Comments on: 5 Financial Bubbles: Are We Facing a Bubble of Bubbles?

By: Financial Bubbles and Fed Policy | Balance Junkie

Financial Bubbles and Fed Policy | Balance Junkie — Sun, 31 Oct 2010 13:45:53 +0000

[...] and create more bubbles. A couple of months ago, I wrote extensively about bubbles, identifying 5 Financial Bubbles and 5 Socioeconomic Bubbles that may be ready to pop. I defined bubbles as “structurally [...]

By: The Law of Diminishing Returns | Balance Junkie

The Law of Diminishing Returns | Balance Junkie — Sun, 05 Sep 2010 09:47:39 +0000

[...] result, as we know, was a series of financial bubbles and trillions of dollars of debt on household and sovereign balance sheets. With rates at or near [...]

By: The Periodic Table of Deflation: How Many Elements Do You See? | Balance Junkie

Wed, 01 Sep 2010 15:34:59 +0000

[...] many of them are currently evident in the economy, or are showing signs they might pop some of the bubbles we’ve discussed [...]

By: Why the Market Could Be Lower … But Isn’t | Balance Junkie

Why the Market Could Be Lower … But Isn’t | Balance Junkie — Fri, 06 Aug 2010 09:47:07 +0000

[...] written a lot about how financial bubbles, socioeconomic bubbles, and over-leverage in the economy may have an adverse effect on markets in [...]

By: Carnival of Personal Finance #267 @ Beating Broke

Carnival of Personal Finance #267 @ Beating Broke — Mon, 26 Jul 2010 12:40:59 +0000

[...] 2 Cents from Balance Junkie presents 5 Financial Bubbles: Are We Facing a Bubble of Bubbles?. [...]

By: A Bubblicious Roundup » JoeTaxpayer

A Bubblicious Roundup » JoeTaxpayer — Sun, 25 Jul 2010 12:24:27 +0000

[...] article I’d like to share with you this week lent its sentiment to this week’s roundup. 5 Financial Bubbles: Are We Facing a Bubble of Bubbles? This was a guest post on the Balance Junkie site, and it’s an interesting read. There may be [...]

By: Today's economy media pack – 2010.07.23 | Today's economy blog

Today's economy media pack – 2010.07.23 | Today's economy blog — Fri, 23 Jul 2010 10:34:24 +0000

[...] Balance Junkie. 5 financial bubbles: Are we facing a bubble of bubbles? “We’ve heard a lot about bubbles in the economic world over the past decade – so much, in fact, that it seems like we might be facing a bubble of bubbles.” [...]

By: No Respite in Diversification | Balance Junkie

No Respite in Diversification | Balance Junkie — Fri, 23 Jul 2010 09:47:07 +0000

[...] been talking about bubbles all week. So far, we’ve outlined 5 financial bubbles and 5 socioeconomic bubbles that could affect your money and your quality of life. It looks like we [...]

By: The Culture of More: 5 Socioeconomic Bubbles Ready to Pop | Balance Junkie

The Culture of More: 5 Socioeconomic Bubbles Ready to Pop | Balance Junkie — Wed, 21 Jul 2010 09:46:40 +0000

[...] around our economy and asked whether the proliferation of bubbles could mean that we’re in a bubble of bubbles. We defined a bubble as a structurally tenuous entity with nothing of substance at its core. Today [...]

By: 2 Cents

2 Cents — Wed, 21 Jul 2010 00:33:32 +0000

Good point Pop. I happened to be right on the crisis of 2007-2009, but I didn’t make any money on my prediction. Mind you, I didn’t lose any money in the downturn either, so that’s OK by me. I guess it’s possible to predict a bubble, but much harder to know when it will pop and how and when various markets will react.

My main points at BJ are that 1) We are in a period of elevated uncertainty with lots of imbalances in our economy. 2) Reducing risk in your personal finances and your portfolio according to your time horizon are a prudent course of action until we see how these imbalances correct themselves.

Thanks for visiting!

By: Bruno V.

Bruno V. — Wed, 21 Jul 2010 00:32:53 +0000

Correct. The strategy has to be tailored to protect the portfolio in both cases (deflation-inflation). The object is not to beat the market but to provide returns through proper diversification with low amount of risk. Trying to time this thing is not a good idea, but some understanding the the macroeconomics is a good idea. I try to stay away from stocks and long term bonds right now as they are too risky in the short term while ensuring some returns through GICs and potentially real return bonds in the future. For stocks, better to buy low than high and right now they are somewhat pricey anyway.

By: 2 Cents

2 Cents — Wed, 21 Jul 2010 00:23:52 +0000

Thanks Bruno. That’s one of the clearest explanations of the possibility of Japanese-style deflation in North America that I’ve read. I’m not an economist either. I just use Balance Junkie as a way to think out loud and learn something new from readers like you. Thanks for reading and thanks for helping me clear up some of my thoughts!

By: Pop

Pop — Tue, 20 Jul 2010 22:58:59 +0000

Really liked this post. The first commenter’s reactions to what he thinks is coming were also interesting. One thing I’d add as a word of caution: it’s possible to be exactly right about where the next bubble will be, but exactly wrong about how to profit from it. Peter Schiff pretty famously predicted the financial crisis but lost his clients a lot of money.

By: Bruno V.

Bruno V. — Tue, 20 Jul 2010 19:27:24 +0000

Let me try a response to the deflation-inflation question. You are likely correct, a Japan-like deflation is here to stay for a while. Major quantitative easing (QE) from the US Fed (e.g. lots of cheap money to the US banks) did not lead to more lending as banks use that money to clean up their balance sheets, also profiting from free interest by buying US Govt bonds, and the fact that potential US borrowers either can’t borrow anymore (too much debt!) or are in a state of debt revulsion (same happened in Japan, more printing did not lead to more borrowing or “velocity”, even as rates are close to zero). In effect, printing money did not lead to inflation. So, Deflation – yes, for how long, nobody knows for sure, and no sign of inflation anywhere yet.

Most ‘experts’ (I am not an economist!) see the US borrowing binge as unsustainable: US trade deficit and housing boom will have to come down, and both US consumers and government will have to live within their means.

The scenario I put in my first post (deflation shortly followed by relatively higher inflation) is not the most dangerous, but a likely one ONLY if there is no crazy panic on sovereign debt, fragile US banks, on a major stock drop, a big war, etc. However, as the US owes more of its debt to foreigners (contra Japan, whose debt is held internally due to high savings of the Japanese people) there is potential that the US Dollar bubble will pop, if the US Government bond market implodes, due to lack of confidence from international bond buyers (or a need for interest hikes that could take 20-40% of US tax revenues in debt servicing).

Now, this could take 3 years, 7 years, 15 years, or never, nobody really knows, as a it depends on hidden financial factors (political secrets… remember Greece? off-balance sheet items like Afghanistan and unfunded liabilities such as US Social Security, Medicare, etc.) and market psychology… but IF it does happen, then hyperinflation will set in as people will have lost confidence in their currency and US consumers may still have to buy goods from other countries, when everybody has lost confidence in the US Dollar. Ok, nightmare scenario, but I suggest you take a look at this video presentation by Niall Ferguson:

http://hotfile.com/dl/54309863/1272496/Athens_Forum_2010_Niall_Ferguson_new.wmv.html

Conclusion: what will that do to the Canadian economy? We should be spared by hyperinflation and our money will likely be perceived as sound (paper money is about confidence and perception), and we will likely see a rise in interests. But, a question: what happens when you don’t trust the money that your major customer uses to pay you? Answer: you don’t sell! And when you don’t sell, you don’t make any profit…

BTW, good blog. – Cheers.

By: 2 Cents

2 Cents — Tue, 20 Jul 2010 15:03:46 +0000

It sure is difficult to time the market. But I’ve always contended that holding forever is just another form of timing. You may not sell low or buy high, but you could get stuck holding the bag in a secular bear market. It all depends on your time horizon.

Thanks for your comment!