We Are In a Big, Fat, Ugly Bubble…

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The key takeaway I got from the first presidential debate is shared below…

From CNBC.

Donald Trump again warned of a stock market bubble during the first presidential debate, but financial professionals on Tuesday told CNBC they don’t buy it.

 

“Believe me, we are in a bubble right now, and the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble,” the Republican presidential nominee said Monday night.

 

Love him, or hate him, in this case Mr. Trump is absolutely right on the money about us being in a “big, fat, ugly bubble” right now…

Tune in at 26:33 mark

https://www.youtube.com/watch?v=8j3KXg0b7UY

 

“When they raise interest rates you’re gonna see some very bad things happen…”

 

Yup, which is why we have been stuck at ZERO for a good decade… while the rest of the world is diving deeper and deeper into NEGATIVE territory…

 

Who you gonna believe? Donald Trump (a guy who knows a thing or two hundred about debt and asset bubbles) or a bunch of “financial professionals” who need to keep the suckers in the game for as long as they can to keep earning their big fat bonuses?!?

From TCW.

While every asset price cycle is different, they all end the same way: in tears.

As obvious as this truth is to investors, when the sad end to the credit cycle comes, it always comes as a big surprise to many, including the central bankers who, reliant on their models, confidently tell you that no recession is (ever) in the forecast.

But, successful, long-term investing is predicated on not just knowing where the happening parties are during the reflationary parts of the cycle but, even more importantly, knowing when the time has come to leave the dance floor.

In our view, that time has already come.

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The chart reveals something rather extraordinary: over the course of the past 25 years, the traditional business cycle has been replaced with an asset price cycle

Rather than let recessions run their painful but necessary course, central bankers move forthwith to dispense the monetary morphine.

The Fed’s playbook on this is well worn: first, policy rates are lowered. This triggers a daisy-chain of events: low or zero rates promote a reach for yield; the reach for yield lowers capitalization rates across a variety of asset classes which, in turn, spurs a rise in asset prices.

Rising asset prices – the so-called wealth effect – “rescues” the economy by rebuilding balance sheets and restoring the animal spirits. And voila! Aggregate demand rises, businesses invest, and a virtuous growth process is launched.

Well, maybe not so much. If it were all so simple, then why is it that after ninety something months of zero or near zero rates, growth is sputtering, the corporate sector is in an earnings recession, and productivity growth is negative?

 

Continue reading here

 

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If it looks like a bubble, swims like a bubble, quacks like a bubble, then it probably is a…

 

Bubble…

 

Fight On!

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FI FighterjoeybeeDividend MiracleAndreNick Recent comment authors
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Laurie @thefrugalfarmer
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FINALLY! Someone else who sees it! So many people are riding the “we’re doing great!” train and don’t see the bubble. We’re on the same path as America right before The Great Depression.

Sean
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Sean

Great Article! Do you have some advice for FI Fighters early in their journey during this cycle? Keep higher cash reserves and wait for the bubble to burst? Invest in different asset classes?

Nick
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Nick

I have been debating transition out of the market for this reason. What would you recommend for people with indexed 410k’s and traditional iras? My options are to switch to bond funds or stay put. Can’t really cash out.

Andre
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Andre

Hi Fifighter,
I’m following with great interest cause what your saying makes a ton of sense. I’ve only found this site a month or so ago so I’ve had a lot of catch up to do. I’m wondering… if you buy in to this when they raise rates their will be a big collapse in the stock market and other asset classes and if we look back at the last crash, the tsx.v got absolutely murdered. So my question is will you try and get out of all venture stocks prior to the first rate raise or will you stay in until you actually see the crash happening ?

Looking forward to you thoughts as I am formulating my own plan for this future event

Dividend Miracle
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Dividend Miracle

Nice post and I do wonder what month the Market Bubble will pop?

joeybee
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joeybee

march 2017. yup, that’s right. i’m purchasing dilithium

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