In a recent newsletter to his clients, Dennis Tubbergen warned that the mother of all economic bubbles is ready to burst. Past guest on his radio program, Mr. John Rubino, similarly made a great case that we are now experiencing a bubble, unlike any bubble we’ve experienced historically.
Rubino pointed out that if someone today is over age 40, they have lived through at least three bubbles: there was the junk bond bubble of the 1980’s, the tech stock bubble of the 1990’s and the housing bubble of the 2000’s.
Each of these bubbles occurred as a result of easy money policies but, they affected only a single sector of the financial markets. This bubble looks different and it looks like it’s affecting almost every financial sector.
Taking a look at money creation over the past 20 years since the turn of the century, one finds that the US money supply has more than tripled with money creation last year alone increasing by more than 1/3rd.
That’s a lot of easy money to get bubbles going in a lot of different areas.
While bond yields have started to rise meaning bonds are losing value (bond yields and prices are inversely correlated, when bond yields rise, it means bond prices are falling), over the longer time frame, yields have fallen dramatically which means prices have risen significantly.
Since 1980, yields have been declining which means prices have been rising. Lest you think this is normal behavior for bonds, John Rubino published a chart that clearly demonstrates today’s bond yields are the lowest in human history.
But, it’s not just bonds that are in a bubble; for a long while now, Dennis Tubbergen has been warning that stocks are overvalued. While technical stock indicators have stocks in a solid uptrend, they are overbought and stock fundamentals don’t support these valuation levels.
Using the “Buffet Indicator” to measure the value of stocks, stocks are more overvalued presently than at any time in the last 30 years. Stocks, using the Buffet Indicator are more overvalued presently than at the peak of the tech stock bubble two decades ago.
While the last big bubble was in housing a little more than a decade ago, it seems that we are headed in that direction again. A chart from the Federal Reserve Bank of St. Louis shows that housing prices last year went nearly vertical on the chart – a historic sure-fire indicator of a bubble.
While bubbles can build for a longer period of time than one might think, eventually, bubbles have to burst.
Finally, it’s easy to argue that there is also a bubble in crypto-currencies. A quick review of a Bitcoin chart shows the recent straight-up pattern of the chart, a pattern called parabolic. Ethereum, another popular cryptocurrency has a chart price pattern that is even more extreme.
Almost every market and economic sector is now ‘bubbling’ due to all the easy money created by the central bankers at the Federal Reserve. It seems that the central bankers have no intention of changing course any time soon.
Fed Chair, Jerome Powell, is committed to even more easy money policies moving ahead.
Reading between the lines, it’s obvious that the Fed understands the risks of much higher inflation that will likely accompany these continued policies.
Last year, the Fed changed the way the central bank would track the inflation rate. The new inflation tracking methodology is Average Inflation Targeting. This allows the Fed to let inflation run hotter than the desired level for a period of time as long as the average rate is at the Fed’s targeted rate.
No matter the metric used to track the inflation rate, the actual inflation rate seems certain to rise.
While last year’s federal budget operating deficit of a little more than $3 trillion seemed like it could be the straw that broke the proverbial camel’s back, this year’s deficit will make that one look like child’s play.
Dennis Tubbergen is a best-selling author, speaker, and syndicated host of the Retirement Lifestyle Advocates Radio Show. To learn more about Dennis Tubbergen you can access all written and radio replays by downloading the YourRLA app at the Apple or Google app stores.
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