Why The Markets Are Overdue For A Gigantic Bust

Tyler Durden's picture

Authored by Chris Martenson via PeakProsperity.com,

Let me begin with a caveat: confirmation bias is an ever-present risk for an analyst such as myself.

If you're not familiar with the term, 'confirmation bias' suggests that once we've invested time and emotional energy into developing a worldview, we'll then seek information to confirm that view.   

After writing about the economy for so many years, I'm now so convinced that we can't print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me.  I'm going to keep repeating this mantra and Im going to keep finding data that supports this view.

Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites.  But it cannot print up real prosperity.

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It's just too clear to me that doing so presents plenty of dangers, due to what we might call 'economic gravity': What goes up, must also come down.

Which brings us to this chart:

The 2000 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal.  

At least to entire financial markets, large institutions, and a few sovereigns.

It's essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’  That is, paper claims on real things. 

As the central banks have printed with abandon over the past decade, they’ve created the most extreme gap between real things (GDP) and the claims on those same things (Net Worth) in all of history.

Following the Great Recession, the ‘plan’ of the central banks, such as it was, seems to have been to jam up people’s paper wealth, under the theory that people who feel wealthier are more likely to spend more and hopefully borrow more, too. 

That plan has worked rather well, at least from the standpoint of creating vastly larger amounts of new borrowing (debt and credit).  But  how much GDP growth has resulted? Not that much.

The gap between the two only grows and grows at this point. And the central banks are now stuck at this point. They literally have no idea how to undo this problem they've managed to create.

At some point that gap is going to have to close. Either GDP growth recovers to its highest rate in all of history and then stays there for many years (a complete fantasy if we're being honest), or the global debt pile starts getting defaulted on (which will have very ugly repercussions).

This is why we’ve focused so heavily lately on central banks. It's why we recently produced the End Of Money webinar with an excellent panel of experts (including G. Edward Griffin, David Stockman and Axel Merk) to increase our understanding of what actions the increasingly desperate central banks are likeliest to try next.

As the above chart chillingly shows, the damage down by the bursting of each previous market bubble blown by the Fed has been worse than the ones that preceded it. This time will not be the exception. This third bubble, the largest and most ill-considered of them all -- which we've written extensively one as The Mother Of All Financial Bubbles -- will be enormously destructive. 

It will be so bad, that here at Peak Prosperity.com, we not only focus on helping people navigate the tricky world of building and preserving their financial capital at a dangerous time like this, but we also advise building true resilience across the other important forms of capital such as Social, Material, Living, Emotional, Knowledge, Time and Cultural capital. So much will likely be lost in this next reset that true wealth in its aftermath will be dependent on more than just money.

Actions, Not Words

Most people take their cues from the price level of the stock market.  Once upon a time, equities were a useful barometer. But that was before the central banks began intervening heavily in them, starting under Alan Greenspan. He was responsible for the first big bubble on the earlier chart above.

If you listen to the words in the public statement of the central banks, you'll hear a lot about ‘improving conditions’ and ‘nearly full employment’ and ‘strengthening growth prospects’. However, if you then look at their actions, you'll see they're in complete opposition to these statements.

As always, you should put far more weight on what someone does rather than on what they say.  Actions speak louder than words, and so here’s all you need to know about the central banks, their influence on markets, and what they really think about things at the moment:

First, we have the red line trundling up at about a 30-degree angle from left to right for several years.  But then, in early 2016, the trajectory changed.

Do you remember what was happening then?  Emerging markets were in disarray, many had entered bear market declines, and the dollar was shooting higher ruining the economies of many developing nations. The western stock markets started rolling over and appeared ready to suffer a serious decline.

"Not on our watch!" declared the central banks. See what happened at the same time, as indicated by the orange line rising at a much steeper 45-degree slope?

That’s right: the central banks began dumping far more money in the equity and bond markets, in an attempt to save everything from the inevitable downturn that threatened to result from the prior central bank printing spree.

Now, here in early June of 2017, the Big 5 central banks have poured a whopping $1.5 trillion dollars(!) of newly created, thin-air money into the markets since the beginning of the year.

And because they have, we see things like this, where all the hot speculative money flows to the very hottest stocks, in this case the "FANGs"(Facebook, Amazon, Netflix, and Google):

(Source)

The above chart shows that while these hot, sexy stocks have been rising (remember, we were all genius investors in the 1990’s, too?), the non-FANG stocks have not.  Further, the chart reveals the extent to which such stock price action has been coincident with central bank money printing (balance sheet expansion).  The connection is completely obvious.

But back to our story. This $1.5 trillion is a record-breaking amount.  As in, never-been-tried-before-let’s-see-what-happens sort of amount.

So, while the words of the central bankers may be soothing, their actions are panicky.

What are they afraid of exactly?

Well, that their entire scheme will prove to be another gigantic bust.

The only thing that can bail them out at this point is a swift return to robust, sustained economic growth. So let’s take a look at growth again, shall we?

Growth Is The Answer (And The Problem)!

The global growth scene is a mixed bag.  Right now, China and Europe seem to be in better shape than the US or Japan.

However it’s important to remember where we are in the economic cycle. Nothing grows forever, and we are now very far into this so-called 'recovery'.

In the US, it ranks as the third-longest recovery since WWII:

(Source)

Apparently, not all ‘recoveries’ are built the same. If you look at the average yearly GDP growth rate over the past decade, it's the same as we experienced during the Great Depression era of the 1930’s:

(Source)

The above dismal rate of growth perfectly explains the growing gap between household net worth and GDP.  If you boost financial assets ever higher using central bank stimulus, but the economy remains stagnant, you get a gap.

Global economic growth is weak, has been weak, and will continue to be weak for many reasons. Not least of which is the massive overhanging piles of accumulated debt across the global economy, which are very growth unfriendly.

As Professor Steve Keen has shown, if your debt grows at 10%, and this enables your economy to grow at 5%, anything less than a more rapid rate of credit growth in the future will cause your economy to contract.

Said another way, as long as you can grow your debts at a faster pace than your income -- forever -- you'll never have to experience another economic downturn.

That statement right there, lays bare the entire ridiculousness of everything the central banks have, and are currently trying to engineer. 

Eventually, reality always catches up.  And there are plenty of signs indicating that reality is now arriving.

And it doesn't look happy. 

In Part 2: Get Ready For The Coming Massive Correction we explain why there's a better than 50% chance of a global recession occurring in the next year -- and nearly a 75% chance of one in the US.

We then detail out how the coming predicted massive market correction may well rip the financial markets apart in a way that could take generations to repair in any meaningful sense.

Click here to read the report (free executive summary, enrollment required for full access)

 

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balz's picture

Eventually doomers will get it right.

MillionDollarButter's picture

The central banks aren't rescuing the market with the asset buying, they are counterfeiting their way into ownership of everything.

Troy Ounce's picture

 

Chris.

I can't wait.

I have so many friends who want to break ties with me because "I am so damn negative" that it is really starting to piss me off.

So I start talking about the kids, the weather and sport on TV: all the nonsense they want to hear.

What's worse: these friends are all highly educated and have prominent positions in society! 

Extraordinary times we live in.

Stuck on Zero's picture

As long as it works for the "elites" money printing will continue. They do run things you know.

vato poco's picture

another weekend, another barrage of fear porn from ZH. forget it, Jake. it's Chinatown

His name was Seth Rich

#PizzaGate

#WhatsontheLaptops

#WhyUNoIndictPodesta

#DraintheSwamp

#BuildtheWall

#TheyAllHaveToGoBack

open calender's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

meditate_vigorously's picture

I wish more people understood that. It is the key point to make sense out of the seeming chaos.

The markets CAN'T crash, because it is owned by too few hands. Of those, many are either proxies or allies of even fewer.

Gordon_Gekko's picture

They already do. Whoever owns the currency owns everything by default. Only the overt RECOGNITION of this (hidden) FACT is in progress.

And what are they "buying"? The decaying remains of a dilapilated and hollow "economy". They are reaping what they have sown. Eventually people will see the naked Central Bank emperor and leave them to play their insanity games while the real economy and productivity shifts the so-called "black" (read REAL) market.

Advoc8tr's picture

Indeed .. and this REAL market will be lubricated with tamper-proof crypto-currencies.

People find it hard to accept the massive gains as anything but a bubble while at the same time bemoaning the paper derivatives used to manipulate fiat priced assets which have largely killed true price discovery.

silverer's picture

Exactly. For as long as they can get away with it. That's why real, honest money like gold and silver would destroy their business model. You can't create it out of thin air. But right now, what a deal! Trading nearly worthless paper and essentially worthless zeroes and ones for real, hard, tangible goods. This thing will come off the tracks. It has to.

Raffie's picture

The world can not stay in debt to itself.

It's mathematically impossible.

GUS100CORRINA's picture

Why The Markets Are Overdue For A Gigantic Bust

My response: All the evidence suggests that a plan to inflate market assets was hatched in 2011-12 with QE. Of course, we had a CLUELESS DESPOT with REPROBATE MIND in the OVAL OFFICE. That is when the WAR on GOLD/SILVER began is well. 

While I agree with the data, a crash will never happen UNLESS it is caused by the GOD of the Bible as judgment against America and the world. While GOD is long suffering and patient, his patience is not infinite. Watch the SENATE on their progress or lack thereof on HEALTHCARE. If they vote for ABORTION, this action could be one of the many triggering events.

The other triggering event maybe the immoral, corrupt PROGRESSIVE LIBERAL DESPOTS. If the Progressive Liberals continue to attack this sitting president, GOD may finally say: ENOUGH IS ENOUGH and financial armageddon will arrive. President TRUMP is KING CYRUS and KING JEHU all wrapped into one. All the evidence would suggest President TRUMP is GOD's annointed. America needs to be wise at this time because the days are evil. The money changers in the end will have their comeuppance. Until that time, the money changers have the computers and can add '0's to anything going into infinity.

fbazzrea's picture

All the evidence would suggest President TRUMP is GOD's annointed.

evidence? i'm not suggesting otherwise, but would love to explore your sources. interesting position.

fbazzrea's picture

It's mathematically impossible.

cwazy wabbit... no such thing. 

ask Einstein... simply add a constant. an interesting feature of mathematics is the open-ended spectrum of available mathematical functions to produce predesignated outcomes. if one is not currently available, one is created. there is always a workaround to sustain agendas.

white horse's picture

Absolutely brilliant, sad, and true.

Hugh_Jorgan's picture

"Eventually doomers will get it right."

EVENTUALLY you'll see that the doomers ARE right.

 

NOTE:

EVERYONE has underestimated the level of control that the crisis of 2008-2009 brought to .GOV and the Banking Cartel. EVERYTHING we know that is Financial and Civil is currently artificial. This is the reason for all the wierdness in these things today. Just thought you might like to know.

 

Jack Oliver's picture

US should have been bankrupt years ago.

The 'DOOMERS' never calculated on the ability of the FED (through - QE- Derivatives - ZIRP - Mortgage swaps - FAKE TB demand - Stock 'buy backs' AND a FUCKING host of other things) to keep this giant FUCKING Ponzi afloat !!

VWAndy's picture

 Nothing that cant be fixed with more printing. Its the answer to everything in some circles. The secret is in being as close to the printing as possible.

silverer's picture

Must be where "Hot off the press" originated. It wasn't the newspapers. Nothing they do is "hot". Now, if it was "Lies off the press", that would be newspapers.

Interested Reader's picture

************** URGENT *************

 

United Arab Emirates places "WITHDRAW ALL FUNDS" order to all Qatar banks! ! ! ! 

This is the "Black Swan Event" no one saw coming.

In order to fulfill this order and try to remain alive, the top 6 banks in Qatar will have to place "WITHDRAW" orders to other banking and financial institutions worldwide.  THAT will take out some of them in Asia, Europe and the USA.

As words gets out that certain institutions cannot fulfill the demand, it will cause bank/fund runs.  Bank after bank could see catastrophe starting Monday morning.

Details: http://halturnershow.com/index.php/news/world-news/577-united-arab-emirates-to-withdraw-all-money-from-qatar-banks-massive-banking-crisis-to-follow-immediately 


frank further's picture

reliable website or fake news?  why are no other news sites reporting same?

Interested Reader's picture

The guy's Twitter page shows he is former FBI Joint Terrorism Task Force / National Security etc.

Gives his home address on the web site. 

Quite legit to me.

Troy Ounce's picture

 

 

Reading Hall Turners wiki I think it is safe to wait for confirmation from other sources

Anarchyteez's picture

Either way it'll happen on a weekend. Locked out of trading for first 30 min Monday by protocol...maybe all day, week?

A. Boaty's picture

Third time's the charm. Now, if I could only time this thing...

silverer's picture

Trade directly in PM's. Owe someone four grand? Three gold coins at spot. If you're slightly over or under, use silver. Get it close with one ounce silver spot, then make up the rest with cash or credit. See how easy?

Overleveraged_and_Impatient's picture

On the Contrary, we don't have to print our way to prosperity. We only need to Print our way to brand new All Time Highs in the S&P 500. People, let's look a the real situation here.

You can short stocks, or stay in cash, but by doing that you're GUARANTEED TO LOSE MONEY. Right now I'm 3x Long and Leveraged, ALL IN, in the S&P 500. This is a strategy that is GUARANTEED TO MAKE MONEY. You see, this is because I have the President's Working Group on Financial Markets at my back. No matter what happens in the market, Janet yellen, Mario Draghi and Kuroda will be there to hit the "buy" button in order to cover any dips that might come to stocks.

So knowing this, and knowing that $300+ Billion Dollars of freshly created money is entering the stock market per month, Why WOULDN'T you be all in?

I still see some dumb people who are truly thinking that a "crash" is right around the corner. LMAO. Could not be FARTHER from the truth. If you want the truth, listen to my posts. Go Long stocks and go long hard. Any 'dips' are just bear traps meant to skim money off the dumb shorters.

I will be quitting my job soon at this rate, as I am up about $48,000 on the year. 

Economy, Schmeconomy. I am on the Money Train.

Advoc8tr's picture

What was your seed (risked) capital to reap 48K in returns ?  

Your reasoning is sound .. and is what every central bannker or "elite" tells themselves before going to sleep every night ... but they can lose control - it has happened before.

veeger's picture

' it is not possible to print  our way to prosperity "......this person is a genius..............maybe if we just counterfit enough for the exceptionally chosen.......then that would be fine ? right.......

gold rubeberg's picture

The people who can do the printing can get VERY prosperous ... the people who can't are the ones from whom the prosperity is taken.

veeger's picture

right you are mr. gr      the money-changers and alll their relatives , friends and co-horts get exceedingly rich..........the goy ..........not so much

Deep Snorkeler's picture

Time

can be either thin or dense.

It all depends,

on the number of events.

Stock markets

are not human-based systems.

The ecological foundation for your life,

has disappeared.

Our genome has lost

its time, our skein

is not tight.

 

 

LynchThe FederalReserve's picture

We have been hearing this for years. The Central banks are now buying stocks all the time and in volume. They can just keep printing. So the Ponzi scheme never ends.

BigCumulusClouds's picture

Maguire says gold to explode in 26 days. Can't reveal source. Powers that be edited out his statement recorded in King World News interview:
http://kingworldnews.com

Ajax-1's picture

The powers that be can manipulate PM's til the cows come home.

BigCumulusClouds's picture

I am not a rancher. So I don't know if the cows do eventually come home. But I do know that the western powers can only control the synthetic price at the COMEX for only so long. The physical price will overtake the synthetic price in good time. Low manipulation prices only encourage more physical buying.

falak pema's picture

Don't quote your pet Hayekian surrogates to justify this question.

Its more a question of Hayek and Friedmanite inspired Reaganomics that made supply sider scamming the toxic US 1% er casino formula,  that justified "our money your problem" toxic hold on the world, after Berlin wall fall and NWO proclamation of towering colossus, in the image of Alexandria's old beacon to the world.

We are the seven wonders all rolled up in Pax Americana !

It started the fiat bonanza, now coming back to bite "our fake money your REAL problem"...that the Duck sings--against the tide of past globalist scamming-- like a holographic icon of corrupt fiat hegemony to the world.

A runaway train has sucked the US "exceptionalilst" meme, until deplorable moonshining of Bannon's ilk, made it the laughing stock of the world, with the orange skinned toupee as its Nerotic icon.

QED.

meditate_vigorously's picture

I don't know about QED, but some good points that could be used in a proof.

meditate_vigorously's picture

We've been talking about why the market should bust for years. The truth is, the Central Banks will not allow it, because the next crash may be the last one. I expect this could go on for years. Maybe a good many years, until they can capture enough that the market may not ever crash again due to "market forces" or "fundamentals".

They may have already captured enough of the market that the only thing that could bring it down is proxy financial warfare between nation-states or Central Banks. Since the Western CB's are all controlled by the same cabal of Jews, it would have to be between China and Russia and the Rothschilds. India is still a puppet regime of the BOE.

Ragmar's picture

Charles Ponzi would be jealous.

Cutlery Hill's picture

More doom n gloom? eight years from ZH. Will they be right one day?

silverer's picture

They already are. It's happening now. Remember when you earned a RETURN on deposited money? Now your "interest" shows lack of outpacing inflation. You are robbed every single day. That's enough doom and gloom for me already.

Cutlery Hill's picture

The one analyst that is mentioned here who is any good is SHEPWAVE. That simple. they show their past calls to prove it.