How And When Does This Mess End?

Tyler Durden's picture

Submitted by Michael Shedlock via MishTalk.com,

A concerned reader wants to know if there are any precedents for the monetary printing we see today, and also when and how this all ends.

Hello Mish,

I wish to get your opinion as to how, or the possible sequence of end games to this bubble economy.

 

The Fed, ECB, and BoJ all print trillions of $$ to keep bubble inflated. Are there any historical times that match we have seen here?

 

Are there any measurements that would trigger an avalanche of storms in stock market and economy?

 

I just cannot believe this bubble will keep going perpetually.

Sean

What Cannot Go On Won’t

What cannot go on won’t, but that’s about all anyone can say at the moment.

There are no precedents for the trio of negative interest rates and massive amounts of QE by numerous countries simultaneously in a clear game of competitive currency devaluations.

Even if there was a precedent, there would not be any guarantees things would play out the same.

End Game Speculation

We are all speculating how this ends. No one can tell you because no one knows.

There are too many variables in play.

  • Does Japan or China start the mother of all currency wars?
  • Does Trump start a global trade war? Hillary?
  • Does the US get drawn into a China-Japan war over rocks in the South China Sea?
  • Will the 5-Star movement win in the next Italian election, then take Italy out of the eurozone?
  • What happens if Merkel unexpectedly bites the dust?
  • Can central banks keep markets levitated forever?

The answer to the last question is “no”, but it matters greatly if there is a crash starting tomorrow vs. a prolonged torture by a thousand cuts starting three years from now.

My best set of guesses is we have another huge deflationary asset bubble collapse at some point, that prime minister Abe goes totally crazy in Japan, that the eurozone does not survive intact, that yen-hedged Japanese equities soar, and gold is a safe haven in this mess (especially when central banks respond with still more QE madness).

The most painful scenario would likely be slow torture along the lines of a 10% correction this year, a 6% correction next year, then a 5% rally, followed by a 15% decline, a 7% rally and another 15% decline, etc., for a period of seven years or so.

At the end of seven or 10 years, investors would be down 40-50% without a crash. It would destroy pension plans. Heck, given 7.5% assumptions, even a flat market for seven years would destroy them.

Stocks are more ridiculously valued now than any time in history except 1929, 2007, and 2000 but know one knows when that matters.

Anyone who claims to know for certain how this ends is a fool.

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Paul John Smith's picture

Next week ...

(3 pm)

 

Looney's picture

 

Anyone who claims to know for certain how this ends is a fool

I do know how it will all end – the last thing we will hear will be the Looney Tunes music.   ;-)

Looney

Boris Alatovkrap's picture

Never underestimate tenacity of bankster class to hold on. Rothschild family is for 300+ year to steal and preserve wealth. Common citizenry can never combine sufficient to stop, so war and strife is permanent feature of churning cycle of their machination. Remember, all war is bankster war…

… then again, what is Boris know!?

SWRichmond's picture

Wait...Mish....gold?

Next thing you know Denninger will be talking about gold.

JHFC.

translator zero's picture

I keep wanting to think Mish is not retarded, but as to a 7~10% decline per year - guess what, in real dollars* that's ALREADY been the case ever since the dot-com bubble!

Also

Does the US get drawn into a China-Japan war over rocks in the South China Sea?

Japan doesn't give a shit about *south* China sea. Retard.

*and not using phony baloney CPI

greenskeeper carl's picture

I like Mish most of the time, but calling it a fight over 'rocks' in the South China Sea is a deflection. It has nothing to do with the 'rocks' and everything to do with the oil underneath them. That's what they are fighting about. It makes the Chinese and other countries sound stupid if they are fighting over a bunch of rocks. But, if you make it look like China is pushing other countries around for oil, it makes them sound like the US.

And I do know how this ends - badly. Don't really need to know what specifically triggers it, it could be any one of a dozen or more items that wouldn't surprise me in the least, it doesn't really matter which particular thing triggers it, since all the dominoes will fall. A time would be nice though...

Mustafa Kemal's picture

What is Boris know? Boris know alot!

Dead Canary's picture

This will end when all the coyotes look down and see they've stepped off a cliff.

More Ammo's picture

A well placed bullet at 300 yards ends a coyote pretty well.  Then X10,000!

HopefulCynical's picture

I've been saying exactly this for about 5 years now.

VD's picture

"Stocks are more ridiculously valued now than any time in history except 1929, 2007, and 2000..." This is actually an innacurate assessment for the simple reason that in the three previous instances the monetary policies of QE & ZIRP/NIRP & non-GAAP accounting schemes were not present; in fact, if we were to strip out QE and let interest rates settle at price discovery market rates, 2016 would make 1929 look damn sustainable, EBT cards vs breadline optics notwithstanding.

ps The Fed's QE never ended and is still ongoing daily & CB's are buying crude to insure the HY energy space doesn't collapse.

 

Urban Roman's picture

Boris is wise behind faux slavic accent. Or maybe real slavic accent. Wise, nonetheless.

JRobby's picture

Boris knows well

They will hold on as long as possible. It is what they do and they are best equipped to hold on. I think the drawn out scenario options described are the best bet. Unprecedented times will call for more unprecedented times until they don't. We may never see "until they don't" again.

Dr. Spin's picture

The problem with that Robby is that the FSA will only remain docile as long as the gravy train keeps rolling.  Waay too many people are plugged in and want their share of the "good life".  When these expectations are not fulfilled, then all heck is going to break loose.  TPTB are using legacy logic in thinking they can slowly boil the frogs.  That logic will fail spectacularly in the near future.  I don't think they can hold it together for another 18 months...

Who knows what the final collapse scenario will look like.  We just all know it is going to be messy.

Get out of the cities!!!!!!!!!!!

;-D  

Croesus's picture

UPDATE to my post(s) yesterday, from the Trump Rally in Mechanicsburg, PA. 

Found an article in this morning's local paper. You can read the full article for yourself, here: 

http://cumberlink.com/news/local/cv-rally-supporters-state-their-case-fo...

Selected highlights: 

"Thousands of people lined up to attend Monday night's rally. An estimated 3,500 or so made it in the main gymnasium, with a couple thousand more in an overflow area. Thousands more were turned away at the doors." <--(Croesus Note: The gym had a capacity of 5,000, and we were packed in like Haitians in a shoebox). 

"Roughly half of the attendees said they identified as Republicans. The other half said they had no party affiliation, or said they had voted predominantly Democrat in the past, but now supported Trump."

Note: When I was stuck in traffic waiting to get in, there were 5 protestors with DNC-propaganda bullshit like "Love Trumps Hate". The crowd grew a little, but at most, it was 20-30 people. 


JamesBond's picture

With the right camera angles it can be made to look like a thousand.  

Citizen_x's picture

They don't get much dumber; those Pennsylvanians.

Joe Pa knew how dumb.

DaveA's picture

But Hillary's up ten points in the polls! The media says so!

buttmint's picture

Looney ...."..That's ALL, FOLKS"

wildbad's picture

oh..we're jsut talking fiat money..ok..i was thinking the REAL end.

CPL's picture

Yeah, they are just talking about the jew confetti as usual and they'll just print more to push it as high as they can. 

Otherwise when the transitions between glacial and inter-glacial happen there are always a handful that survive and the cycle starts all over again.  Odds are heavily in favour of remote tribes that have no written language, wear dick sleeves, women tuck their boobs into their waistband and the bunch of them manage to eek out a living in an armpit somewhere. 

Even the most hardcore of modern survivalists would consider the method these tribes live as 'extreme' and are completely unequipped mentally to face any of that.  The last time that type of training was done that would have matched the requirement; the Spartan's used to enact the 'agoge' at the age of 7.  Boys were left to fend for themselves in the wilderness until they were in their teens while either being eaten by wildlife, raped or put in press gangs.  Girls were taken as well, however they were put in school and groomed for mating and taught all the arts a woman would ever need to know to service her husband and breed more spartan's like rabbits (people used to die like flies then, funeral's were regular daily occurrences.  Life was pretty cheap.).  Fun huh? 

Of course that's conditional if the child made it past the Gerousia.  Which is where the child would be examined and if deemed unfit, the neck would be snapped like a chicken in front of the mother and father for bringing shame to her people for baring such weak fruit and the man shamed for having weak seed.  Why?  The 'gods' deemed it so while speaking through mentally insane, drugged virgins cut off from all contact with people.

Haus-Targaryen's picture

"The most painful scenario would likely be slow torture along the lines of a 10% correction this year, a 6% correction next year, then a 5% rally, followed by a 15% decline, a 7% rally and another 15% decline, etc., for a period of seven years or so."

That sounds horrible.  Given the "kick the can" we've experienced the past few years ... absent some deflationary implosion; the most likely scenario.

css1971's picture

And like Japan it can go on for 30 years.

Still. Why is it bad? Credit should expand forever? Better with neither expansion nor contraction. People can get on with real stuff then.

Haus-Targaryen's picture

We have too much credit (debt) in the system.  Debt (aka sacrificing future consumption for current consumption) destroys wealth.  

We (aka the entire world) needs to see massive debt destruction.  Given that our current system of fiat is made of debt, that involves the destruction of the world's currencies.  

As you can see, it won't be a fun ride. 

RockySpears's picture

"Debt (aka sacrificing future consumption for current consumption) destroys wealth.  "

 

Yes, but if it doesn't get repaid, is there any future consumption stolen?  

 

As "They" have all the wealth, what matters it to us anyway?

 

RS

BorisTheBlade's picture

Call me a fool, but this is my long-term outlook: the result of fixing this mess will be even a bigger mess.

Track record of those in charge makes sure of that. Einstein once said that problem cannot be resolved at the same level it emerged and anything CBs can do is fix financial problems via financial measures and while it worked in the past: downward revision of interest rates helped to revive the economy, this time interest rates are already negative and in terms of 'kicking down the road' analogy NIRP represents the lowest of the road. CBs approach is tantamount to digging a hole deep enough to bury the can and everyone with it.

RaceToTheBottom's picture

Does the SDR count as a big enough mess?

BorisTheBlade's picture

No, not yet anyway. And they desperately need rebranding, hit anyone with a baseball bat repeatedly and they wouldn't be able to tell wtf SDR is. New name: Pokecoins, free bonus is a big enough standing army in the form of smartphone-staring zombies who storm government buildings chasing for an ultrarare pokemon.

LawsofPhysics's picture

This scenario is essentially Japan.  I thought Ben Bernanke wanted to "avoid the Japanese outcome"?  LOL!

NoDebt's picture

My favorite scenario is a global print-fest with the Dow passing 100,000 but that money not being enough to buy you a pound and a half of ground beef.  But that's the optimistic case.

Reality will probably be more like this:  "Japan, Luke.  Remember your failure in Japan."

 

BandGap's picture

I have a 250000000 Zimbabwe bill attached to the fridge to remind the folks at home. Saving the 500000000 for later, when things get really tough.

lasvegaspersona's picture

You are a fortunate man. All I have on my frig is Z$ 10,000,000.

More Ammo's picture

That is too funny, just ordered me a couple of 500,000,000 notes for my fridge.

ZH Snob's picture

it ends not with a bang but a whimper.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) ZH Snob Aug 2, 2016 8:26 AM

That's what my wife says...

BandGap's picture

Our need to know when is illogical. Within the next 18 months, perhaps tomorrow. Saddle up and put on the big boy shoes.

This whole steaming shit train can be quite entertaining if you disconnect from the drama and watch the show.

Vonhoff5's picture

What mess? I heard all those speeches at the DNC last week and there is nothing wrong with America.

thinkmoretalkless's picture

Just like riding a bull...that eight seconds can feel like an eternity.....or was that like listening to one of Hillary's skreeches?

brushhog's picture

Around the year 2050, the population size will outstrip all of the available acreage that is capable of producing food. Long before then, mankind will have to cultivate land that is currently unused due to the high costs of making production viable. That means that, long before we run out of land to produce food the COST of producing food will rise dramatically. I expect things to heat up around 2035, and really fall apart sometime around 2050 unless the rate of population growth dramatically drops.

Everything up until that point will just be a warm-up.

Crash Overide's picture

This is how I see it...

Robots take most of the jobs

Politicians start WWIII

People go hungry

A big asteroid hits the Earth

Game Over.

thinkmoretalkless's picture

Whew!... I'll be dead by then....not sure if Soros, Pelosi, Buffett, Bill and Hillary will be.

Nunyadambizness's picture

Yep, people have been saying the same thing for over 100 years, with the same results--wrong again.  Oh, and we're going to run out of oil soon, too.

brushhog's picture

Yep, people have been saying it for 100 years and they were right then, and they are right now. Basic mathematics...infinite growth cannot continue in a world of finite resources. That is one reality that nobody can deny, no matter how much bs you swallow.

wobblie's picture

Very interesting. Seems to me that they can keep inflating and reinflating the market.

Who know how it'll end but it can be stopped, especially if it's a long slow fall.

Just a matter of realizing that capitalism, love it or not, is not capable of addressing the issues it creates.

https://therulingclassobserver.wordpress.com/2016/07/29/the-glass-ceilin...

saldulilem's picture

Like they say, it ain't over until the fat lady sings

Bill of Rights's picture

Some say the end is near.
Some say we'll see Armageddon soon.
I certainly hope we will.
I sure could use a vacation from this

Bullshit three ring circus sideshow of freaks

Here in this hopeless fucking hole we call L.A.
The only way to fix it is to flush it all away.
Any fucking time. Any fucking day.
Learn to swim, I'll see you down in Arizona Bay.

Fret for your figure and
Fret for your latte and
Fret for your lawsuit and
Fret for your hairpiece and
Fret for your Prozac and
Fret for your pilot and
Fret for your contract and
Fret for your car.

 

Tool

Creepy Lurker's picture

I logged in just to upvote you for that.

 

Learn to swim! Bitchez