Housing Bubble

The Fed sees no risks of bubble trouble because they are looking at it all from the 2008 perspective. That is completely wrong-headed; if there is a “next one” it will have nothing to do with subprime mortgages, or even mortgages and real estate. Everyone seems to simply assume that the subprime problem ended in 2008, if only by crash. That is true but only of mortgages. Deleveraging is myth as debt has still expanded, and greatly, just not in the same exact places. There are certainly auto and student loans that have exploded exponentially, especially in subprime categories, but if there is another credit bubble now, the third, it is undoubtedly corporate debt.

"How long the bubble can continue to inflate is the key question – but necessarily unanswerable. Inherently irrational, bubbles usually last longer than expected, [but they] ultimately burst... they expand continuously, then pop."

This would suggest that the bull market in stocks is ending. It’s quite possible that a significant top, and possibly THE top is in for stocks.

"...recent indications have darkened the probability spectrum to the point that it may actually be worth examining a worst case scenario. My gut sense is that there is indeed a recession forming, and one that looks worse by the month, so there are numerous relevant factors that demand attention the greater the potential for it. That starts with leverage and any transmission from finance to the economy."

"...the 'Ice Age' of low rates and low growth for a long time – as predicted by many analysts and economists – won’t happen. Instead, a crisis will cause a crash on Wall Street. The banks will go broke. The credit system will seize up. People will line up at ATMs to get cash and the cash will quickly run out. This will provoke the authorities to go full central bank retard. They will flood the system with “money” of all sorts. The ice will melt into a tidal wave of hyperinflation."

Ali and Frazier, Laurel and Hardy, Mayweather and Pacquiao, Liesman and Santelli, and now Schiff and Maloney. Peter and Mike join clash of the titan-like to discuss their investment strategies and expose the charts the government doesn't want you to seeas "people like Bernanke are taken seriously still and the people that did predict [the crisis] are dismissed as lunatics half the time." The wide-reaching conversation covers everything from gold and stocks to The Fed and The Dollar - Bernanke "took the coward’s way out because all he did was exacerbate the problems to postpone the day of reckoning." The air is coming out of the bubble, they warn, "Bernanke and Greenspan have absolutely destroyed America. People don’t realize what is coming..."

"This market has a lot to be concerned about," warns Carl Icahn in an interview with FOX Business Network's Trish Regan, slamming Fed policy, "by keeping interest rates this low you are creating bubbles that you don’t even know about." While mainstream media pundits are instantly feverish over every bullish AAPL word the aging activist has to say (or tweet), it seems that when it comes to facing facts and reality of the broad market, few, if any, are willing to share his thoughts as he concludes, "it’s not just a question of it could be the beginning... It’s not will it happen. It’s when it will happen."

Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.

Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow - the financial markets. That excess liquidity has sent prices soaring to record highs despite weakting macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreperable loss of capital.

The age of propaganda is now upon us; where perception trumps the truth, until that is, the house of cards burns and falls, which it always does. With such blatant data manipulation going on, why shouldn’t we question the extent of stated “glut” in oil? The longer perception is distorted to create a false reality, the worse things will get in the end. We saw this before in 1999/2000 with the internet bubble and in 2008/2009 with the housing bubble, and it will not end well. If producers are dumb enough to get roped in to turning the spigot on when oil does rise (just as they appear to have done this morning) then, once again, prices won’t hold.

It is unknowable how much more pronounced these excesses can become, especially in light of extremely loose monetary policy around the world. Things could easily become quite dicey as soon as tomorrow, but it is just as easily possible that valuations will continue to expand for some time yet. However, these data do indicate one thing: risk has increased enormously, and it will keep increasing the longer the bubble persists. Frankly, the situation also scares us a bit, because we expect that governments and their agencies (such as central banks) will find it extremely difficult to deal with the next crisis. They have become quite overstretched as a result of the last one. After having gone “all in” last time around, what are they supposed to do for an encore? The only options that come to mind are repressive measures such as capital controls, confiscation of private wealth, and a host of other unpleasantries.

Markets are not cheap by any measure. If earnings growth continues to wane or interest rates rise, the bull market thesis will collapse as "expectations" collide with "reality." This is not a dire prediction of doom and gloom, nor is it a "bearish" forecast.  It is just a function of how markets work over time. This time is "not different." The only difference will be what triggers the next valuation reversion when it occurs.

“Things always become obvious after the fact” – Nassim Nicholas Taleb

“Facts do not cease to exist because they are ignored.”  – Aldous Huxley

Some say that eliminating the welfare-warfare state and the fiat currency system that props it up will cause the people pain. The truth is the only people who will feel any long-term pain from returning to limited, constitutional government are the special interests that profit from the current system. A return to a true free-market economy will greatly improve the lives of the vast majority of Americans.

Earlier this month we learned that in 21 out of the 26 OECD member countries that have a minimum wage, working 40 hours per week at the pay floor would not be sufficient to keep one's family out of poverty. Now, we discover something even more shocking...