Is the "Everything Bubble" on the Verge of Bursting?
Wall Street is among the major beneficiaries of the so-called "Everything Bubble". The question on everyone's mind is whether this bubble is about to burst. The popular narrative is that there is no bubble, and all assets reaching unprecedented heights are justifiably priced at a "permanently high plateau" due to various factors. These include artificial intelligence, housing scarcity, scarcity of Ferraris, declining interest rates, Federal Reserve policies, consumer spending, and so on.
However, the real engine inflating the bubble often goes unnoticed: it's the money. Tens of trillions of yen, yuan, euros, dollars, pesos, etc., have been borrowed or created since the last financial crisis in 2008. This money is then pumped into the global market, chasing assets.
The Low Yields and the Digital Mobility of Capital
Due to historically low yields, cash is considered trash. The way to make a killing is to rotate investments from AI chip makers to Ferrari to Colgate, and then on to the next hot sector. It could be uranium, bat guano, a new dog-themed cryptocurrency, or the next iteration of the yen carry trade. It doesn't really matter because capital is digital and therefore mobile.
The Globalization and Financialization of Assets
The endless creation of new "money" and credit has led to financialization and globalization. These forces have transformed every asset into a globalized, commoditized asset that can be securitized, packaged, collateralized, and leveraged. Every asset on the planet, from houses to farmland, is now part of this financialization process.
The Impact of the Everything Bubble
The bubble is often described as a tide raising all boats. However, this is misleading, as the bottom 50%'s share of the financial windfall remains a mere 2.6%. The primary effect of the Everything Bubble is an extreme wealth-power inequality. The wealthy have become much richer while everyone else has acquired more debt.
The Social Disorder from Wealth-Power Inequality
Extreme wealth-power inequality can lead to social disorder, which can manifest in various ways such as popular uprisings, wildcat strikes, opting out, civil disobedience, and other forms of protest.
The Residential Real Estate Bubble
The Everything Bubble has had a significant impact on residential real estate, with prices nearly doubling the craziness of the 2006 housing bubble. Wall Street has been one of the big winners of the Everything Bubble, with the broker-dealer index outpacing even the S&P 500 stock index.
The Global Impact of the Everything Bubble
The Everything Bubble is a global phenomenon, which means its deflation will hurt the entire global economy. For instance, almost 80% of China's household wealth is in housing, a bubble which is now bursting despite the authorities' efforts to reinflate it.
The Reverse Wealth Effect
The reverse wealth effect will be monumental as the primary store of household wealth wilts. Trust, the critical glue in markets and governance, is at stake. Once trust is lost, it's somewhere between difficult and impossible to win it back.
The Real World Indicators
Indicators from the real world suggest that the Everything Bubble may be losing its luster. Housing valuations in various markets are off 25% from their peak, housing inventories are rising, sales are slowing, restaurant chains are going bankrupt, credit card debt is soaring to new heights, dollar-store stocks are plummeting, and so on.
The Debt and its Implications
Globally, $315 trillion in debts have been amassed to drive "growth". The interest due on all that debt becomes unsustainable should yields rise. Inflation either pushes yields higher, making it impossible to continue funding "growth" with more debt, or it erodes the purchasing power of wage earners' incomes, popping the bubble of free-spending consumption propping up the global economy and debt bubble.
The Bottom Line
In conclusion, will the Everything Bubble pop? Yes. Will the authorities try to reinflate the bubble? Yes. Will it work? No. This raises thought-provoking questions about the sustainability of the current financial system. What are your thoughts on this? Share this article with your friends and let's get the conversation going. Don't forget to sign up for the Daily Briefing which is everyday at 6pm.
Is the "Everything Bubble" on the Verge of Bursting?
Wall Street is among the major beneficiaries of the so-called "Everything Bubble". The question on everyone's mind is whether this bubble is about to burst. The popular narrative is that there is no bubble, and all assets reaching unprecedented heights are justifiably priced at a "permanently high plateau" due to various factors. These include artificial intelligence, housing scarcity, scarcity of Ferraris, declining interest rates, Federal Reserve policies, consumer spending, and so on.
However, the real engine inflating the bubble often goes unnoticed: it's the money. Tens of trillions of yen, yuan, euros, dollars, pesos, etc., have been borrowed or created since the last financial crisis in 2008. This money is then pumped into the global market, chasing assets.
The Low Yields and the Digital Mobility of Capital
Due to historically low yields, cash is considered trash. The way to make a killing is to rotate investments from AI chip makers to Ferrari to Colgate, and then on to the next hot sector. It could be uranium, bat guano, a new dog-themed cryptocurrency, or the next iteration of the yen carry trade. It doesn't really matter because capital is digital and therefore mobile.
The Globalization and Financialization of Assets
The endless creation of new "money" and credit has led to financialization and globalization. These forces have transformed every asset into a globalized, commoditized asset that can be securitized, packaged, collateralized, and leveraged. Every asset on the planet, from houses to farmland, is now part of this financialization process.
The Impact of the Everything Bubble
The bubble is often described as a tide raising all boats. However, this is misleading, as the bottom 50%'s share of the financial windfall remains a mere 2.6%. The primary effect of the Everything Bubble is an extreme wealth-power inequality. The wealthy have become much richer while everyone else has acquired more debt.
The Social Disorder from Wealth-Power Inequality
Extreme wealth-power inequality can lead to social disorder, which can manifest in various ways such as popular uprisings, wildcat strikes, opting out, civil disobedience, and other forms of protest.
The Residential Real Estate Bubble
The Everything Bubble has had a significant impact on residential real estate, with prices nearly doubling the craziness of the 2006 housing bubble. Wall Street has been one of the big winners of the Everything Bubble, with the broker-dealer index outpacing even the S&P 500 stock index.
The Global Impact of the Everything Bubble
The Everything Bubble is a global phenomenon, which means its deflation will hurt the entire global economy. For instance, almost 80% of China's household wealth is in housing, a bubble which is now bursting despite the authorities' efforts to reinflate it.
The Reverse Wealth Effect
The reverse wealth effect will be monumental as the primary store of household wealth wilts. Trust, the critical glue in markets and governance, is at stake. Once trust is lost, it's somewhere between difficult and impossible to win it back.
The Real World Indicators
Indicators from the real world suggest that the Everything Bubble may be losing its luster. Housing valuations in various markets are off 25% from their peak, housing inventories are rising, sales are slowing, restaurant chains are going bankrupt, credit card debt is soaring to new heights, dollar-store stocks are plummeting, and so on.
The Debt and its Implications
Globally, $315 trillion in debts have been amassed to drive "growth". The interest due on all that debt becomes unsustainable should yields rise. Inflation either pushes yields higher, making it impossible to continue funding "growth" with more debt, or it erodes the purchasing power of wage earners' incomes, popping the bubble of free-spending consumption propping up the global economy and debt bubble.
The Bottom Line
In conclusion, will the Everything Bubble pop? Yes. Will the authorities try to reinflate the bubble? Yes. Will it work? No. This raises thought-provoking questions about the sustainability of the current financial system. What are your thoughts on this? Share this article with your friends and let's get the conversation going. Don't forget to sign up for the Daily Briefing which is everyday at 6pm.
