"The Six Most Important Asset Bubbles In Modern Times"

Tyler Durden's picture

According to GMO's Jeremy Grantham, the six most important asset bubbles in modern times are the following:

And some additional color from the legendary investor:

The six most important asset bubbles in modern times (in my opinion) are shown in Exhibit 1 and, as you can see, each of them qualifies on the 2-sigma definition, although the 1965-72 peak, known in the trade then as the “Nifty-Fifty” event, did so by a modest margin. This event fell short in providing the usual good examples of extreme investment craziness. Perhaps, though, the very definition of the Nifty Fifty as “one decision stocks” may have qualified it, with one extremely crazy theme substituting for many smaller ones, for “one decision stocks” were so named because you only had to make one decision: to buy. These stocks were generally believed then to be so superior that once bought they would be held for life. (Most, like Coca-Cola and Merck, stood the test of time well enough, but unfortunately several then unchallengeable examples like Eastman Kodak and Polaroid went the way of all flesh, or all film.)


There is one very important event that influenced our lives, financial and otherwise: 2008. The U.S. housing market leaped past 2-sigma all the way to 3.5-sigma (a 1 in 5,000-year event!). The U.S. equity market, though, was overshadowed by the then recent record bubble of 2000, although it still made it to a 2-sigma event on some definitions. But what was unique about 2008 was the near universality of its asset class overpricing: every equity market, almost all real estate markets (Japan and Germany abstained), and, of course, a fully-fledged bubble in oil and many other commodities. The GMO Quarterly of April 2007 (“It’s Everywhere, in Everything: The First Truly Global Bubble”) started out: “From Indian antiquities to Chinese modern art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; its bubble time.”libaba’s platforms, the giant might start to grow more slowly.


So 2008, particularly if you can imagine adding real estate and commodities, was indeed a true global asset bubble, being the most extreme collective outlier in not just 30 years, but in at least the 88 years of our data and probably forever, given the much lower correlations of earlier times.

Yes, 2008 was bad but you ain't seen nothing yet. Because with six down, everyone is now eagerly waiting for the lucky, and final, number seven. We are confident the Fed won't make us wait too long.

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Groundhog Day's picture

"7" Crap OUT

The casino doors have been shut and locked, all the table rollers are all in on the table because the shooters (Bernanke and Yellen) have never rolled a 7 yet and can say with 100% certainty that they never will

markmotive's picture
Chris Martenson and James Turk: We're Living Within A Money Bubble of Epic Proportion


Stuck on Zero's picture

Yep.  I'm looking for the Democratic party popularity to be the next bubble chart in the list above.  Followed by Republicans.


ilion's picture

A must watch presentation and video of Kyle Bass discussing Japan, China bubbles and hope in Europe.

Bendromeda Strain's picture

I enjoy Kyle's presentations very much, as there is an air of honesty, and he is obviously a world class intellect. He has changed his tune for some reason as to outcomes for America, and seems much more bullish on the domestic front than he was in years past, such as his Barefoot summits after the crash. He is sanguine about the petrodoallar remaining the reserve currency, and that is based on the cleanest dirty shirt theory.

And then Ukraine happens - since that presentation. That is why you must take the brainiacs, and mix in a prudent dose of hair shirt maniacs (like Gerald Celente). He warned us "they will take us to war!" how many times over the last few years? If you don't think war upsets the Bass thesis, then you need to rethink it, and take a good look at closer Sino-Russian ties. The only good thing about that I can see is that the US will get a distressed Canada back into its vampire embrace.

Pinto Currency's picture


There is one bubble and that is central banking.

All of the other bubbles are derivatives based on $200 trillion of global debt.

The inverse bubble is gold and other real assets.

tonyw's picture

with QE at USD 85bn a month over one trillion was added to the economy which is around 6% of the total economy.

Since GDP has only increased by a fraction rather then 6% it seems to me as though the real change is about -5% so we are really in a depression.

BigJim's picture

 He is sanguine about the petrodoallar remaining the reserve currency, and that is based on the cleanest dirty shirt theory.

Last I heard he held this belief because the US has an overwhelmingly-dominant blue-water navy. Take that away and he might change his mind.

stopthejunk1's picture

The U.S. comprises 40% of global military spending. We have 80% of global naval tonnage.

Who's going to "take that away?"

The 21st century will not see the end of Pax Americana. Personally I believe that putin is colluding with the U.S. on the Ukraine, and that the "conflict" is staged for the press and the masses. We got something in trade for Crimea -- you can be sure of it.

Bendromeda Strain's picture

Bombing Iraq and Libya back/forward to the stone age to prevent them from selling oil in Euros/gold didn't do much to prevent the inexorable drift away from Yellenbux for BRIC settlement. The move continues apace and even accelerates. Pax Americana disguised as Vladimir Flexibility and Asian Pivot is no Pax at all imo. As soon as a parallel SWIFT is operable, look for Iran to be back in the news <neocon dogwhistle>.

PTR's picture

The more I read these days, the more JH Kunstler's "World Made By Hand" theme seems a probability.

SilverIsMoney's picture

In the future it will be the dollar bubble chart/or the Price of Gold in inverse lol...

remain calm's picture

The US Dollar. Thank you dickwads Greenspan and Bernanke.

NoDebt's picture

OK, so it's gotta be something either in the US or Japan, I guess.  And here I was worried about China.  That's a load off my mind.

i_call_you_my_base's picture

Bass is right, it's going to be Japan. They are so much farther along. The trend is generally the same, debt, bonds, aging demographics, etc, but they're advanced.

cynicalskeptic's picture

They're so advanced they glow in the dark.  

DOGGONE's picture

The Public Be Suckered

The Establishment says: "F___ the people!".

StillSilence's picture

Debt currency bubble to take the cake?

BeanusCountus's picture

Interesting that gold at 1900/oz is not in there. Hmmm.

DeadFred's picture

The earlier rise and the Hunt Brothers silver bubble might have made the list but dropping from 1900 to 1200 isn't much of a 'Pop!' Twitter dropped farther and faster.

Al Huxley's picture

Remember those crazy days of 2011, everybody lining up to buy gold, your neighbors telling you about their favorite gold stocks or gold investments, crazy-ass predictions on the nightly news that gold was going to 50K? No, me either... gold bubble's still in the queue.

NoDebt's picture

They advertised it on the radio back then.  That's never a good (short term) sign.  And the haircut off the highs has been significant since then.

There will never be a bubble in Gold until the Fed loses control.  As far as they are concerned, Gold might as well be called Kryptonite.  They don't want it even on the same planet as them.

Al Huxley's picture

True, but depending on what China and Russia decide to do, the day of reckoning might be looming, although I've felt that must be the case since 2007 - look at the Fed Monetary base - that isn't something that's going to 'gradually move back to normal'.  To me, that vertical spike starting in 2008 screams that the system is dead, and we've just been playing an incredibly long run of 'weekend at Bernies' for the past 6 years.



Shitters_Full's picture

Weekend at Bernie's...carrying around the dead man (economy) pretending to all of the partygoers that he's still alive. Best analogy I've heard in a while.

Manos de piedros!

Dr. Engali's picture

Actually the bubble is in the dollar. There can never be a bubble in gold since it is a constant.

Al Huxley's picture

True, but without an official monetary role, it's dollar price can behave 'bubbly'.

BeanusCountus's picture

To all above, my thinking is similar. And to the Dr., I'm on that page. Been around for a long time. Seen gas go from .30 a gallon (granted, controlled back then) to $3.75. Cigs from .29 per pack to $6. Medical insurance for a family with no deductibles or co-insurance from $200 per month to $2,400. College education from $3,000 per year to $28,000. Gold at $1300 an ounce from $200? Cant understand why anyone would find that out of line.

ohBehave's picture

Exactly.  During the two bubbles within my memory (tech/stock bubble and then housing), EVERYONE had investment tips and stories of success.... my neighbors, the building janitor, the secretary, etc. etc.

Those things were on the lips of literally everyone I knew and NONE of my friends/family ever paid any attention to finances or economics before those bubbles.   During the bubble, it dominated our conversations.

Over the past 10 years, I have found only two face-to-face human beings that have anything to say about precious metals.  If I bring it up to anyone else, they look at me like I'm investing in Camel breeding.  

In my direct, anecdotal type experience, precious metals continue to be an obscure, fringe investment.

Carpenter1's picture

Have to add about 4 more once the current mess is over, top of my head ut goes..bonds, USD, equities,  and then you could choose from student loans, car financing, margin debt, or QE itself.


Hold onto your hats, this one is gonna suck the wind out of your lungs


i_call_you_my_base's picture

Home prices are mostly back to the peak...so, winning?

icanhasbailout's picture

We'll look back at those as "quaint little bubbles" one day.

dontgoforit's picture

Rehersals for the Mac Daddy!

MrButtoMcFarty's picture

Wait until the world population bubble pops....

flash338's picture

#7   Population bubble

razorthin's picture

Let me put this out there.  You would not think so by looking at the DIA or SPX, but I believe we are in danger of a crash this week.  The Russell is staring off a cliff and the banks are tanking.  Bank of America looks like it is in real trouble.  It probably won't happen, or maybe it will be just a mini-crash of a few hundred Dow points or so.  But I wanted this prediction on record.

Lead Balloon's picture

If you are right, you are a god.  If not-into the volcano!

icanhasbailout's picture

or as we say in these parts, we "open an account at the First National Bank of Multiple Self-Inflicted Gunshot Wounds to the Back of the Head"

SAT 800's picture

LOL. well. "predicting the future is hard, especially the part that didn't happen yet".  It's usually difficult to get much negative action in spring---longer days, sunshine, flowers blooming, etc. Optimism is in the air. But it's certainly a frothy, momentum market ; and it's completely rational for people who have some gains in stocks to cash out. It's most likely to have wipe outs in the Fall when the days shorten and it starts getting chilly; October is a classic time for market failures; it's all psychology.

Al Huxley's picture

Sovereign debt FTW.  Or equivalently, FED Balance Sheet.

AdvancingTime's picture

i think the "intangable asset" area into which money has poured for several decades is a strong contender. I lot of these intangable investments will soon vanish into thin air. Never before has mankind diverted such a large percentage of wealth into intangible products or goods.  I contend this is the primary reason that inflation has not become a major economic issue. 

The modern economy is loaded with interwoven contracts reeking of contagion. If faith drops in these intangible "promises" and  money suddenly flows into tangible goods seeking a safe haven inflation could soar even as debts go unpaid and promises are left unfilled. This could really shake up the world, more on this subject in the article below.


SAT 800's picture

This seems to be true; especially about these "financial innovations" soaking up the liquidity to avoid, "serious inflation"; although there's actually plenty of price-driven monetary inflation to go around, as the posters afirm. But when the deals run into lack of peer confidence, as we saw in 2008; no money comes out of the situaton; as both counterparties are revealed to be broke. They, these new instruments, seem to be a kind of black hole for accounting units, or "dollars"; they check in but they don't check out.

Lone_Star's picture

Student loans will be the killer. Just as soon as they're turned into CDOs and unemployed students start making payments with their EBT cards.

mkkby's picture

Nah.  Eventually the fed will print fiat to paper this over.  Have you learned nothing the past 5 years?

I Write Code's picture

T-bonds 1984 14% down to 2015 3% up to 2017 30%.

slightlyskeptical's picture

Precious metals still need to have a couple more sigma drop in order to be considered bubbles in the Grantham sense. We could also have another 1000 point rally before we reach the 3.5 sigma range. I am curious what time frames had Sigma gains but never gave up the Sigma losses and thus were not bubbles.  

Spungo's picture

"everybody lining up to buy gold, your neighbors telling you about their favorite gold stocks"


CHX's picture

Maybe. Another view is that fiat currencies are the bubble, and gold (real money) the final destination.

holsfhf's picture

The value of paper money eventually returns to it's intrinsic value ----- Zero .. But not all at the same time there is always a recipient of somebody else's mysery ... So don't hold your breath waiting for that one to happen and make some money in between ..  

Ungaro's picture

Wow, so many predictions, predilections! All the QE, competitive devaluations of the USD, EUR, JPY, etc. it is a race to the bottom. Once TPTB realize that all this benefits the resource rich economies at the expense of the rest -- kaboom!!! Simultaneous implosion of all super-inflated monetary systems. Got farmland, fuel, guns and ammo?

Pareto's picture

The biggest bubble yet to come....will be the bubble discussion itself.