'The Everything Bubble': Why The Coming Collapse Will Be Even Worse Than The Last

Tyler Durden's picture

The next crash is coming, and the decision by central banks to paper over their economy's troubles with a massive injection of debt likely means that the next crash is already overdue.

Soon, investors will be forced to reconcile a massive expansion of debt and falling productivity and growth with a host of potentially disruptive crises: The advent of government-sponsored cyberwarfare, followed by the collapse of the global dollar-based monetary system. Whereas the last crisis trigger massive devaluations in the real estate and stock markets, the next crash will be the result of a triple bubble in stocks, real estate and bonds as investors bail out of traditional assets in favor of the safety of gold, silver and - perhaps - cryptocurrencies like bitcoin.

Gold analyst Mike Maloney believes that traditional assets will plunge, and gold, silver and cryptocurrencies like bitcoin will outperform, as investors seek protection from the coming collapse of the global dollar system. Maloney explains his thinking in a new YouTube video "The Everything Bubble."

In the U.S., housing prices have experienced a halting recovery since the subprime crisis. But in other markets, like New Zealand, Canada, a frenzy of buying by wealthy Chinese hoping to stash their money abroad kept prices afloat, driving the ratio of home prices to incomes to all time highs. In Canada, the affordability index - the ratio of housing prices to incomes - has risen to an all-time high of 1.4.


In the stock market, a few vulnerabilities have emerged; the ratio of debt borrowed against investors' brokerage account balances has reached all-time highs, which tells you that recent gains are vulnerable to a short-squeeze - which is when brokerages close clients out of their positions.

Worth noting: the rise in margin debt has traced the run-up in the S&P 500.

The VIX - a gauge of expected volatility - has fallen to multi-decade lows, suggesting that markets have grown complacent in the face of the coming crash. Earnings-per-share ratios are looking precariously stretched to dot-com-era levels.

And, finally, a look at intraday trading patterns also reveals signs of strain: Maloney, borrowing from the research of John Hussman of Hussman Funds, the former University of Michigan finance professor who famously predicted the 2008 crisis, explains that lately he's seen what he calls "exhaustion gaps" appearing with increasing frequency. Hussman defines an "exhaustion gap" as any time the S&P 500 opens 0.5% above its previous close while its within 2% of its all-time high. These gaps show that the supply of capital pouring into the market is thinning, or " that there are no more suckers willing to buy at the top."

Bonds have been in a "perfect bull market" for 36 years, Maloney says. But historical patters suggest that the coming shock will likely trigger its demise: Over a span of decades, interest rates have tended to spend about equal time on either side of a peak. If this pattern holds, it would mean that the decadeslong bond-market rally only has two or three years left to run, which brings us to another important question: when the crash comes, what's it going to look like?

Maloney believes it will unfold in two stages:

In the first, investors will flood into the perceived safety of bond markets, causing a temporary spike, as stocks and real estate markets collapse.


Then all three markets will plummet as the collapse of a catastrophic pile of debt brings about the end of the global dollar-based monetary system.

In the 20th Century, shifts in the global monetary paradigm have occurred about every 30-50 years.

And shifts in secular bond-market trends have tended to mirror them. Maloney, who has long advocated owning gold and silver, also revealed that he has purchased a small share of bitcoin and other cryptocurrencies, though he cautions against owning an outside position. Rising demand in the East has been offsetting falling demand in the U.S. So far, excess capacity in the U.S. market has helped compensate for this as the East has attracted Western gold.

But soon this imbalance will be ameliorated, and the price of gold - which has already risen modestly year-to-date - will see a large, sustained rise.

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buckstopshere's picture

The dollar bubble is the largest of all of them.

Deathrips's picture

There are infinate dollars and finite resources. Hyperinflation is a loss in confidence in the currency..aka when the pleebs realize they are trading their life for an infinate promise.


I watched this last night. Good vid.



JamesBond's picture

There is no fuel left in the US lantern. The wick is slowly burning away and the final light will vanish.


Deathrips's picture

Dow 22k is a good thing my dollars can purchase less. Hope my million dollar condo is keeping up with inflation.





J S Bach's picture

The two most abused and misused words in the English language are "genius" and "collapse".

i.e. Michael Jackson is a musical "genius"... and a 10% drop in any market is a "collapse".

Sorry... Johann Sebastian Bach was a musical "genius"... and a 50+% drop in any market is a "collapse".

Your Good Friend's picture

Well.... a 50% decline in housing prices barely corrects the grossly inflated price.

swmnguy's picture

True 'dat.  IIRC, since modern homebuying emerged about 120 years ago, the rule of thumb was that the median house should be about 3x median annual income.  Which, in household terms, is about $50,000.  So tyhe median house price should be around $150,000, for a 30-year mortgage at a standard interest rate.

Where I live it might be possible to buy a house for $150,000, but it sure isn't "median."  Of course, incomes are a little higher here, but it's still well a lot more than 3 years median income to buy the median house.

Singelguy's picture

Key words "at a standard interest rate". That used to be 6 to 10%, now it is closer to 1/3 of that so you can triple the price to $450k.

FinsterF's picture

Then what happens when interest rates mean revert?

OverTheHedge's picture

I am now thinking that a collapse may not happen. Assets are so obviously overvalued, that either the price falls back in line with reality, or reality inflates to catch up with asset bubbles. Can the US cope with the debt destruction a housing crash entails? The UK absolutely can't - the entire economy is based on asset-rich sheep borrowing against their crappy little plastic houses to buy Chinese crap. A crash will stop everything, instantly. Therefore, inflate everything else to catch up. The question is how?

OverTheHedge's picture

To answer my own question, would the "living wage" foot the bill? Free money to the masses to inflate their standard of living, whilst keeping wages "low" so as to not hobble manufacturing (well, I actually mean pizza outlets and coffee shops, but you know what I mean...)

Dame Ednas Possum's picture

One word: collapse. 

Who knows how it witll unfold precisely?

One thing is for certain... It will be very disorderly.  


meta-trader's picture

she was a waitress in a cocktail bar now she owns a jet... http://bit.ly/2jdTzrM

Four chan's picture

beware the jew buck. stack constitutional money.

CHX13's picture

True that, but a 50% decline in housing prices in any country will wipe out the banking system and by extension the economy, at least in the short- and mid-term. *They* know this, we know this, and this why it has been artificially contr+Peed higher and higher and I doubt they let go of their iron grip now. They will continue to inflate (or face death) everything but the metals, which will have to be reset much much higher. 

Juggernaut x2's picture

You will see deflation before you see hyperinflation- cash will be King- for awhile

Deathrips's picture

Although i think you are right due to crack up boom theories..it is not sound in principle due to the fact that paper is infinate and digital...is infinate x2000000



hxc's picture

Correctamundo. Paper fiat gets a shot in the arm, first by undeserved confidence and then by the clearing out of malinvestment, then resumes its long decline into the flaming dumpster of dipshit ideas long-held throughout history.

Bill of Rights's picture

Agreed ... but the economy is fine...it's the lazy fucks who don't want to work at all who claim things are bad ...

hxc's picture

Love ya Bill, but look up the term 'malinvestment.' Free money is not without consequences

FinsterF's picture

Like Snapchat, Uber...

Dame Ednas Possum's picture

What's the chance Bill was being sarcastic given Berwanke's recent comments?  Or was it Mr.Yellen.  or Krugwoman maybe. 

I can't recall which puppet blamed the lazy plebs for the current state of affairs. 



Singelguy's picture

Correvtion, US dollars will be King for awhile. Other currencies, not so much.

AGuy's picture

"You will see deflation before you see hyperinflation- cash will be King- for awhile"

FWIW: I think Deflation will be limited. I am pretty sure The Fed will start firing off the QE gun once the US economy is back in recession. It collapse back in 2009 because they didn't initial QE until late in the game. The QE door has been locked.

That said I don't think we will have hyper-inflation. I don't think the QE money will ever reach the working class, as QE will be used to bailout the 0.1% group. We'll probably see stagflation again as we did during QE 1-3. But this time is may be permament as job automation starts taking a bigger chuck of jobs.

I think eventually it will morph into High inflation as the Fed will probbably not be able to turn off QE as gov'ts at all levels run into increasing budget deficits driven by entitlements. I don't think Entitlements will ever be reigned in forcing the Fed to issue QE to pay for entitlements and bail-out insolvent states and cities.

Its likely the Dollar will remain the reserve currency since its still the cleanest shirt in the hamper. China, Europe, India, all have the same problems are equally in the same boat. Dumping the dollar isn't going save China, India or the EU.

Probably the biggest risk is that there will be world war before there is a global currency crisis.

Dame Ednas Possum's picture

Austrian Economics defines inflation simply as an increase in the money supply. This has been done to the USD to an extreme. There is an enormous amount of latent energy that is being starting to be released. They are losing control. Start the printing presses again... and add a black swan or two (cue China and other rapid dedollarization) and hyperinflation is a very real possibility. Along with many other nasty social impacts. 

In this situation gold will save national economies, just as it will save people.


CHX13's picture

In real terms we've been deflating for many years to prevent an utter implosion, and monetary inflation was the tool they used and will use until it all blows up in their faces.

Give Me Some Truth's picture

I like this - "hyperinflation is a loss in confidence in the currency." I would say that the "status quo" is a "confidence game" designed to make people feel confident about the dollar's status. One way to achieve this is to denigrate gold and silver, which happens every day. Protecting the dollar as the world's reserve currency is the top priority of the Deep State. Another way of saying this is they are just protecting the printing press that is so good to them.

hxc's picture

Hence the silver and gold fixes. Like radical weed says... paper is fraud backed by murder

Paul Kersey's picture

Anyone who had acted on Mike Maloney's advice in the past, lost his ass. Maloney has got to be another pay-for-play article writer on ZH. Here's a typical Maloney past predictions. A stopped clock may be right two times a day, but not Maloney.


The Real Tony's picture

I predicted on youtube the DOW would see a 1000 plus down day this Thursday yesterday on Tuesday. If the DOW tanks to the close tomorrow I'lll post the link. It was on Gregory Mannarino youtube site under the name Parkerbohnn. Look for the avatar with the little kid playing the Tommy pinball machine.

takeaction's picture

I tell ya...here in Portland, Oregon...I am seeing borded up windows at stores right downtown.   On the outskirts...sign after sign "FOR LEASE"  Something is really happening.  The business model of brick and morter is OVER.  Even Walmart will go down.  The Internet is dominating.  If you have kids...guide them to jobs that make sense. I would say cosmetic surgery, robotics, etc.  This ship has been taking on water far too long.

Your Good Friend's picture

Not to mention collapsing housing demand.

swmnguy's picture

In my area (Minneapolis) housing demand is through the roof.  The problem is, not enough sellers.  Too many people lack sufficient equity to price their home to sell, or to clear anything after they pay off their existing mortgage, pay their realtor, and all the costs required to get a home ready to sell.  So due to constricted supply, houses that are priced right are going in hours, with multiple offers.

Not to be confused with a healthy market.  When the people who would be interested in buying a starter home can't afford one, that's bad for everyone.

swmnguy's picture

Thanks for the chart!

Pardon my ignorance, but is that chart showing demand, or turnover in housing, meaning transactions?  

A decline in transactions fits with what I'm seeing locally.

Your Good Friend's picture

Record low demand, record high inventory. 

swmnguy's picture

Hmm.  Thanks again.  

People I know have gotten multiple offers the first hours their homes have been on the market, and have been getting aced out of houses they're trying to buy time and time again.  Must be local and anecdotal.  Probably also very dependent on neighborhood, quality of house, financial condition of both buyer and seller.

My neighborhood appears to be a very hot market, but it's middle to lower-middle class, and most of the sellers have sufficient equity to be flexible in their pricing.  It's a modest but good neighborhood, with modest houses in good shape for the most part.

Looking at the market overall, including all neighborhoods, the picture could be quite different, as you say.

Actually, I noticed that in 2009 too.  I sold my starter home and bought the move-up home then.  The market for a non-distressed house with a seller who had equity, to a qualified buyer who had the money, never really took that much of a hit.  But the rest of the market?  A total shambles.

swmnguy's picture

I haven't really dug into the local real estate market.  Haven't been looking to sell, or to buy.  Just relying on the general tone of what I've heard from people I know.

As I say, that's a small sample of people in particular situations, in specific areas and price ranges.  Your spreadsheet (thanks again) has me very interested in seeing how far out of the mainstream my little anecdotal sense of things really is.  I'm not planning to sell my house until I can get the kids out of it, but Wifey and I have been starting to think about going back to a starter-type home once we're empty-nesters.  No need to have more house than we use.  We've got a long time-window, and don't have to do anything at all.

But if I've gotten such a mistaken sense of what the local real estate market is doing overall, that concerns me for many other reasons as well.

sessinpo's picture

The people you know? See any problem in that? 

According to Yellen and the people she knows, the economy is great!

Give Me Some Truth's picture

Seems like you are saying people are putting homes on the market, but they can't sell them because they can't make enough money to make the sale worthwhile. People who are willing to drop their price are selling their homes quickly. Sounds like a buyer's market and that homes ain't going up in price. 

swmnguy's picture

Well, I'm no expert and I'm just repeating what I've been hearing from friends trying to buy and sell.  I think it varies a lot depending on market segment.  People I know are selling $200,000 - $300,000 houses in a flash.  Buying a $250,000 - $350,000 house is hard because it's already gone by the time they can get a walk-through.

But--major caveat--I know people in certain neighborhoods, not even as large as ZIP codes.  And I know people in my relative financial situation.  Could be totally different in the overall big picture.  

I'm hearing a lot of people aren't even putting their homes on the market, once they see what they could get and how they would (or wouldn't) net out.  That could be realtors whistling past the graveyard, though; I don't have the resources to know that for sure.

I could sell my house in an hour for $100k more than what I bought it for in 2009.  The guy two doors down did just that a couple months ago.  But that's my block, not the overall market.  

I appreciate "Your Good Friend's" link to the spreadsheet.  I'll have to dig into it, because it seems in my little bubble, things are a lot different than they are in the big picture.

Atam Gits's picture

Online is only 8% of retail sales. Up from about 4% in 2008. The retail apocalypse is not caused by a 4% increased drain from online sales. It's caused because people don't have any money  

rejected's picture

Thank you,,,, I'm so sick of this internet is dominating crap!  The only thing the internet is dominating is your personal information.

Give Me Some Truth's picture

The "for lease" signs are everywhere in Montgomery, Ala. too. Try this: Count the number of "Pay Day" Loan and "Title Loan" businesses you see in your town. They are everywhere I look. How could this be if the economy was really robust? Count the number of unpaid radio commercials you hear (PSA spots the station runs because its sales reps couldn't sell spots). The signs of  economic reality are not hard to identify. And this reality does not match the bogus story we are told.

Miss Informed's picture

Surely "everything" can't be in a bubble at the same time.

Cognitive Dissonance's picture

He means everything of traditional 'value'.

Still waiting for my Beanie Babies to recover in price.