bubble… Continue reading »