2018: How Multiple Bubbles Are Bursting Simultaneously

So many people bears / pessimists and all round doomsters have got it wrong over the past decade in terms of there being a bond market collapse, a stock market meltdown, a real estate slump, and even a crypto currency collapse, that one certainly feels the odds of being correct now in early 2018 are rather healthy.

DJ30M5

The Diving Dow

Helping the doomsters at the moment is the way that the “traditional” time for a stock market crash is in the last years of a particular decade – at least 1929 and 1987, so 2018 has a good ring to it.

Things seem so fraught currently, that  one is rather reminded of a kid jumping up and down on a sheet of bubble wrap, with things going pop all over the place.

Indeed, this must be a source of consolation for the “high brow” macro bores of mainstream finance TV who have been wittering on about the bond market being the leading indicator of an economic collapse.  Year after year it failed to happen even though the long end of the yield curve was said to be inverted, the alleged configuration that warns of absolute disaster.

But of course what these bores missed out on was the way that the bond market since the advent of QE has been a totally manipulated and artificial one, a market that has no relationship to anything other than itself. As we all know, markets are manipulated by either central bankers, insiders, or money launderers. Sometimes all three at the same time…

So that bond waffle was a false signal – until now, like the proverbial stopped clock. Bubble asset prices also did not / have not meant anything either, as if you have near zero interest rates you will obviously have prices in the clouds, and markets so easy that Coco The Clown could be a canny stock trader, or property tycoon. Witness the CEO bonuses of the UK housebuilders.

We have seen all of this Bubblemania for many years – and particularly evident (so I am told) at the kind of dinner parties I am persona non grata. Indeed, you really know when you are near the top when almost nobody around the table loses in a particular market, apart from missing out.

This was most graphically illustrated in 2017 – The Year of Crypto. It made the Dotcom Bubble look like a minor boom. However, it may not be able to resist the kind of gravity that made many of the early tech plays part of the 99% Club, whether that is Bitcoin itself of some of the later fly by night pretenders to the crown.

And there is more, much more. Where to begin? Here in the UK former smug star fund manager Neil Woodford and his “kiss of death portfolio” has turned into a smug falling star fund manager. But one would in his defence suggest that it is not he that necessarily did anything that wrong. It is that the 10 year post Global Financial Crisis sugar rush has finally run its course, throwing many perfectly healthy babies (Carillion / Provident Financial?) out with the bath water.

One of the signs that there is a sea change or a trend change is when the markets become unfair or unlucky, after being suspiciously easy. Rather than questioning too much it is best to shift your cash out quickly.

This logic may already be in force for the UK housing market, or perhaps more particularly its engine, the London property market. Here Zoopla / Rightmove / Purplebricks algorithms may have been marking up prices by a nominal few percent every quarter.

Unfortunately, hot air gave way to carbon monoxide fumes a while back, especially after George Osborne’s parting hand granade of stamp duty and landlord tax hikes. The question now is where the housing market really is on a marked to market basis? This may be revealed if panic in the stock market spreads into the wider world.

What can be said with a reasonable degree of certainty ( not just off the back of a 1,000 point decline in the Dow, or the Trump Tax Cuts being the last dose of the mad sugar rush bailout of 2008) is that given that there are multiple bubbles simultaneously bursting the chances of us being let off the hook with a false sunset are minimal.

On a less serious note, given the way that almost every other commentator has shot their bolt prematurely on a collapse, there seems to be every chance of correctly pinning the tail to the donkey on this occasion. Or at least, not making an embarrassing faux pas.

Author: Zak Mir

Financial commentator, interviewer, technical analyst

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