Marc Faber: "We Are In A Gigantic Speculative Bubble"

Tyler Durden's picture

"We have to be careful of these kind of exponentially rising markets," chides Marc Faber, adding that he "sees no value in stocks." Fearful of shorting, however, because "the bubble in all asset prices" can keep going due to the printing of money by world central banks, Faber explains to a blind Steve Liesman the difference between over-valuation and bubbles (as we noted here), warning that "future return expectations from stocks are now very low."

 

 

Nope no bubble here...

Along with this pattern...

 

which has emerged with striking fidelity since 2010, we observe a variety of other features typically associated with dangerous extremes:

  • unusually rich valuations on a wide variety of metrics that actually have a reliable correlation with subsequent market returns; margin debt at the highest level in history and representing 2.2% of GDP (eclipsed only briefly at the 2000 and 2007 market extremes);
  • a blistering pace of initial public offerings - back to volumes last seen at the 2000 peak - featuring “shooters” that double on the first day of issue;
  • confidence in the narrative that “this time is different” (in this case, the presumption of a fail-safe speculative backstop or “put option” from the Federal Reserve); lopsided bullish sentiment as the number of bearish advisors has plunged to just 15% and bulls rush to one side of the boat;
  • record issuance of covenant-lite debt in the leveraged loan market (which is now spreading to Europe);
  • and a well-defined syndrome of “overvalued, overbought, overbullish, rising-yield” conditions that has appeared exclusively at speculative market peaks – including (exhaustively) 1929, 1972, 1987, 2000, 2007, 2011 (before a market loss of nearly 20% that was truncated by investor faith in a new round of monetary easing), and at three points in 2013: February, May, and today (see A Textbook Pre-Crash Bubble).

Many of us in the financial world know these to be classic features of speculative peaks, but there is career risk in responding to them, so even those who view the situation with revulsion can't seem to tear themselves away.

While I have no belief that markets follow any mathematical trajectory, the log-periodic pattern is interesting because it coincides with a kind of “signature” of increasing speculative urgency, seen in other market bubbles across history. The chart above spans the period from 2010 to the present. What’s equally unsettling is that this speculative behavior is beginning to appear “fractal” – that is, self-similar at diminishing time-scales. The chart below spans from April 2013 to the present. On this shorter time-scale, Sornette’s “finite time singularity” pulls a bit closer – to December 2013 rather than January 2014, but the fidelity to this pattern is almost creepy. The point of this exercise is emphatically not to lay out an explicit time path for prices, but rather to demonstrate the pattern of increasingly urgent speculation – the willingness to aggressively buy every dip in prices – that the Federal Reserve has provoked.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Kirk2NCC1701's picture

I'll take "What do you get when too much currency is chasing too few goods?" for $500 Alex

spastic_colon's picture

sorry...using such generalizations as "stocks" are overvalued is more trashonomic newsletter garbage......fail

 

just as bad as "metals" are undervalued.

Chris Jusset's picture

The bubbles (in stocks, real estate, and bonds) are now so obvious that their existence is really not even open for debate.  The only question is "when will they pop?"

 

Sadly, bubbles always end tragically ... and yet this is exactly the path that the Fed is intentionally pursuing.

knukles's picture

I'll take Steve Liesman is a _____ for $1000, Alex

ding ding ding

You've hit the Daily Double, Knukles!  How much do you wish to wager?

Everything under the sun, Alex!

ACP's picture

"I'll take Steve Liesman is a(n) __________ ..." would be more inclusive...

Richard Chesler's picture

A conversation with Steven Liesman on valuations.

HA! Some of my dog's fleas are smarter than Steve Liesman.

 

fockewulf190's picture

With over 31.6 tons of gold standing for delivery at the COMEX (not to mention beaucoup silver) ,  December2013 may indeed be a very interesting month. 

Harvey pointed out that the dealers combined  only have  18.37 tons on hand.  Ouch!

ZH Snob's picture

playing the market at this point is like driving blindfolded.

jimmytorpedo's picture

Driving blindfolded is easy when you're drunk on punch.

Spigot's picture

Faber mentions Bitcoin as "hyperbolic" ... which I think is not quite accurate. It's probably more than that.

Colonel Klink's picture

Me thinks your spastic colon let loose through your mouth (fingers).

papaclop's picture

Spastic colon...you sir, are an idiot; actually that is an insult to the card carrying idiots out there.

Yen Cross's picture

   What is happening is the exact opposite of what you're saying. The inflation we're experiencing is due to devaluation not demand.

 Look at the velocity of money. (it's pathetic)  

   Capital aka fiats becomes worth less as more of it is printed. In order to get the return on those fiats you have to chase yield, which by proxy is risk.

   What the Fed. is doing is essentially closing out 90% of the public from exploiting all of the extra fiat injections because of credit restrictions and reserve requirements. The banks know they can borrow at ZIRP and park their cash overnight at the Fed. for 10-25 basis points for doing nothing.

   The toxic outcome of this is inflation from money supply expansion. Intrest rates and price discovery/risk are suppressed, and the value of the currency deteriorates because velocity/demand doesn't support the supply.

  Don't even get me started on off balance sheet cash and what banks do with that. The Fed. backstops the banks on bonds and pays them a premium for it!  The European banks  have larger POMO balance sheets then all the U.S. banks combined and aren't subject to U.S. capital reserve requirements, and get paid interest by the Fed. for their BORROWED excess reserves.

Squid-puppets a-go-go's picture

this would be a perfectly apt explanation for dynamic before the advent of derivatives and shadow banking.

what your inflation-around the corner analysis hasn't caught up with is that this time around, there are hundreds of billions of dollars of collateral required per year to offset trillions in derivative implosions

deflation remains as much a risk as inflation and the $85 billion per month injection keeps us in an eerie equilibrium as the rubber band stretches in both directions

it'll snap back, - but from what direction?

prains's picture

Does it really matter from which direction, all that really matters is the time? No

Yen Cross's picture

      I'm not sure I understand you correctly Prains. Every contract has an expiration, but I'm a bit confused as to how you're applying that rule.

prains's picture

Yen, I was speaking to Squids defaltion-side arguement. I don't think the questionn is whether or not it is an inflation or defaltion risk, either one results in the same ultimate reset, so the real question is when

 

ultimately i think you're both right. QE printed inflation to ward off deflation is their game but the Maff's say it's a finite game

Yen Cross's picture

  I respectfully apologize prains.  Keep kicking the Queens ass! :-D

   Too much sober "Bond Movies" during the last 24 hours...

prains's picture

always read your thoughts and ideas, if too many Bond movies is the issue, time to break out some Beasty Boys and a dram of Dalmore!

Seer's picture

Yen & Squid, good back-and-forth here.  We really cannot say what will happen because we don't control things.

I'd have to state that the money velocity issue is HUGE.  I'm not an economics scholar, in which case I can't speak whether there's any similar historical set of circumstances: that this is global in nature is the big kicker.

I've said from day one that growth is done.  This, I believe, is the real monkey-wrench.  I think that this is the end of one big cycle (going back at least one hundred years, if not even more; and, not because of the formation of the Fed, though that certainly did influence the rate at which we shot ourselves toward the cliff that we're approaching).  If there is no growth then that means, pretty much by default, that there will be contraction (stasis is only a brief moment when passing through the two polars).  The System WILL get squeezed.  And, because economies of scale plays such a critical role in the System I see the buckling at the seams taking place with a reversal of economies of scale.  Initially everything possible will be done to hang on to margins (that's been the case up to now).  As margins get compressed entities will try and ramp up volume in order to beat out the remaining competition (big flury of activity in consolidations and closures).  Pushing on the accelerator will also likely come with reduced prices to consumers, but this can ONLY be for a short period of time (until shareholders start really making noises [though they'll find that there's little elsewhere to go]) because consumers are tapped out.  When it becomes apparent that volume cannot be sustained and that the costs for production start to creep up due to increases in material costs is the signal for the start of the big scambles to unload/vastly trim size or risk total collapse.

Eventually all the non-essential crap will drop by the wayside as discretionary income dries up (more and more of it to shift toward essentials like food and energy).  This will place more of a strain on economies of scale for the more essential items: think what junk mail means to the USPS- junk mail subsidizes the real stuff; a decrease in this subsidy means that the cost for first class HAS to increase.  This is economies of scale in reverse.  It all becomes a self-reinforcing downward spiral.

Regarding the $85 billion/month, I figure that it'll dry up, not because of taper, but because there won't be any ability to absorb it: when corporations have done all their buy-backs (many going back to private) and when banks cannot loan any more because there's just no one left who can justify taking out loans when there's no future demand to increase any fuction, well... we then all see it for what it is- total pretend, a huge Ponzi that is folding.

Squid-puppets a-go-go's picture

so long as we have zirp, corporations will find a use for the $85b - especially with govt bonds paying more than the rate to borrow

loans to main st barely factor even now when it comes to their motivation to take the QE and run with it.

Ghordius's picture

"The European banks  have larger POMO balance sheets then all the U.S. banks combined and aren't subject to U.S. capital reserve requirements, and get paid interest by the Fed. for their BORROWED excess reserves."

correct. yet this is in their USD subsidiaries, for US based assets, incluning boatloads of Treasuries

megabanks can't be weighted according to the jurisdiction they happen to be based. they are still at peak transnationality

in short, yes, as far as US national interest is served

Yen Cross's picture

  In their U.S. subsidiaries. I guarantee you that cash isn't buying U.S. Treasuries. (Spanish, French, Italian, Greek ect...)

  "Mega Banks", just like their corporate counterparts that  { produce tangible value} are subject to even more stringent requirements?  International co-ops have been around for ever in banking. Your argument that some sort of large outstanding obligation being overweight and not rebalancing sovereign agreements or fx reserves and terms of trade( for preferrential treatment) is obsurd and just exlemplifies why we're in this fiscal global quagmire...

 

   sarc Ghordo/ Friday humor...

NOTaREALmerican's picture

A fool and his ______________   are soon ____________.  

NOTaREALmerican's picture

Re:  THE NEW AMERICA: 3 Million Overlords, 300 Million Serfs

"Survival of the fittest" end game.  It always ends this way.

The post game shows after the game are always really violent.   It's too bad the Libertarians can't figure out some way to have a "season" start over again without all the violence.  

Kirk2NCC1701's picture

Why can't Spring arrive, w/o leaves falling, followed by Winter?

Could it be that it's a zero-sum game?

Seer's picture

I'm guessing that this is just a post out of frustration.

At some point, regardless of how we "see" it, we'll have to adjust to a signficantly different way of life (sorry, Dick Cheney).  This has NOTHING to do with any political/social ideology- it has to do with the fact that we have limited resources on this planet.

I think that you're mistaken if you believe that we don't have a lot of violence occurring now.  To better understand it substitute "violence" with "oppression."  The wealth centers have oppressed billions in order to perpetuate a system that is not sustainable.  The ability for the wealth centers to continue is fading (they've managed to do it via the "middle class").

Calling out for a "re-start" fails to understand what the real problem is: I assure you the problem isn't that all humans can't have a U.S. middle class lifestyle, rather, it's that we cannot grow in perpetuity.

Many elder folks and many folks suffering from significant medical conditions just won't make it in the future.  Not my call, it's just what it will be: and if not, then we sacrifice the younger population; w/o a younger population who will be there to attend to the increased needs of the elder and sick?

wisehiney's picture

Believe it our not, you left out a really thick slice.

yogibear's picture

As Mac Faber said the Federal Reserve can keep printing. As Zimbabwe did.

If China and Russia want to defeat the US they need to do it economically. Make the US dollar worthless.

Help the US Federal Reserve in destroying the dollar to the point where nobody around the world accepts it. 

 

Seer's picture

BUT... have you read the last chapter?

China and Russia cannot magically assume control over a reserve currency, well, not likely for very long (we're still on the path laid by the exponential growth function- time between currency collapse intervals will shrink).

The largest consumer markets are drying up.  China cannot ramp things fast enough to build a middle class that can support their production surpluses.  I think that Russia is smart enough to know how to play it (more likely the SDR approach)- they have actual resources, surplus.

Everyone's currencies are becoming worthless.  The USD has only held on this long because of this.  Had this been happening when Zimbabwe was smoking then their currency probably wouldn't have burned up quote so fast.

There's so much riding on any global currency reshuffling that I figure that there's not going to be any breakthrough (and, as I've stated before, it would only also eventually suffer a fate at the hands of no/negative growth).

yogibear's picture

Bernanke/Yelllen and the Federal Resevre will print to infinity to support the United States of Freebies.

- Disability/Welfare

- Section 8

- Obama Phone

- Food Stamps 

The US now looks like:

http://www.youtube.com/watch?v=lwEGSe_upuQ

American's favorite past times shopping and eating. Big time Pig time.

Carlin on the United States:

http://www.youtube.com/watch?v=nLRQvK2-iqQ

 

 

ebworthen's picture

Bernanke/Yelllen and the Federal Reserve will print to infinity to support the United States of Corporations:

- Banks

- Insurers

- Corporate Hospital/Lawyer/Big Pharma leech machine

- Cronyism

The Section 8'ers/Food Stamps/Welfare free-shit army is the sideshow which simply keeps the riots from breaking out; the main attraction is the asset sucking mammon lusting monster of collusion between elites and the .gov mandarins.

mvsjcl's picture

And what happens when all the assets are gone, when good collateral is all spoken for, when made-up "derivative collateral" is no longer accepted?

Seer's picture

Perhaps it got to this point because of all the "freebies" to corporations? (think defense industry, for example)

Also, TPTB are the ones who decided this, as this is what maintains the buffer for them.  Again, one has to look to the punch line to get the real "joke."

Peter Pan's picture

Things are totally out of alignment. A friend in Australia pointed out to me that up until a few years ago one would always be able to sell real estate and be able to get a better return by putting the money in the bank. This is no longer the case given that the Reserve Bank of Australia has followed the world lead into lowering interest rates.

From what I see this is what has happened everywhere and simply represents a dangerous mispricing of money.

Faber sees no value in stocks, whereas I see no value in anything that carries humungous debt.

The temptation of course is not to miss out on the levitation that is taking place, hence everything is rising as more and more pile in.

Speaking from experience, I feel that the preoccupation with capital appreciation has eclipsed the value of cash flow to a dangerous extent and in the end the system will have no choice but to impose a haircut of savage proportions on the borrower as well as the lender.

This is why it is imperative to think in terms of comparative value rather than prices in attempting to protect oneself against future meltdowns.

For this reason gold has a number of endearing qualities due to its portability, universal acceptance and generally no leverage.

Seer's picture

Thank you.  It's very educational to see things in/from a non-U.S. perspective, as this helps see the Bigger Picture.

It's all been about creating growth when it's long past possible.  We've been fudging Book numbers for so long now that we can't get ourselves to scribble in red ink.  While we all may have lost the red ink pen, Mother Nature has not.

Lean times ahead (for good).

novictim's picture

So Seer, you need to rethink the role that inflation  plays in economic policy.  How would you propose we create a global "Hair Cut" if not through inflation?

FredFlintstone's picture

How about all of the gamblers take their losses?

novictim's picture

That haircut is what is needed...as your post would suggest.  And the typical means to create the haircut is INFLATION.  We need some inflation...in the 7-8% for a few years to correct the imbalances.  

Face it folks, the low inflation policy is the biggest of the problem we face and we won't move forward without the devaluation and reset inflation brings.  The up side is that inflation will lower unemployment and spur REAL growth.

OneTinSoldier66's picture

I'd think that I'd rather see a deflationary implosion lead to a reset than an inflationary one. I think that a deflationary collapse would mean that the current system of trying trying to "inflate our way out" by TPTB was REJECTED.

q99x2's picture

There is no "typical" because the FED never had software to determine what the stock market values were before the end of 2011. You schmuck. You are not looking at what you were before then. Idiot.

yogibear's picture

The Fed cares less about the values. All they care about is getting the stock market up so people feel good about being wealthier and spend more money.

They could care less about it having a PE of 20,000 or 30. 

falak pema's picture

We are in a gigantic bubble UNLESS we move to a COMMAND ECONOMY and we are moving that way.

The so called "free world" is NOW MOVING TO A COMMAND economy basically modelled on China command economy.

In such an economy, assets and debts are equivalent and prices and interest rates are ALL CONTROLLED CENTRALLY. There will be no market mechanisms and populist mechanisms like BITCOIN will be shot down. The banks are already there, including the PDs and CBs, part of SAME MATRIX.

Given the current huge triple conundrum : energy, monetary/financial and ecological/population, the Oligarchy has no other solution OTHER than moving to a DE FACTO command economy where natural resources and MIC/surveillance will be controlled by an  ELITE.

THAT ELITE IS NOW IN PLACE ON ALL CONTINENTS AND THE GAME OF CONSOLIDATION CAN BEGIN PROVIDED THE OLD OLIGARCHS OF NATION STATES BOW TO THE NEW MANTRA AND THOSE WHO CONTROL IT. DAVOS CALLING....

 So think OUT of the BOX to  understand whats up ahead.

There will be no revolution as the OLIgarchy has it under control, via unlimited money printing that will debase salaries and living standards for the 99%; its automatic; while protecting oligarchy assets;  UNLESSS the Oligarchs fall out amongst themselves and the FED lynch pin of this financial construct LOSES IT....then all bets are OFF and we move bigtime towards POPULIST  1930s type scenario. We've been there...and these guys won't want to end up like Mussolini.

Tipping times indeed. But the Oligarchy has the upper hand unless they do something STUPID.

Will they? They are so full of hubris and they will panic.

History says ALWAYS ! 

Remember the last lines of the COunt of Monte Cristo : WAIT AND HOPE. IT WAS HIS MOTTTO...

And, don't forget what got us here; those US oligarchy shills of Reaganista Thatcherism concoction thought they had the world by the BALLS post Berlin Wall collapse and they went the whole hog in NWO hubris. And they gave the KEYS of the world to their own enemies...The China SYNDROME which is now their own SELF MADE PRISON...the IRONY of it.

Having to now resemble to the likes of MAo's sons and Putin skunks to SAVE your own Oligarchy fortunes, which have no home in any first world country as their economies have been killed by your own kind; these guys are condemned to live and die like the Russian princes of the Riviera and end up like the Flying dutchman alone on their oligarchy boats in the end...poetic justice; for the TOO rich to live with the peasants of tomorrow's world.

There will always be CONSEQUENCE. One day.

Signed Edmond Dantes. 

novictim's picture

Entertaining!  But falak, could you work into this Global Warming and collapse of food production??

 

The environment is a wild card no one has fulling considered...food riots lead to unstoppable revolutions.  

Remember, true power flows fromt he barrell of a gun!

Teddy Tenpole's picture

 

hey edmund, f n hyper down there dude

It's called Fascism, nothing to be worried about ;)

 

signed Theodore Tenpole, II

 

 

 

 

 

 

Seer's picture

falak,

I believe that this is all just a normal progression of standardization. (PBS did "Command Heights" [http://www.pbs.org/wgbh/commandingheights/lo/story/index.html]  several years ago, pretty decent overview of the process)

Those used to my posts know that I believe that BIG = FAIL.  While "BIG" may happen, it cannot persist.

I still figure that the NWO won't really get off the ground, that there's enough localized interests that will fight for their right to protect fundamentals (Food, Shelter and Water).  Here's an encouraging anecdotal:

Australia surprises with rejection of $2.55 billion GrainCorp takeover by ADM

http://finance.yahoo.com/news/australia-surprises-rejection-2-55-2259202...

My hat's off to the Aussies (despite all the other things they're fucking up this one is a big plus).

wisehiney's picture

This time down, we'll see if they really got it. Is it confidence, or is it not? Is it wish or is it hope? Confidence in plan B? Belief in the ultimate lack of inspiration? I'll be back, I promise.

lasvegaspersona's picture

What kind of tree flowers a fruit like Liesman?

Can he possibly believe any of what he says?

Is he an actor or just a guy with no insight?

Has he ever heard of Zimbabwe? The Weimar?