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This Bubble's Got Legs

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Re: This Bubble's Got Legs

#21

Post by soVeryTired »

bogomipz wrote: post #18
steeleduncan wrote: post #3

The graphs offered as evidence seem to have very carefully picked axes to fit the story. e.g. looking at the first MSCI graph with the x axis extended back to the 60s[1] it is hard to draw the same conclusions [1] https://en.wikipedia.org/wiki/MSCI_World#/media/File:MSCI_Wo...

I was thinking about that as well, particularly the "complacency index." I have never heard of this composite before, of course I am not an economist but I do follow finance. Can anyone speak to if this is an exotic index?

Banks make up dozens and dozens of these indices for marketing purposes. The idea is that when a client trades with a broker, the broker provides "free" research to the client as a sweetener. That research mostly consists of dodgy trade ideas based on their proprietary "sentiment index" or whatever.

The research tends to be low quality in general. I'd guess that the researchers are treated as a cost center rather than a source of business.

Re: This Bubble's Got Legs

#22

Post by dharma1 »

rybosome wrote: post #16
dharma1 wrote: post #10

Earlier quoted context omitted.

I don't think they say it's an infinite bubble, but one that may continue much longer than non central bank driven bubbles. I guess the hope is that real economy growth starts improving and QE can be tapered and prices auto correct over time, rather than a sudden pop in inflated asset prices and adverse effects to real economy from that. Where the growth is supposed to come from (within next 5 years) I'm not sure, so…

What could the economic growth come from other than advanced technological development? Regardless, I don't see how the dependency on constant growth is sustainable.

Yes, definitely technological development. And there is a lot of poorly allocated of capital (non-productive asset bubbles, corruption, ineffiency etc) that could be put to better use. But I don't think that will change much in 5 years

Re: This Bubble's Got Legs

#23

Post by CalRobert »

trapperkeeper79 wrote: post #20
benmarten wrote: post #4

Earlier quoted context omitted.

Yes, i feel the same when I look at houses in San Francisco. The shittiest houses are valued at almost 1mio. I'm just saying, nope, I'm not buying that. ;)

Same here. The QE+low interest rates have delayed our home purchase perhaps indefinitely. We feel a bit like migrants .. can't afford homes in the city we grew up. It used to feel very miserable ... I'm looking at it positively now that I don't have "roots" that take away my job mobility. This also means we just have cash for retirement .. no housing at all. I suspect we'll end up moving to an ultra-low cost location…

Add it being nearly illegal to build a home in the bay area for the last several decades to the list of reasons. The supply is grossly, artificially constricted.

Re: This Bubble's Got Legs

#24

Post by leitasat »

bogomipz wrote: post #17
Wildgoose wrote: post #14

The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. Inflating assets via QE doesn't really address the real underlying problem. The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help. For example, when the Banks were technically insolvent then the opportunity should have been taken…

Indeed. China who's massive economy growth of the last 20 years is using "debt for equity" swaps for SOEs(state owned enterprises) and it looking at possibly extending this beyond SOEs. It's hard for me to wrap my head around this for a state owned enterprise and not think its a shell game played with balance sheets. This is a good read recent read: https://www.stratfor.com/analysis/gambling-chinese-debt

Right, I bet it's essentially a stealing of SOEs.

Re: This Bubble's Got Legs

#25

Post by pjc50 »

rtpg wrote: post #2

So my vague understanding is that QE and stuff is technically printing money, but the resulting money isn't really being used for anything. Is a bubble a bubble if the extra bubbly-ness is from stuff that doesn't get used? EDIT: actually, answered my own question. QE raises asset prices (even if the sellers aren't really doing anything with the money), and at one point people will be like "wait, none of this is worth…

QE is an anti-deflation programme. Governments are very keen to avoid real deflation because it kills investment stone dead, leading to loss of jobs and a real recession.

The reason why I think a panic is unlikely is that the current bubble is a "search for safety" rather than a "search for return". That's why the Swiss central bank can get away with negative rates - they are charging a premium for asset safety of the CHF. It also compensates Switzerland from the negative effects of its currency appreciating.

Previous asset bubbles burst when the second derivative goes down: when the returns go down, the rush to buy the asset stops and the price collapses.

The rush for safety is different. There's nowhere else to go but other, riskier asset classes. Even trying to hold it as cash has problems when done on that scale.

Negative rates are also I think your leading indicator for the net asset loss that's going to come from global warming. Not just "unburnable" fuel and lost investment in industries that must be transitioned away from, not just the sunken beachfront property, but the requirement to build new renewable infrastructure just to maintain our current standards.

There's a huge investment needed, but since the return it offers is collective and can't easily be captured by the investor it's not going to come from the private sector. Wealth can only be preserved in the context of preserving society, so the wealthy are going to have to take a small haircut in order to preserve the whole.

Re: This Bubble's Got Legs

#26

Post by codingmyway »

ddeck wrote: post #5
rtpg wrote: post #2

So my vague understanding is that QE and stuff is technically printing money, but the resulting money isn't really being used for anything. Is a bubble a bubble if the extra bubbly-ness is from stuff that doesn't get used? EDIT: actually, answered my own question. QE raises asset prices (even if the sellers aren't really doing anything with the money), and at one point people will be like "wait, none of this is worth…

QE is effectively creating money, which is then used to purchase financial assets in the hope that the person selling it will use the proceeds for something that is economically stimulative. It also reduces borrowing costs along the way. Most central banks buy government bonds. As a result of this buying, the returns on these bonds are reduced and supposedly less attractive to the investors that previously would have…

the problem with the 'wealth' effect, or equality effect, is that the person selling the asset is likely retired or close and won't spend it and the increase in asset prices take an equal amount from the people who need to buy for their retirements but can't because central banks own them all. So those people of working age who might have spent more are poorer and will spend less too.

The question is why central bankers can't figure that out instead of doubling down on what is basically a transfer of wealth from working age to old.

Re: This Bubble's Got Legs

#27

Post by squozzer »

The conclusion makes sense only if every major economy participates. What about China and Russia? Granted, I doubt investors today trust either country without qualification, but if this goes on another 5 or 10 years, who knows?

Re: This Bubble's Got Legs

#28

Post by Inthenameofmine »

codingmyway wrote: post #26
ddeck wrote: post #5

Earlier quoted context omitted.

QE is effectively creating money, which is then used to purchase financial assets in the hope that the person selling it will use the proceeds for something that is economically stimulative. It also reduces borrowing costs along the way. Most central banks buy government bonds. As a result of this buying, the returns on these bonds are reduced and supposedly less attractive to the investors that previously would have…

the problem with the 'wealth' effect, or equality effect, is that the person selling the asset is likely retired or close and won't spend it and the increase in asset prices take an equal amount from the people who need to buy for their retirements but can't because central banks own them all. So those people of working age who might have spent more are poorer and will spend less too. The question is why central bank…

Based on many papers, articles, and interviews by many central bankers I have come to the conclusion that most of them aren't very smart to say the least.

They think of a country as a household, rather than a complex system. Economic orthodoxy is also very irrational atm.

Re: This Bubble's Got Legs

#29

Post by Inthenameofmine »

paganel wrote: post #15
ddeck wrote: post #5

Earlier quoted context omitted.

QE is effectively creating money, which is then used to purchase financial assets in the hope that the person selling it will use the proceeds for something that is economically stimulative. It also reduces borrowing costs along the way. Most central banks buy government bonds. As a result of this buying, the returns on these bonds are reduced and supposedly less attractive to the investors that previously would have…

> The issue is that an investor that previously would have bought a government bond, doesn't suddenly decide to spend that money in the general economy because government bond returns went down. They instead put it into other financial assets, like corporate bonds, the stock market, or perhaps real estate, thus driving a bubble in these asset classes. What's even scarier is that the ECB has started buying corporate b…

Even crazier, the criteria for which bonds to buy heavily favor German corporations. At this point the Euro system has become a system to shovel wealth from the periphery to the center at gunpoint.

IMO next step of the ECB will be equity buying, again Central European equity most likely. After that, only People QE is left (which they should have done first), but I don't think their ideology will allow that.

Re: This Bubble's Got Legs

#30

Post by hga »

Wildgoose wrote: post #14

The financial problems originated with excess debt, but debts that are so large that they cannot be paid back - will not be paid back. Inflating assets via QE doesn't really address the real underlying problem. The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help. For example, when the Banks were technically insolvent then the opportunity should have been taken…

The only long-term solution I have seen is Debt for Equity swaps. It won't work everywhere, but it does help.

Note the US Federal government owns so much land in the Western part of the country and Alaska that that alone might allow it to get its fiscal house in order, and could certainly help.

I mean, isn't it everyone's dream to have title to a plot of Alaskan tundra ^_^? Obviously it would be very hard to make this work, and impossible for our current ruling class, but the raw numbers just might work out.

Otherwise you're right, it simply won't be paid back. But who knows how long we'll be viewed as a "least worst" place to park your liquid assets?

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