Gold News

Son of Bubble

The great leverage bubble is back and bubblier than ever...

WHAT A GREAT recovery! writes Bill Bonner in The Daily Reckoning.

No jobs...

No credit...

No sales...

But look at those stocks!

And oil! And gold! And even London property!

Real estate agents in London say they are sold prices go to records. Well, asking prices...that is. As for sales prices, that is another story.

Still, London is driven by finance...and finance seems to have gotten out of rehab. It's party time again.

The Wall Street Journal is talking about a "full recovery" in luxury goods sales by 2011. And Wall Street itself is pricing stocks as if the record profit margins of '05 and '06 were just around the corner.

In other words...investors' expectations have not changed. They think things will return to the way they were in the Bubble Epoque.

How could that happen? A full recovery implies a number of things...

..that the 'Son of Bubble' will be as big as his dad...

..that all those people without money or jobs will somehow find the wherewithal to spend again...

..and that the baby boomers will stop saving for their retirements and begin to party like it was 2006 again...

Remember, Bubble Epoque spending, sales and profit figures were made possible by borrowing. People spent every penny they earned...and then "took out equity" from their houses in order to spend more.

What they really got was a house with a bigger mortgage – without moving!

At the height of the bubble period, if we recall correctly, Americans were taking out more than $500 billion per year. Now, they're putting back nearly $500 billion a year in savings.

We don't like to be party poopers here at The Daily Reckoning. But there is no way to get a rerun of the Bubble Epoque on those numbers.

What we see happening is a typical post-crisis bounce...powered by easy cash and credit from the feds. How long can it go on? How far can it go? No one knows. But if you want answers, we'll go way out on a limb:

It won't go on forever. And it won't go to the moon.

And most won't be long before the whole thing comes to a crashing end.

Here's noted analyst John Hussman:

"The stock market has never been this overbought."

Hussman says that the only time stocks were this overbought was on Nov. 28th, 1980. That was the last rebound in the great bear market that had begun in 1966. Afterwards, stocks fell another 30% before finally hitting bottom in August 1982.

That's why we have our Crash Alert flag flying over the headquarters of The Daily Reckoning. We put it up two weeks ago. No crash so far. But it can't be too far in the future.

While champagne and caviar is served out in the speculative economy of bankers and hedge fund managers, its bread and branch water for the poor folks stuck in the real economy.

First, we have some figures from the Center for Responsible Lending. Nearly 3 million houses are expected to be foreclosed in 2009. And there are 8 million still to go!

Yes, we've crossed the foothills of sub-prime already. But the Rockies of Alt-A, jumbos, and other salacious mortgage instruments are still ahead.

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New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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