The United States is already experiencing a false recovery to begin with. While the Dow Jones might very well be going up, it’s quite a poor indicator of the economy’s overall health. Jobs are still being lost while entire sectors are propped up and subjugated through government bailouts. Meanwhile, the healthcare industry will soon be in shambles under the weight of heavy politics, law and regulation.
The next economic crash will hit harder than the last due to this current false recovery already being a mere sugar high from ‘quantitative easing’ and accounting tricks. Yet, the real crippling crash to worry about is likely to be the tsunami not seen after the markets already received the next hit. This is the one that will make the Geat Depression look like a Sundays picnic. The United States is not untouchable and is one significant event away from a total meltdown.
As the global equity and bond markets grind ever higher, abundant signs exist that we are once again living through an asset bubble – or rather a whole series of bubbles in a variety of markets. This makes this period quite interesting, but also quite dangerous.
With equity and bond markets at or near all-time record highs, with all financial assets consistently shrugging off bad – or worse – news as the riskiest of assets continue to find consistent upward bids, we find ourselves in familiar and bubbly territory.
I can summarize my thoughts in one sentence: How could this be happening again so soon?
In times past, it took one or more generations between bubbles for people to financially recover and forget the painful lessons before they would consider doing it all again. Yet here we are, working our way through our third set of bubbles in less than two decades, which must be some sort of world record.
Sign #1: Junk Bond Prices at Record Highs
Sign #2: Junk Sovereign Debt Being Chased to New Highs
Sign #3: It’s Not Official Until It’s Denied
Sign #4: Making Up Crazy Excuses
There are abundant signs that the world’s equity and bond markets are ignoring risk and chasing yield to dangerous extremes. Various denials and justifications are being offered to rationalize these behaviors as sensible or prudent. Taken together, this tells me we are once again in bubble territory, and that, as with all bubbles, this one will end badly. Or rather, these bubbles (plural) will end badly together.
I’m sure that most market participants have it in their minds to dance as long as the music is playing and to be among the first to reach the exits when the music stops. However, everybody is thinking this, and given that only the most well-connected of market players have the opportunity to exit first (literally in the blink of an eye), very few will actually make it through the doorway unscathed.
As is always true in life, the point of a bubble is to separate the most people from the most wealth. The wealth doesn’t actually vanish; it’s just simply transferred from the last purchasers to those who sold before the bursting.
Full article: Four Signs That We’re Back in Dangerous Bubble Territory (Peak Prosperity)