This page has been archived and commenting is disabled.

"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.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 05/06/2014 - 21:12 | 4734384 Groundhog Day
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

Tue, 05/06/2014 - 22:45 | 4734691 markmotive
markmotive's picture
Chris Martenson and James Turk: We're Living Within A Money Bubble of Epic Proportion

Tue, 05/06/2014 - 23:17 | 4734783 Stuck on Zero
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.


Wed, 05/07/2014 - 02:56 | 4735099 ilion
ilion's picture

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

Wed, 05/07/2014 - 05:58 | 4735216 Bendromeda Strain
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.

Wed, 05/07/2014 - 09:48 | 4735615 Pinto Currency
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.

Wed, 05/07/2014 - 11:13 | 4736054 tonyw
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.

Wed, 05/07/2014 - 10:04 | 4735693 BigJim
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.

Wed, 05/07/2014 - 14:09 | 4736782 stopthejunk1
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.

Wed, 05/07/2014 - 14:37 | 4736880 Bendromeda Strain
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>.

Wed, 05/07/2014 - 13:37 | 4736630 PTR
PTR's picture

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

Tue, 05/06/2014 - 21:10 | 4734385 SilverIsMoney
SilverIsMoney's picture

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

Tue, 05/06/2014 - 21:13 | 4734386 remain calm
remain calm's picture

The US Dollar. Thank you dickwads Greenspan and Bernanke.

Tue, 05/06/2014 - 21:13 | 4734392 NoDebt
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.

Tue, 05/06/2014 - 21:36 | 4734478 i_call_you_my_base
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.

Tue, 05/06/2014 - 22:09 | 4734580 cynicalskeptic
cynicalskeptic's picture

They're so advanced they glow in the dark.  

Tue, 05/06/2014 - 21:12 | 4734393 DOGGONE
DOGGONE's picture

The Public Be Suckered

The Establishment says: "F___ the people!".

Tue, 05/06/2014 - 21:13 | 4734400 StillSilence
StillSilence's picture

Debt currency bubble to take the cake?

Tue, 05/06/2014 - 21:19 | 4734422 BeanusCountus
BeanusCountus's picture

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

Tue, 05/06/2014 - 21:26 | 4734445 DeadFred
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.

Tue, 05/06/2014 - 22:12 | 4734557 Al Huxley
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.

Tue, 05/06/2014 - 22:31 | 4734653 NoDebt
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.

Tue, 05/06/2014 - 22:48 | 4734707 Al Huxley
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.

Wed, 05/07/2014 - 06:16 | 4735226 Shitters_Full
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!

Tue, 05/06/2014 - 22:50 | 4734713 Dr. Engali
Dr. Engali's picture

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

Tue, 05/06/2014 - 23:14 | 4734771 Al Huxley
Al Huxley's picture

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

Tue, 05/06/2014 - 23:37 | 4734835 BeanusCountus
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.

Wed, 05/07/2014 - 06:30 | 4735233 ohBehave
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.

Tue, 05/06/2014 - 21:26 | 4734447 Carpenter1
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


Tue, 05/06/2014 - 21:31 | 4734464 i_call_you_my_base
i_call_you_my_base's picture

Home prices are mostly back to the, winning?

Tue, 05/06/2014 - 21:38 | 4734481 icanhasbailout
icanhasbailout's picture

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

Wed, 05/07/2014 - 09:45 | 4735609 dontgoforit
dontgoforit's picture

Rehersals for the Mac Daddy!

Tue, 05/06/2014 - 21:42 | 4734492 MrButtoMcFarty
MrButtoMcFarty's picture

Wait until the world population bubble pops....

Tue, 05/06/2014 - 21:45 | 4734504 flash338
flash338's picture

#7   Population bubble

Tue, 05/06/2014 - 21:58 | 4734549 razorthin
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.

Wed, 05/07/2014 - 00:38 | 4734945 Lead Balloon
Lead Balloon's picture

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

Wed, 05/07/2014 - 01:17 | 4735001 icanhasbailout
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"

Wed, 05/07/2014 - 01:32 | 4735017 SAT 800
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.

Tue, 05/06/2014 - 21:59 | 4734552 Al Huxley
Al Huxley's picture

Sovereign debt FTW.  Or equivalently, FED Balance Sheet.

Tue, 05/06/2014 - 22:48 | 4734708 AdvancingTime
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.

Wed, 05/07/2014 - 01:37 | 4735025 SAT 800
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.

Tue, 05/06/2014 - 23:07 | 4734756 Lone_Star
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.

Wed, 05/07/2014 - 16:01 | 4737138 mkkby
mkkby's picture

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

Tue, 05/06/2014 - 23:38 | 4734838 I Write Code
I Write Code's picture

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

Wed, 05/07/2014 - 00:25 | 4734928 slightlyskeptical
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.  

Wed, 05/07/2014 - 01:08 | 4734985 Spungo
Spungo's picture

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


Wed, 05/07/2014 - 04:53 | 4735172 CHX
CHX's picture

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

Wed, 05/07/2014 - 02:26 | 4735071 holsfhf
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 ..  

Wed, 05/07/2014 - 02:27 | 4735072 Ungaro
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?

Wed, 05/07/2014 - 02:27 | 4735073 Pareto
Pareto's picture

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

Wed, 05/07/2014 - 04:54 | 4735176 CHX
Wed, 05/07/2014 - 06:58 | 4735255 mogul rider
mogul rider's picture

I would offer that Zero Hedge is a bubble.


A buuble of negativism which prevented millions of viewers from particiapting in a fabulous run from 2008 to now in the markets, real estate, etc.


Instead the negatroll attitudes of despair that you present has frozen people from making tough investment decisions.

Yeah it's ponzi - so what!

It always has been.

Yet when silver went to $49 and gold went to $1900 you were on the pump harder than any CNBS schill. In fact your pump subsequently wiped out many of your viewers. At $49 I told everyone I sold and the venom didn;t stop for days.

Yet the pumpers disappeared. Only the haters were left. There is a problem with your site. It's not realism you pump. It's negativism. An even more deadly disease. It a culture of hate. No better than Nazi Germany.


Hate bankers, hate feds, hate hate hate

i would politefully request you look in the mirror.

You fucked more people than any wall street dick so you are part of the problem not the solution. All to sell a few ads and not get a real job.

Wed, 05/07/2014 - 07:41 | 4735298 newdoobie
newdoobie's picture


Yeah it's ponzi - so what!

It always has been.

The only problem is that investing is not a real job. Bookies in suits

Wed, 05/07/2014 - 08:12 | 4735337 tarsubil
tarsubil's picture

Good for you selling at $49.

Some here see physical gold and silver as financial insurance. Not necessarily a way to make big bucks. Probably has to do with the previous blow off tops and realizing that the price in dollars can be pushed around pretty easily by the powers that be. They held it at what $35 for a long time until they couldn't.

Wed, 05/07/2014 - 10:06 | 4735686 nope-1004
nope-1004's picture

Using a manipulated and debauched currency as the yardstick by which mogul measures PM "value" and as a rational for exploding all over ZH is really naive.  May as well use buttons or chocolate chips.

Missing a fake run in equities always brings out the smart ones, especially after the fact.  I have a friend who drives a real POS, dresses like hell, but yet every time we meet he has this uncanny ability to always buy at the bottom and sell at the top.  Just amazing.

There certainly is no shortage of delusion about the USD, equities, and the epic ponzi bubble we operate in.


Wed, 05/07/2014 - 09:54 | 4735650 Mi Naem
Mi Naem's picture

You were actually making very good points mogul rider. But jeez man, don't you know that whoever has to resort to mentioning "Nazi" first loses? 

Wed, 05/07/2014 - 10:12 | 4735741 ilovemilken
ilovemilken's picture

I don't think anyone anticipated free money for 5 years running. When that happens even the widows and geriatrics in Florida are speculating on stocks.

Wed, 05/07/2014 - 12:28 | 4736388 redux2redux
redux2redux's picture

TANSTAAFL - We will be paying for all of that free money at some point in the near future.


Wed, 05/07/2014 - 10:15 | 4735750 TrulyStupid
TrulyStupid's picture

I am a Beta and I'm proud to be a Beta. I love those Aplha banksters and Big Bro and sitcoms and Hollywood moguls and those nice folk at the Fed.

I love to hate the enemies of the know terrorists, anyone with a name that starts with Mohammed, fembonazis, those with suspiciously dark skin tones and deniers of the one true faith.

Aren't you glad youre not an Alpha, with those important decisions to be how big there bonus should be and which country to invade next?

Don't confuse those Zetas at Zerohedge with their betters.

Wed, 05/07/2014 - 07:41 | 4735297 amadeus39
amadeus39's picture

Mogul rider...right on! Envious haters of sucess. Destroyers...not builders populate Zero Hedge. Unfortunately, I'm a member. Love disasters and gloom and doom.


Wed, 05/07/2014 - 09:44 | 4735601 Zymurguy
Zymurguy's picture

Nothing to see here in these charts, move along.

(aaaaaaaaaand, it's gone!)

Wed, 05/07/2014 - 09:45 | 4735610 machineh
machineh's picture

Fucking Cramer pop-up ad in my face on ZH, for the third day in a row.

Sorry, outta here till this offensive ad stops running.

Wed, 05/07/2014 - 09:50 | 4735629 headhunt
headhunt's picture

use firefox with adblock - don't let that a-hole dictate where you go

Wed, 05/07/2014 - 12:23 | 4736375 redux2redux
redux2redux's picture

The internet is a very different experience with AdBlock!

Wed, 05/07/2014 - 09:51 | 4735633 Proofreder
Proofreder's picture

If you scroll down, Kramer goes away ;-)

Wed, 05/07/2014 - 09:46 | 4735617 Rodders75
Rodders75's picture


OK, but Grantham's conclusion (for those who could be arsed to read the whole piece) is that after a dip till Oct the market will carry on rising to beyond SPX 2250. 


Best Guesses for the Next Two Years

With the repeated caveat that prudent investors should invest exclusively or nearly exclusively on a multi-year 

value forecast, my guesses are:

1) That this year should continue to be difficult with the February 1 to October 1 period being just as likely 

to be down as up, perhaps a little more so.

2) But after October 1, the market is likely to be strong, especially through April and by then or in the 

following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 

2,250, perhaps by a decent margin. 

3) And then around the election or soon after, the market bubble will burst, as bubbles always do, and will 

revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed 

can dig up. 

Conclusion and Summary

The bull market may come to an end any time, indeed as I write it may already have happened. It could be 

derailed by disappointing global growth, profits sagging as deficits are cut, a Russian miscalculation, or, perhaps 

most dangerous and likely, an extreme Chinese slowdown. But I believe it probably (i.e., over 50%) will not end 

for at least a year or two and probably not before it reaches a level in excess of 2,250 on the S&P 500. Prudent 

long-term value investors will of course treat all of the above as attempted entertainment (although I believe all 

statistically accurate) and be prepared once again to prove their discipline and man-hoods (people-hoods) by 

taking it on the chin. 

I am not saying that this time is different (attention Edward Chancellor). I am sure it will end badly. But given 

this regime of the Federal Reserve and given the levels of excess at other market peaks, I think it would be 

different to end this bull market just yet.


BTFATH Bitchez! Buy till you drop!
Wed, 05/07/2014 - 09:47 | 4735621 Agent P
Agent P's picture

What, no Beanie Babies? 

Wed, 05/07/2014 - 09:49 | 4735624 Proofreder
Proofreder's picture

Wonder what the 6 charts look like in terms of gold.

Any good chartists out there ????

Wed, 05/07/2014 - 09:55 | 4735657 headhunt
headhunt's picture

OK - the markets are going to go up until the elevator is full of muppets, then the elevator goes down before the doors can open, then everyone gets out and says "I am never going to do that again'.

As they turn to leave they here the 'ding' of an arriving up-elevator and they all turn around....


Wed, 05/07/2014 - 11:30 | 4736156 dontgoforit
dontgoforit's picture

Nailed it, headhunt!  And I believe we're all just a little guilty of being muppets, but WTF are ya' gonna do?  You try to make a little cash cause they sure aren't paying a ton at Subway or Walmart.

Wed, 05/07/2014 - 09:57 | 4735666 Mi Naem
Mi Naem's picture

Not enough people are saying that "it really is different this time", so we can't be near the final trend top, yet. 

Wed, 05/07/2014 - 12:26 | 4736348 RaceToTheBottom
RaceToTheBottom's picture

K Bass's presentation had an interesting point about Yellen jettisoning any pretense about caring about the Unemployment rate.

The US society is going to get really weird going forward.

Vast % of walking vegetables are going to be looking for stuff to do, and what they find to do will not be productive or popular with the rest of the US

Thu, 05/08/2014 - 07:09 | 4739028 AnfiskaPritch
AnfiskaPritch's picture

Modern market economy brings many surprises to the investors and other participants. It is impossible to determine the future market with sufficient precision which makes business decisions more risky. This online lending store for US consumers will be very helpful in situations of emergency cash shortfall. 

Do NOT follow this link or you will be banned from the site!