Bubbles Everywhere: All Dressed Up and Nowhere to Hide

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Economist Robert Shiller says there is no alternative to riding out bubbles.

Please consider Stock Market Crash Near? Nobel Laureate Sees 'Bubbles Everywhere'

When Nobel Laureate and "Irrational Exuberance" author Robert Shiller says he sees bubbles in the financial markets — you'd better listen up. He literally wrote the book on stock market crashes and bubbles after all.

"I see bubbles everywhere," Shiller, economics professor at Yale University and author of just-published "Narrative Economics" told investors gathered in Los Angeles Wednesday. "There's no place to go. You just have to ride it out. You invest even though you expect the price to decline." Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.

Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. "It's like 2005 again," Shiller said. "San Francisco and L.A. are already slowing down." That's a "bad indicator," he said, as those markets have been going up for years.

No Place to Go?!

I do not care about books or past predictions.

I care about logic of the moment.

For starters, if housing was like "2005 again", San Francisco and LA would not be "already slowing down." But that is nitpicking.

Here's the important issue: On an individual basis, It is absurd to say there is "no place to go".

Places to Hide

  1. Gold
  2. US Dollar
  3. Foreign Currencies
  4. US treasuries 5-year or less

It is impossible for all of those to decline at the same time. Heck it is impossible for 2 and 3 to decline at the same time except compared to gold or some other asset, which of course implies somewhere else to hide.

Bubbles B. Goode: Musical Tribute to the Fed

It's true that someone must hold every stock and every bond. However, Shiller's statement "You just have to ride it out" is nonsense at the individual "you" level.

Choose wisely where to hide.

Mike "Mish" Shedlock

Comments (122)
No. 1-36
stillCJ
stillCJ

Editor

Like a broken clock, Shiller occasionally gets it right.

Freebees2me
Freebees2me

Mish - want to look at Gold. As a percentage of a portfolio, what are we talking? Can you give a range?

Mish
Mish

Editor

Percentage of gold varies. Some genuinely hate it. For those, a small or even no percentage might make sense.

If it is going to make you lose sleep, don't do it.

For others up to 33% seems reasonable.

Matson
Matson

Love the video Mish...gonna be a hit very soon!

RonJ
RonJ

"No Place to Go?!"

In 1933, Roosevelt confiscated gold. Democrats are currently talking of high income tax rates and even wealth taxes. Talk is of MMT as the next big thing.

We live in a world of economic illusions, as nothing stays the same in perpetuity.

avidremainer
avidremainer

How and where you hold gold is important. For some time I've been buying low denomination gold coins. I don't fancy putting a krugerrand on the counter and getting all sorts of crap for change.

THX1138
THX1138

How do you feel about the 7-10yr treasury range?

Je'Ri
Je'Ri

Sure, Mish, but if you manage a pension fund or even an endowment, the only one of those five "places to go" that is defensible would be short-term US Treasuries, and even then you will be questioned mercilessly for deviating from fiduciary orthodoxy. These are interesting times indeed.

lol
lol

Gone way beyond ridiculous ,fed now printing over a trillion dollars a MONTH in desperate attempt to keep banks from collapsing,and that's rising at a rate of 100 billion per MONTH!Printing 100 billion a month "officially"to prevent the govt from collapse,trillions more printed DAILY to prop up stocks,gold,silver,oil….name it....a literal money printing frenzy of biblical proportions.

KidHorn
KidHorn

The housing crash in 2008 was triggered, IMO. by a fear of variable rate mortgages resetting to a higher interest rate. No one wanted to be left holding the bag. We don't have that now.

I think a crash now would have to be triggered the old fashioned way. By a recession. Good luck predicting when that will happen.

RonJ
RonJ

"I do not care about books or past predictions."

Lowest rates in 5,000 years. That makes it unique in history. No one has written a book on negative interest rates and there are no past predictions about their outcome as we have never been here before.

THX1138
THX1138

The problem with that is that we haven't had the same currency or monetary system for the last 5,000 years. Any comparisons to 5,000 years ago are largely meaningless..

Captain Ahab
Captain Ahab

Finally, I know where MIsh's keeping his gold.

Tony Bennett
Tony Bennett

"It is impossible for all of those to decline at the same time. "

...

Correct.

Think Dominoes.

Still a treasury bond bull. Equity / RE / corporate debt / municipal debt / household debt will all fall first ... driving $$s into safe haven (treasuries will be one). Treasuries will most likely fall at some point, but will be caboose.

AWC
AWC

Bubbles, or dollar devaluation? Or perhaps a combination? Anyway it’s sliced, Au and Ag will stand the test of time.

Maximus_Minimus
Maximus_Minimus

I am surprised, strong community is not mentioned as a major asset.

Matt3
Matt3

Another panic story. Why write new ones when you can just go back a few years and re-post? The story is always the same. Bubbles are everywhere. A recession is just about to begin. Real Estate is going to collapse. Then when none of this happens, it's just wait. In the interim, the rest of the world has made money and enjoyed life.

numike
numike

"Nothing is permanent in this wicked world, not even our troubles." Charlie Chaplin

davidyjack
davidyjack

Amazing video. :-)

Sechel
Sechel

best place to hide = cash. cash is not an asset, its optionality

Casual_Observer
Casual_Observer

As long as the economy continues slow growth, there is less likelihood of a crash in asset prices. The Fed is now managing pension funds and everyone's 401k indirectly. The illusion of control by the citizenry is all that is necessary. If the Fed can somehow get away with managing all this for the next decade, we will be okay. Do you believe they will ?

Webej
Webej

"It's true that someone must hold every stock and every bond."

That is actually the biggest problem with a wealth tax which hardly anybody mentions. If we get Bill Gates to sell shares or bonds and hand the proceeds over to the Treasury, somebody else must buy them. How will they get the money? The only way to squeeze money out of financial assets would mean the prices of all assets go down, which would mean the wealthy are less "wealthy", but not necessarily that tax revenues would go up proportionately. It is somewhat simplistic to imagine that you can fund anything in aggregate by having assets change hands. Any tax on wealth must, in aggregate, be funded from income, and is better addressed in terms of income tax policy. There are many policy measures by which one can address the distribution and pricing of assets, but as long as people think in terms "enough money", no policy will meet the ostensible goals.

shamrock
shamrock

I would say every asset is measured in dollars, so it's not possible for #2 to go down, or up. A dollar is always a dollar. It is possible for 1,3, and 4 to all go down(versus the dollar) at the same time.

Realist
Realist

I will give you credit Mish. You are sticking with your ”bubbles everywhere” and ”imminent recession” and ”buy gold” mantra. Eventually you will be correct. Maybe even this year. But I will take the other side.

I expect slogflation (slow growth, low inflation) to continue for the foreseeable future. Growth has averaged 2%/ a for the last 10 years and should slow towards 1% over the next decade. Eventually growth will slow toward 0 in the long term.

I suggest a well diversified portfolio (stocks, bonds, real estate, private equity, precious metals, cash, and whatever else fits your world). Rebalance as you see fit. I have increased my cash to a third recently as I have sold some real estate and stock holdings as many investments are at or near all-time highs. I look forward to deploying some of this cash when bargains eventually present themselves. I expect minor corrections to the recent highs, but not a major crash.

Are you still working as an investment advisor, and is this the advice you give to your clients?

ottertail
ottertail

There's a 5th place to hide, Mish-san. Oil.

Stuki
Stuki

"It is impossible for all of those to decline at the same time."

????????????????????? What???????????????

Try nuking the planet into a barren rock, and tell me it is impossible for all of them to decline, in real terms, at the same time.

Then, when that is done: Ponder what happens if the planet, or at least America, is, productively speaking, already nuked into a barren rock. And the only thing keeping people from experiencing it as such directly, is that enough morons keep telling each other their "homes" and "portfolios" are "going up," that they are willing to work for absolutely nothing other than promises of getting some of this "going up" at some future date..... Then, one day the morons realize the promises really are entirely empty, yet there is simply nothing else of value being created on this barren rock anymore, with which to pay anyone in aside from such empty promises........

Tengen
Tengen

I don't believe these bubbles can burst anymore. The whole thing should have come crashing down way back in Sept 2008 and every day since, but the central bankers have successfully propped it up indefinitely. Unless the Fed, ECB, BoE, BoJ, and others stop colluding, nothing will happen.

Instead of a crash, we have a lengthy backslide in store where wealth continues to concentrate, society slowly disintegrates, and people begin to turn on each other. I'd much rather get this over with and rip off the band-aid, but alas it's not in the cards. The only silver lining is that we all still have probably at least 5-10 more years to prepare, psychologically and otherwise.

So on that bright note... Happy Monday everybody!

Country Bob
Country Bob

Imagine being a dim witted "woke" millenial who paid $5,000 to attend the Friar Festival on a Bermuda island, featuring gourmet food that doesn't exist, music acts that weren't paid to be there, and super models who appeared in advertising but weren't going to actually attend.

The Friar festival was rightly labeled a big fraud, but a lot of people had little sympathy for the trust fund wokesters who put the whole thing on daddy's credit card.

Now imagine being a student who paid $70,000 per year times four years to attend Yale University... erroneously thinking that nationally recognizable faces like Bob Shiller actually teach classes. Imagine being one of the wokesters now buried beneath a trillion dollars in student loans for attending the many many schools with celebrity "professors" who aren't actually in attendance.

If Bob Shiller was a professor, he should be teaching. If he wants to be a book author, than do that and stop defrauding students. Same for all the other so-called "professors" who spend most of their time writing books, talking on TV, consulting for companies, consulting for government -- and generally doing everything EXCEPT teach at the university they supposedly work at.

If Shiller gets a job hawking fries at McDonalds, they will expect him to sell fries. Not hawk his book.

Time to put all the bad student loans back to the fraudulent schools that issued the loans in the first place. The schools owe everyone a full refund. That is how the student loan mess should be solved if the law still matters.

Blurtman
Blurtman

Bubbles of increasing frequency yield a straight line.

leicestersq
leicestersq

It is certainly possible for the real value of all of the asset classes to decline. Some might go up nominally against the others, but you can still get an overall decline.

Thought experiment. Say you had a comet hit the earth. The resulting Tsunami wipes out modern civilisation and the survivors have to become hunter gatherers. The value of what you can get for any of your asset classes will be far far less than what it is today.

That is an extreme example perhaps, but I hope that it at least proves that a general decline in value is possible. Comet strikes might not be the only mechanism to cause a general decline in value.

The problem with 'value' is that it is difficult if not impossible to define exactly what it is or to measure it. You can weigh gold and price it, but value is ephemeral, but it is nonetheless still there.

Greenmountain
Greenmountain

Is the stock market another bubble or are investors so desperate for a China deal that they trade on every Trump tweet. Regardless of any factual basis for the tweet.

Casual_Observer
Casual_Observer

There really is no reason for these types of interest rates. At some point the Fed should intervene if they want the economy to get better and cap loan rates at something less than 30%.

Solon
Solon

The two thought experiments provided below---earth hit by a comet or nuked into barren rock---are meaningless. They are arguments by analogy. Arguments by analogy are the weakest of all argumentation and their limited effectiveness is governed by how close the analogy is to reality.

The analogies of Comet Strikes and Nuclear Devastation are not even remotely close to the case of a Financial Bubble Bursting.

In the context of financial crashes, not all asset classes can decline simultaneously---especially FX which is a measure of relative strengths. The truth in Mish's statement should be pretty frickin obvious, and putting forth ridiculously-stretched strawmen arguments to demonstrate the falsity of the statement looks like petty point-scoring.

vivabob
vivabob

@Mish What about high-grade, intermediate-term muni bonds (as opposed to T-Bills). Aren't they at least as "safe"?