Presenting Bubbleology: The Science Of Bubble Money

Tyler Durden's picture

From Ben Davies of Hinde Capital

On the 12th November 2014 - some 10 years after it was launched - lander module Philae which accompanied the Rosetta spacecraft touched down on Comet 67P/Churyumov-Gerasimenko (67P) to begin extra-terrestrial scientific observations. The on-board telemetry communicated back to Earth some 28 light-minutes away revealed that the lander had bounced twice off the surface of 67P. The first bounce may have lasted two hours and over 1 kilometre and is considered the largest space bounce in history which we would put it on a par with the incredible bounces in the US and Japanese stock markets this past month!

Back here on Earth Japanese monetary policy has similarly taken a giant leap forward for mankind by conducting its own scientific experiment. On the 31st October 2014 Bank of Japan Governor Kuroda-san implemented an addition to his ‘Qualitative & Quantitative Easing’ (QQE) policy begun a year ago. The surprise event was less the timing and magnitude but the clear brazen coordination of monetary and fiscal policy using the conduit of the Japanese Government Pension Fund to implement it. The QQE drove stock markets into a frenzied rally.

Central banks have been conducting a seemingly coordinated financial program of unconventional monetary policy – assuringly scientific in its nomenclature of QE and QQE – media commentators marvel at the boldness (stupidity) of policymakers ‘to go forth where no man has gone before’ and eradicate the spectre of debt deflation.

Policymakers have been studying and implementing ‘Bubbleology’ – the science of bubble money. The impact of this earthly science on both economies and financial markets has been truly dismal. It is clear it is creating a divergence between economic and financial reality.

Far from eradicating the perils of debt deflation it is clear this program has merely initiated more fiscal and private sector balance sheet irresponsibility, as both continue to lever up. The capital (‘near money’) allocation of such leverage has resulted in rising asset classes, primarily housing stock, equity and bonds where the pursuit of yield has ignored all credit risk sensibilities. All this has occurred at the expense of daily living standards and the misdirection of capital.

We are witnessing the continuation and completion of the financialization of our economies and markets which began at the instigation of governments and central bankers in the years leading up to the 2008 crisis. There is no attempt to foster sustainable capital and income through innovation and production which ultimately drives healthy employment. Rather financialization of asset classes driving elevated prices which creates an inequality of wealth, albeit illusionary wealth. Land, housing stock and excessive equity price growth in reality drains productivity away from entrepreneurship and the employment which enables sustainable taxable income for nations to run prudent fiscal surpluses.

We are in the butterfly vortex of a momentary illusion of ‘hyperinflated’ wealth - for the value of money is sinking rapidly - destroying the purchasing power of the global majority. Markets have a memory and from the first moment central banks expanded their balance sheets the flap of Lorenz’s wing has cast a shadow over financial and economic stability. In this HindeSight I endeavour to highlight where the echoes of monetary history are manifesting themselves in systemic risk across the globe.

The Delicious Science of Bubble Money

About 15 years ago I went on a three week stint to Tokyo to cover the overnight US Treasury trading seat at Greenwich NatWest. I remember many cultural delights about that trip, not least of all the clubs and hostess bars of Roppongi! But one of my abiding memories was Bubble Tea. I was addicted to it but other than the side-effects of a sugary rush it’s fair to say this was perhaps a less troublesome elixir for a young single gaijin and one with a rather large company expense account at that.

Bubble Tea, also known as 'pearl milk tea' actually originates from Taiwan. It is essentially a tea mix of your choice infused with rich creamer served cold with natural large, chewy tapioca balls which you suck up through a big fat straw. The term bubble is an anglicized derivation from the Chinese word 'boba' which itself refers to the 'large' tapioca balls or pearls.

Fast forward 15 years and whilst meandering around London I saw a bunch of neon Bubbleology signs. Turns out they are Bubble Tea shops and they practice the ‘science of bubble tea’ making. Imagine my joy. I have finally been reunited with my favourite beverage on my home soil.

In an era of serial financial bubble blowing I thought to myself how apt to use this name to refer to central bank money printing on account of its clear ability to create one asset bubble after another with rich infusions of money.

So Bubbleology – the new ‘delicious science of bubble money’ - looks to serve grateful market participants with rich creamy rushes of infused tea, intravenously administered through the conduits of repressed and fiscally dominated financial institutions.

Every central bank has its own set of magical ingredients. The BoJ administers a rich elixir of ‘Macha Bubble Money’ adding more creamer to every new infusion by which to keep the Pavlovian market salivating. The FED and BoE offer their own special potion of ‘English Breakfast Money’ superbly rich in its enunciation, crisp and firm on the pallet, whilst the PBOC offers up a soothing medication of ‘Oolong-some Bubble Money’. The ECB version, however, is somewhat more fruity and zesty in its consistency - more Tapioca ‘Money Balls’ than bubbles – well, at least for now.

Monetary Echoes, Memories & Markets

Greenspan was the maestro of bubble money science and presided over almost two decades of monetary bubble infusions in an attempt to save us from perceived threats of dastardly deflation. Except a decade ago the debt levels were trivial in comparison with what exists today. Greenspan initiated the largest global bubble money experiment on earth being implemented on Earth today. It is risible to me that he now promotes ‘gold’ – the ultimate anti-bubble money asset.

It is the echoes of this monetary history which reverberates strongly today creating a seemingly stable equilibrium of economic and financial asset growth. Nothing could be further from reality.

Markets have a memory effect whereby future price movements have a higher probability of repeating recent behaviour than would otherwise be suggested by a purely random process. At the moment I believe market behaviour is a reverberation of the memory of past credit cycles propagated by central bankers who never fully allowed the cycles to complete from boom to bust. So the cycle heights either run higher and/or longer until such time as no amount of credit keeps the well-oiled financial markets rising and the economy ticking over.

This is a classic example of the law of diminishing returns - each new dollar printed exacts less and less return or output.
I have always intuitively believed that markets have significant order in their chaos and that we could predict this by looking at the relationship between credit cycles and market behaviour. I believe the inherent structure of a market carries a multitude of participants (economic agents) all with different rationale for making a purchase or a sale. Rational or irrational is in the eye of the beholder; what seems rational to one person may seem quite the opposite to another. Linear systems of econometrics that follow equilibria models do not allow for human action which is why the efficient market hypothesis has long been disproved.

This classic financial theory which assumes markets are efficient was first introduced by Louis Bachelier (mathematician) in the 1900s. The concept assumes that competition among a large number of rational investors eventually lead to equilibrium and the resulting equilibrium reflects the information content of past, present and even anticipated events. So an event of the magnitude of 19th October 1987 statistically should never occur if one were to subscribe to conventional financial wisdom. This was the day the Dow Jones Industrial Average plunged more than 20% in one day, an unlikely 20-standard deviation event whose probability of occurrence is less than one in ten to the 50th power. It is intuitive to me that the financial markets are one large consciousness - a conscious mind. The price and 'value' beliefs that are embedded in a market have a memory and a history based on decades of interconnected economic agents, all with different agendas, motivations and needs. Traders/ Investors think themselves largely independent souls but they are not. They are interconnected by a neural network, figuratively and actually both in the past and present which all impacts a future outcome in the markets.

Its rather analogous to a field of mushrooms which appear to be individual plants, when in fact they are a merely the temporary component of a fungal network, known as a mycelium, that exists underground all year round almost indefinitely.

* * *

What is increasingly evident is that market participants are increasingly embroiled in a reflexive relationship between central bank actions, guidance and price action. The more the market moves contrary to central bank desires – ie downwards - the more the central bank injects the bubble money and reassures markets with the promise of more infusions of its rich elixir. This reflexive behaviour has led to a mindset that extends beyond institutional traders and investors but to populations as a whole. We are observing a complete financialization of the global economy and markets by this mindset. The speculative mindset that my house is now my investment, that my 401K or pension pot is my productivity for the future or that oil is some kind of arcade game rather than a highly productive resource for our economy is accepted as normal behaviour. This is the behaviour of the maddening crowd.

* * *

An Austrian economic scholar and market participant quipped to me - "after six years and trillions of dollars of intervention, the only truly unconventional policies that remain are those which practice sound money, official inscrutability, and an approach which is a good deal less Hjalmar Schacht and a good deal more Adam Smith."

Although humorous, this is a deadly serious point to consider. As you will see from the economic charts in the following sections this enormous global experiment is not working. The overhang of too much debt and moribund growth continues to threaten national balance of payments and the well-being of populations.

* * *

Much more in the full presentation, including numerous pretty charts, which can be found here

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unrulian's picture
There were three ducks swiming in a pond one night after midnight and got arrested for trespassing. They were called to apper in court the next day so the judge called up duck #1 and asked what were you doing in a pond swiming after midnight the duck said "blowing bubbles" So then the judge called up duck #2 and asked the same question and the duck said "blowing bubbles". Then the judge called up duck #3 and said let me guess you were blowing bubbles to and the duck said "No i am BUBBLES"

 

 

Bloppy's picture

Kneel before central bankers.

 

NBC's bizarre holiday tip: how to escape duct tape tie-ups

http://tinyurl.com/mk5ohug

max2205's picture

The straw pyramid is equity leverage, naked options, ETfs, dark pools, pension derivatives, TBTF derivatives, and now Central bank positions regardless of type naked or not. 

 

I believe that will not last very much longer

philipat's picture

I think that part of the problem is that Central Bankers also LIVE inside a bubble. I'm sure they get positive feedback from eachother that they are absolutely doing everything right. They never get any criticism and they never talk to any of the 99%. Maybe reading ZH daily should be required as part of their job spec?

AlaricBalth's picture

Bubbleology, Keynsianism, Scientology - It is all pseudo, pyschobabble bull....

A Lunatic's picture

Yes, let's call it by it's proper name; THEFT on a global scale. How cute eh.......?

order66's picture

Who will be our next Savior Bubble?

80's Deregulation Bubble...Pop > Dot Com Bubble...Pop > Housing Bubble...Pop > All Asset Classes Bubble...?

 

AlaricBalth's picture

How about a guillotine bubble?

bunzbunzbunz's picture

Rather than productive conversation of course. Let's just kill people. That'll fix it!!!@#

bid the soldiers shoot's picture

DUH

the war bubble

the alpha and - soon to be - omega of bubbledom

 

A Nanny Moose's picture

What 80's deregulation, exactly?

negotiator's picture

So Ben Davies predicts oil falling to $60, maybe as low as $50.
Here's the full 36 page report from whence this piece was taken: http://clearslide.com/v/rh65tm?code=1
Ben has enjoyed some uncanny success in predicting silver's last ascent and the Sept 2011 decline. He's kept quiet until now about silver and gold's upcoming move, quoting his secret formulas. So if Ben's on the money this time (literally), we're days or a few weeks from the start of a major PM move. If true, then all Ben will need is to learn normal speak English and a crown.

no more banksters's picture

"Greenspan’s vision for a new world and Gordon Brown’s promise that there will be no more bubbles and cracks, turned out to be fantasies based on a wave of financial speculation. Speculation happened, because those who controlled the economy in America and Britain, promised to build a new kind of democracy, based on the markets, which could bring stability. But again and again, it led to the opposite, in chaos and instability around the world. And now, finally it happened in the heart of the West. But again, like in South-East Asia more than a decade ago, those who controlled the economy, triggered the political power this time, to save and protect their sovereignty. They asked from politicians to save them with money and politicians agreed. And again, just like in South-East Asia, the price paid by the citizens of the countries."

http://failedevolution.blogspot.gr/2012/07/the-illusion-of-self-regulati...

Colonel Klink's picture

Lying, cheating, tribal, inhumane, douchebagology, the science of being a Central Bank money changer.

Yen Cross's picture

 You forgot pistol whipping, rape, highway robbery, land confiscation, and homosexuality.

    You're slipping Klink?

bunzbunzbunz's picture

Are you talking about people that buy gold below market value then turn around and sell it at or above market value? Or people that do that with cars? Or people that do that with electronics? Or people that do that with drugs? Or people that do that furniture? Or people that do that with crops? Or people that do that with loans? 

Sorry...which of these people are bad and which are good again? I get confused....

BigJim's picture

Don't be confused. Be quiet.

bunzbunzbunz's picture

Yeah, buddy. I can tell you are smart. So, let me expand for you. The term of "Money Changers," as this euphemism using cunt won't or is too stupid to admit, could be applied to any person who flips products for profit. Any individual who works resale/retail would be a "money changer" by the same logic it applies to bankers/loan sharks/investment advisors/etc...

Please get your head out of your gaping asshole. Think about stuff a little more than it fits into YOUR perspective on the world. 

Colonel Klink's picture

This euphemism using cunt isn't stupid nor unwilling to admit exactly what I meant by the term money changer.  You on the other hand are just trying to split the hair around your own gaping asshole by changing the intent of my usage.  I believe Jesus kicked them out of the temple.  I believe FS called them cheesepopes.

Colonel Klink's picture

No those are capitalists.  I'm referring to the typical, thieving, userous bastards who have been plaguing humanity since the times of Jesus.

You got your screen name wrong, it should have been cuntzcuntzcuntz.

FighterJetsGuitarSolo's picture

You are describing the act of arbitrage - exploiting price differences in markets (flipping) risk free. Retail involves risk and therefore is not arbitrage. Money changers do not engage in arbitrage or retail. Money changers trade one currency for another and demand a fee which is worked into the rate of exchange so as to be concealed. Although money changers are regarded to be the beginnings of banks and banks engage in arbitrage and even call themselves "retail banks" (though they do not engage in retail in the strict sense), that does not make money changers arbitrageurs or retailers. Money changing grew (naturally) into usury. Money changers and usurers are parasites. You don't even understand what you are saying.

Ariadne's picture

Could have used all this technology to improve the human condition but nope, just had to use it to RIP PEOPLE OFF a little bit moar and SCREW THE OTHER GUY just a little bit faster and a little bit deeper. We aren't getting off this rock. WE'RE GOING AWAY, people.

You.Are.All.Diseased.

A Lunatic's picture

Give me what has been spent in Afghanistan and I will cure hunger in the U.S., heck I'll even throw in defending the border just to show off.......

yogibear's picture

QEing now being performed by the banks via the Fed.  Backdoor QEing.

Nothing has changed.

Keltner Channel Surf's picture

An ant traversing the surface of an enormous bubble is convinced he's proceeding in a flat, straight line, yet keeps returning to the starting point, and as the object is inflated further, this journey naturally takes longer.  

Of course, to Bernanke the giggling, maniacal scientist, we are the ants, while Yellen, the elementary school librarian who inherits the ant farm, now hastily patches every expanding hole with silly putty, terrified the bulbous piñata will end up a whoopee cushion, with those hearing the tell-tale sound amidst the unspeakable carnage turning to her for an explanation, except Draghi, who will suggest:  “just say you’ll stop at nothing . . . then stop after nothing . . . it's not really lying, is it?”

AdvancingTime's picture

The dollars strength and the rising American stock market could also be taken as a sign of an unstable global economy. The money flowing in from other countries in search of a safe home screams of a bigger problem! When a strong shift in currencies occurs someone gets hurt and this leads to bankruptcy and contagion.

 A great deal of the shadow banking world falls into and overlaps into the grey world of derivatives. There is no single commonly adopted definition of derivative or derivative contract in the European Union. This plays havoc with what and when reporting rules apply. It also highlights divisions in how national regulators view reporting rules for the $693 trillion over-the-counter derivatives market.

Remember this is only part of a much larger market, it is estimated the total derivatives market includes hundreds of trillions of dollars in non-reported agreements and private contracts. Everyone paying attention knows that the size of the derivatives market is 20 times larger than the global economy. The article below explores some of its ins and outs of derivatives and why they could collapse the economic system.

 http://brucewilds.blogspot.com/2014/03/derivatives-house-of-cards.html

datapanik's picture

Butterfly vortex? More like nuclear economics. Infinite hyperinflation still won't be enough for the greedy little fuckers - and I'll bet none of them are happy. 

Prairie Dog's picture

Long-winded, boring, stupid man. Go back to the hostess bars and leave us all alone.

Fuku Ben's picture

Scientology doesn't like that name and catch phrase. There legal team is drafting up legal action as I type

Radical Marijuana's picture

Another superficial article, which stitched together factoids, without any deeper appreciation of the real reasons for bubble economics, which are the abilities of privately controlled banks to create the public "money" supply out of nothing as debts.

I find it pathetically laughable to read "classic financial theory which assumes markets are efficient ... assumes that competition among a large number of rational investors eventually lead to equilibrium and the resulting equilibrium reflects the information content of past, present and even anticipated events."

The real world is controlled by lies backed by violence. There has never been any genuine "free market capitalism," other than when some people perceived things in the short-term, while wearing blinders. What actually happened was that fraud and murder were added to the systems, in ways which effectively controlled those systems, to end up with the ENFORCED FRAUDS OF PRIVATELY CONTROLLED BANKS BEING ABLE TO MAKE THE PUBLIC "MONEY" SUPPLY OUT OF NOTHING AS DEBTS.

Furthermore, IF one was more realistic about political economy, one would always place that inside of the context of the real human ecology. Therefore, the debt controls would always be backed by the death controls, which is what actually has happened. The runaway triumphs of enforcing frauds enables blowing economic bubbles, which pop, BUT those who benefited the most from doing that every time then have every incentive and opportunity to do that again on larger and larger scales, despite how criminally insane the longer term consequences from doing that will eventually end up becoming.

The greater paradox is that governments provide the force, through their law enforcement murder systems, to back up the social robbery, which becomes more sophisticated as the legalized counterfeiting of the public "money" supply. However, all of that only works because the vast majority of people are ignorant about it, while almost everyone who should know appears to continue to deliberately ignore that.

Money is measurement backed by murder (which does its best to deny that situation, and which paradoxically becomes more socially successful the more that it can do that.) Therefore, the governmental forces that back up the financial frauds that are the foundation of our political economy blowing bubble after bubble were due to the history of organized crime dominating the political processes, in ways where the successes at doing that resulted in almost everyone adopting attitudes of evil deliberate ignorance towards those social facts.

Overall, the greatest of BUBBLES is that the runaway debt slavery systems have driven debt insanities, which are set to provoke death insanities as their final consequences. Since our political economy does its best to divorce itself from the human ecology, the greatest of all bubbles is the human population, and thus, the greatest of all bubbles popping would be after the cycles of exponential growth of bubble economics have overshot so badly that the whole system comes crashing down through episodes of more genocidal wars along with democidal martial law, on a scale much greater than anything else in known human history.

The "bubble economy" is based on the "hidden foot" of the murder system kicking the shit out of everything, because that is what enforced the frauds, which provided the privatized incentives to maximize blowing economic bubbles, which would pop, over and over, because those who were the greatest insiders within those systems could personally profit from both blowing those bubbles, and then those popping, over and over again. In that context, the standard fairy tales about the "hidden hand" were based on deliberately ignoring the more powerful "hidden foot."

The basic dilemma that we face is HOW to add fraud and robbery back into the political economy, rather than how to continue to pretend those could be excluded. The systems that exist now are those whereby money is measurement backed by murder, while those are both actually done through the maximum frauds and deceits. That is the most extreme way in which our entire human-centered economic system operates in ways which deliberately ignore the natural ecologies as much as possible. The most intense form of that is due to ways that the human ecology had dishonest death controls at its center, which therefore enabled fraudulent financialization.

There is actually nothing less that could work than placing the economy back into the real context of the surrounding ecology. However, that can not be done unless it was sufficiently perceived that money is measurement backed by murder, which is precisely the perception that the bubble economy wants to be the most deliberately ignored.

q99x2's picture

The money changers got hold of the press. Are you saying that somebody expected something different to happen.