Our Credit Bubble
It hard, to argue that we are not in a credit bubble. The credit market is the easiest in history with rates near zero.
- The Feds have printed almost four trillion of new money
- Interest Rates are lowest in all of mankind’s history
Inflation has appeared in asset prices but only nominally if at all in consumer prices. Under Rising are bonds, stocks, commodities and real estate are turbulent waters below. These waters being agitated with auto loans, credit card debt, student loans, mortgage securitization and let us not forget derivatives.
Once again we urge you and everyone to diversify there portfolios. You of course are freee to invest in whatever, but suggest consideration to GOLD as hedge and insurance against crisis.
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Shiller Cyclically Adjusted PE Chart
The following chart provieds a ten year adjusted view of historical trends it going back to 1970 and shows clear evidence that markets are overdue for correction or crisis.
Federal Reserves Role –
The Feds played major role in creating and continuing the credit bubble and are catalysts to the bursting of the bubble.
First the Fed printed almost four trillion in new money under its QE programs increasing market liquidity.
Second, the Fed held interest rates near zero.
Bursting the Credit Bubble
Two major causes for bursting credit bubbles are:
(i) Tightening of credit, e.g., taking away the punch bowl.
(ii) Increased losses in one or more market sectors is also contributor to the bubble bust.
The Feds are now tightening credit by
(i) Raising interest rates; lead to less borrowing and more stringent borrowing conditions,
(ii) Repurchasing the toxic asset, which it purchased via its QE programs withdraw money from the system furthermore tightening credit conditions.
Both of these actions result in credit drying up and the credit bubble bursting.
The Fed are changing the credit landscape.
- Rising Interest Rates -Feds raised rates in December 2017 and are on course to raise interest rates again in March 2018, and are planning at increases each quarter r thereafter. Taking away easy credit and increases in defaults lead to market either market corrections or, alternatively, something worse financial crisis e.g., rescission or depression.
Further tightening is occurring as the Fed preforms QE in reverse and sells the almost four trillion of toxic assets it purchased over the past few years.
Traditional valuation metrics change when the credit faucet is turned off.
credit condition are effecting the economy -NOW –
How are credit conditions effecting the economy now?
- Household formation is now at the lowest seen since ever recorded.
According to Federal Reserve economists, the rate of new household formation has plummeted to its lowest level since records began being kept at the end of WWII. Down some 59% from the historical trend, we are seeing around 550,000 new households formed each year, as opposed to the average of 1.35 million per year through 2006
- geographic mobility has been almost eliminated as graduates options to find work have been limited,
- student loan losses are skyrocketing, as graduates are unable to find jobs or the jobs the find do not pay enough to repay the student loans.
- subprime auto loans losses have substantially increased to a point they are now effecting new auto sales.
More losses, creditors have securitized the vast majority of these auto and student loans. And they, will most likely, suffer the same fate as in 2008 subprime mortgage crisis.
**GOLD — **
Gold has just completed a multi-year fifty percent retracement (bear market). In the years, 2011 through 2015 gold went down forty-five percent with a low of $240 and high of $1,900.00 and ending at $1,050.00 in 2015. Clearly, looking at this through a historical lens, gold is again ready for a bull market. folks like the great gold buyer Jim Rogers agree when he says: “Nothing goes from here to there without a 50% retracement along the way … [and he] expects gold to go much higher”
It is clear we have had the 50% retracement. The bull market is here now.
After each retracement gold has bull market —
- January 1971 to 1980 gold went up over 2,000%.
- Then beginning around January 1980 to August 1999, there was a 1/24 down bear market, and gold went down about 70%.
- Then a twelve-year bull market from 1999 to 2011 and gold rose seven hundred percent (700%)
- Finally, another bear market 2011 to 2015 and gold fell 45%