When I began posting the CBB in 1999, I expected “Bubble” to be in the title for no longer than a year or two. It was to be the “Credit Bulletin,” inspired by Benjamin Anderson’s “Economic Bulletin” from the 1920’s. Yet here we are in 2020 with Bubbles everywhere, including in my blog title. In 1999, I would have said that was an impossibility.
There are many things that proved not as impossible as I had believed. What was deemed acceptable monetary policy badly mutated. Mutant monetary management fundamentally altered the tolerance for debt and deficits. Finance and financial markets were similarly transformed, with yet to be appreciated consequences for (grossly simplifying here) Capitalism, societies and geopolitics.
So many changes, but I’m not changing. In my initial CBB I committed to “calling them as I see them and letting the chips fall where they may.” Let them fall.
“The Bubble will either further inflate or burst.” Regular readers will surely recognize this as what has become an annual ritual of my “Issues” pieces. Some might view it as a cop out; others reminded of Einstein’s definition of insanity. Yet Bubbles do have defined characteristics. They are at their core creatures of increasingly powerful momentum. Stimulus will intensity and broaden inflationary effects while enlarging the overall Bubble scope. Especially in the age of unshackled central banks, the timing of their demise is uncertain. Importantly, however, that they become progressively perilous over time remains a certainty.
This year’s “Bubble Will Inflate or Die” prognosis carries a significantly direr tone than in the past. From a Bubble Analysis perspective, 2019 was an absolute fiasco. Alarmed by faltering Bubbles, central bankers were panicked into prolonging the “Terminal Phase of Bubble Excess” through the reckless administration of additional stimulus. The ECB restarted QE before many even realized the previous program had been concluded. The Fed began the year abruptly abandoning “normalization” and then ended with $400 billion of Q4 QE. Rather than helicopter money, envision fleets of helicopters dropping buckets of propellant on columns of bonfires. (more…)