Most People think they have seen enough asset bubbles to last them a lifetime. Even Mark Haynes The CNBC anchor has this mentality and he has been covering the financial markets for ages. Not that I think CNBC is great to begin with, in fact quite the opposite, nor do I think anything of Haynes. That being said even the so called "professionals" were and will be in for a rude awakening. He had Peter Schiff on as a guest in 2006 and looked at Peter as if he had four eyes for saying "Their was a housing bubble" (which turned out to be oh so true).
What made Haynes reaction interesting was when he went on to say to peter "you expect me to believe there is another bubble, these things come around once in a lifetime". Well who looks stupid now? Way to go Peter, give it to the man.
Thus far we have seen the NasDaq bubble, housing bubble & a bubble in the U.S markets as a whole (although people think we will soon return to ridiculous valuations from 2 years ago). But what if I told you 3 or 4 more bubble just in the next 2-4 years. You would think I'm crazy right? Well people thought Peter was crazy as well, so being crazy in the eyes of the mainstream is of no importance.
The Bond Bubble - For those who haven't been paying attention or are unfamiliar with the treasury market, The Fed has been artificially suppressing the natural rate of interest for nearly a decade a now. Not only does this cause an inter-temporal missallocation of resources, but it has also set the stage for unprecedented inflation and wealth destruction. Back to the first consequence those who invest capital deeper into the structure of production (those which take longer to reach the consumer) i.e electronics or other technological innovations,etc are more interest rate sensitive and rely heavily on an accurate forecast of the economy's time preference. The Fed by selling bonds via treasury auctions artificially suppresses the interest rate, eventually making these capital investments worthless as mid and long term rates can only be contained for so long. Not to mention to constant inability to forecast people's time preference as it is distorted by the FED.
So where does the bubble come in? Well if you have been watching treasury yields this year, you will notice the FED is starting to have difficulty keeping rates down forcing them to sell bonds via open market operations on a weekly basis. These aren't small auctions either, usually totaling 30-60 Billion. But where the real danger comes in, is when you look at the types of treasuries on the auction block, which have been 5,10 & 20 year. Never before has the fed interfered with the long treasury market as they are now. Obviously these auctions aren't 100% subscribed to, so the fed is monetizing the debt without having to publicly say so. Ok onto the main argument: The FED will soon be unable to control mid-long term rates, which will then send yields to the moon. You also have to remember mortgage rates are highly correlated to the 10 year. In other words, not only will this bubble cause inflation and interest rates to go sky high, but it will also cause a enormous increase in defaults for those with ARMS.
2)The bubble(ALTERNATIVE ENERGY) - Many people will disagree with the following, but I would never touch this group. I am referring to many of the alternative energy groups. I think it will play out as follows: These companies will initially be given large government subsidies to invest in their "green energy solution" i.e solar, wind,etc and report great earnings for a couple of quarters. Well of course they will be good because they have no real input costs as the government subsidizes these as well as be given generous tax credits or something of that nature. Like the dot-com bubble, people will catch notice and once again the hooker turned day trader will appear. It is instinctual for humans to try to accumulate as much wealth with doing the least work.
3) The Commercial Real Estate Bubble - This will be identical to the residential housing bubble but will take place later to the nature of commercial real estate. As many people own shopping centers as opposed to a single building, they are better financed, thus allowing them to pro-long the inevitable. This will definitely happen, but the question is really to what degree. Residential Housing still has two or three more legs to drop as ARMS reset, so we have just started the foreclosure process, no matter what the government or newspapers say.
4) The USD bubble will obviously be the most devastating. I have talked on this subject in great detail in other posts, therefore I stop myself from sounding like a broken record. But here is the excerpt from one post