Why Serial Asset Bubbles Are Now The New Normal

Tyler Durden's picture

Submitted by Charles Hugh Smith

Why Serial Asset Bubbles Are Now The New Normal  

The problem is central banks have created a vast pool of credit-money that is far larger than the pool of sound investment opportunities.

Why are asset bubbles constantly popping up around the globe? The answer is actually quite simple. Asset bubbles are now so ubiquitous that we've habituated to extraordinary excesses as the New Normal; the stock market of the world's third largest economy (Japan) can rise by 60% in a matter of months and this is met with enthusiasm rather than horror: oh goody, another bubblicious rise to catch on the way up and then dump before it pops.

Have you seen the futures for 'roo bellies and bat guano? To the moon, Baby! The key feature of the New Normal bubbles is that they are finance-driven: the secular market demand for housing (new homes and rental housing) in post-bubble markets such as Phoenix has not skyrocketed; the huge leaps in housing valuations are driven by finance, i.e. huge pools of cheap credit seeking a yield somewhere, anywhere:

Asset bubbles are inevitable when the pool of good investment opportunities is much smaller than the pool of credit-money sloshing around seeking a higher yield. It really is that simple. It's astonishingly easy to create hot money: just create the money in a central bank and then make it available to financiers, investment banks, global corporations and other Financial Elites at near-zero real rates of interest.

It's considerably more difficult to create a good investment opportunity: an investment that is worthy of the risk must have a sound base in fundamentals such as cash flow, return on investment, etc.

With so much hot money sloshing around, the only investments left are either highly risky (just ask the oil companies whose rigs were nationalized by Gabon) or plays on retaining purchasing power, for example, real estate in central London, where roughly half the buyers of tony townhouses are foreigners who don't even occupy their luxe digs: the last thing they need is another mansion in a global money center, but they're so desperate to park their capital somewhere low-risk that overpaying for a London manse makes excellent sense.

The problem is central banks have created a vast pool of credit-money seeking a return that is far larger than the pool of sound investment opportunities. In a world burdened by over-capacity in almost every sector, hot money is driven to seek the next emerging asset bubble as the only place to skim a yield. Empty flats in London, Manhattan or Shanghai, oil leases in Gabon, 10,000 sun-baked rental homes in Arizona, The Nikkei stock market, shares in U.S. utilities, bat guano futures--none of these asset bubbles make any sense in a world where credit is costly and scarce.

There are two other characteristics of this New Normal Bubble Economy:

1. Everyone who doesn't have privileged access to vast sums of money at near-zero real interest rates is left out; no bubble gravy for the debt-serfs, except for those who qualify for socialized mortgages from FHA or other federal agencies. (And the idea behind these government-backed mortgages isn't to enable serfs to gamble and win in the latest housing bubble, it's to lock them into debt-serfdom where they're making mortgage payments forever on a depreciating asset.)

2. All asset bubbles pop, destroying the phantom wealth of those holding claims on the underlying assets.

Is this a healthy economic system? No. Is it sustainable? No. Is it even capitalism? No. It's a Neofeudal Debtocracy of rentiers and debt-serfs and hot-money driven asset bubbles that are passed off as "investments" to the credulous and unwary.

One question distills the dynamics down to their essence: cui bono, to whose benefit?

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spine001's picture

Chaos theory at play beautiful bifurcations all over the place...

BlueStreet's picture

Bat guano is fantastic on a hotdog. 

credo's picture

So to summarize: we have a bubble in bubbles or more succinctly, a bubble bubble

g speed's picture

to summarize: we have inflation.

EscapeKey's picture

"Debtocracy". Hmm. Led me to this video on Youtube:


Has anyone seen it? Is it any good?

denverdolomte's picture

Why can't these damn Federal Reserve Economists & Wall St. fucks be like normal men, that the only bubbles we worry about are in the forms of a butt or breasts? Sometimes it's similiar logic of the bigger the better, but sometimes we reach our limits and walk away. 




adr's picture

I want my millions!!!

Hey dude, while you were waiting the price of a cup of coffee went to $1 million bucks.


sitenine's picture

Peak ponzi, and praying (read 'hope') won't help. God has no sympathy for the wilfully stupid.

shovelhead's picture

The cure for gross malinvestment seems to be more malinvestment.

I think I'm getting the hang of this thing...

At what point will all these diverted resources coalesce and begin a tsunami of job creation?

Alas, I did not matriculate at Princeton, so I'm sorely lacking in insight.

denverdolomte's picture

I've been thinking about your statement of job creation....I honestly feel if all this beaurocratic bullshit was rid of that our country would probably have a year in the shitter and then go back to a boom of jobs. Imagine no government agency saying what a company can and can't bring to market, or plant to grow, or car to build? All these agencies wasting money cost more jobs than anything.


Just my opinion. 

/sarc :: I think that if we tick QE up to about $105 billion a month we should be able to open up some part time jobs at Burger King in China. 

Barking Spaniel's picture

I am sitting here in my cubicle wondering when the clueless minions around me will finally awake up and realize that there are more dire things going on right now than Power Point slides.

r8trader's picture

The rules to game Monopoly seem to apply:

Besides the Bank's money, the Bank holds the Title Deeds, and 
the houses and hotels prior to purchase by the players. The   
Bank pays salaries and bonuses. It sells and auctions         
properties and hands out the proper Title Deed cards when     
purchased by a player, it also sells houses and hotels to the 
players and loans money when required on mortgages.           
The Bank collects all taxes, fines, loans and interest, and the
price of all properties which it sells and auctions. The Bank 
"never goes broke." If the Bank runs out of money, the Banker 
may issue as much as needed by writing on any ordinary paper. 

sbenard's picture

Bubbles Bernanke! His damned "wealth effect" is going to destroy us!

mrdenis's picture

I had my cereal assests this morning .....Cheerios 

cabtrom's picture

The Bernagger Beast is alive and well!

Downtoolong's picture

huge pools of cheap credit seeking a yield somewhere, anywhere:

Yep. And every significant move in a major market (see USDJPY today) is driven, not by fundamentals, but by some jackass leveraged 30 to 1 getting squeezed out of his position by those with more market power and deeper pockets (gee, I wonder who those might be?). It’s just one giant game of Debt and Credit Chicken now.


falak pema's picture

to have bubbles that spell no trouble for those in power you need control; CB control, MSM control, Judiciary control.

On this last point the current and ongoing scam on telephone eavesdropping bigtime since post 2001 just shows the US has lost its judicial compass since the "patriot act" was justified by the Supreme Court.

One more bubble that smells despotic trouble beyond financial depression. 

Dan Conway's picture

Why are serial bubbles the new normal?   Central bankers acting like central planners.  The end.   

Species8472's picture

Again, we have no mention of the "Central State", what the fuck is going on here!!


DOGGONE's picture

The truth is simple and actionable.  Do it ‘for the flag’ (Markopolos).

The MAIN ENABLER of sizable asset price bubbles is keeping real price histories out of sight!
The news media DO know how:

See here “Real Homes, Real Dow”

See here “The Public Be Suckered”

broken87's picture

thanks for the info DOGGONE, and that movie debtocracy seems to be good dood