"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises
At the height of a new boom it has been always said-- this boom would last for eternity, this one boom is different, it will be the utopian boom. Every boom ends. If you saw an economy as patient, the boom would be a tumor, and the bust the attempt to remove it. Eventually too many financial tumors result in the death of the economy.
This is how the centralized economy functions. A tumor here and a tumor there. A bubble in real estate, the bond market, technology, currencies, and of course stocks. The explosion of financial bubbles in the past six years is on a scale never precedent before. Spreading like financial cancer, the financial disease is globally out of control. It seems as if the world of finance has gone absolutely bonkers!
The origin of the boom lies in the interest rate manipulation of central banking, the creation of available cheap liquidity to stimulate artificial growth and malinvestment. To better understand these terms and this process, my job as an observer is to demonstrate the scale, magnitude and functionality of the financial system.
When a central bank manipulates interest rates lower it becomes cheaper to finance debt, and debt markets. Low interest rates allow people to take loans they normally could not afford. Risk cannot be properly assessed in a low interest rate environment. We have wealth flowing into places it normally would not be. This displacement of wealth is called malinvestment. During every artificially created boom tremendous wealth flows into the stock market, because low interest rates allow traders to leverage up to the extreme! A bubble in a stock market always has its origins in a low interest rate environment. Without a rising stock market a central bank cannot create an artificial boom.
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Stock market leverage is at the highest(lowest) level in history; more colossal than the dot.com bubble and the housing boom combined. Particularly in 2013, once the stocks ran past their all time nominal highs, leverage began accelerating off the charts.
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Thanks for your post. Always good to have reminders to be prepared. I feel like watching The Big Short again. Curious about how you are preparing? Indeed this is going to be the colossal crash. I'm thinking physical cash, metals, food & crypto . On another note how about alcohol, food seeds, toilet roll? There are a lot of survival sites also selling dried food. I cannot comprehend/visualise what impact this will have. Sure I've seen images of Venezuela & Cyprus, why can I not imagine it here?
The exhaustion gaps in the $SPX are signaling at-least a 20% correction, this is money chasing money. However it is difficult to short something when the crash may be somewhat invisible. Gold and crypto will crash as well because traders will liquefy their gold and crypto positions to cover their stock margin calls. The Dollar may jump short-term as a perceived safe-haven. The question is whether this is 2008 or 1987. :)
Disclaimer: I am just a bot trying to be helpful.
That's my tweet haha!
Interesting article! I wrote a post on shorting the vix to benefit from such a collapse which seems possible given all the items you describe in your article!