Bubbles, Bubbles, Bubbles
By: Jonathan M. Lamb. Jonathan M. Lamb is an Economist, Consultant, and Entrepreneur that resides in the Research Triangle of North Carolina.
Bubbles, Bubbles, Bubbles, those are the favorite words of my almost 2 year old son. He loves bubbles and stands by the countertop where my wife has a bottle of bubbles and points and says Bubbles, Bubbles, Bubbles, over and over again until you get the bottle and blow a few bubbles and then he laughs hysterically as he pops him.
I was in the camp that sighed as sigh of relief last week when the FED held off tightening, however we are setting up for the Mother of all Bubbles, and there will not be hysterical laughing when it pops.
The domestic market has been going up 15% in a year while all other prices remain steady with the strong dollar, oil, gold, copper, and iron ore are all dropping even though the market is up 15%. Since low inflation and deflation have been in line with declining demand and prices for materials, the problem seems to be in the market. With QE type liquidity being poured into the domestic and world markets equating to 20% of the global GDP for the last six years since QE began. With an average growth rate of 3.5% since QE began six years ago that means we would in a DEPRESSION with negative GDP growth rates if it was not for QE.
So what does this all mean? It means that it all has to be unwound at some point. Jim Bullard of the St. Louis FED said this week that our current market risks “devastating consequences” with our current rate policy and “When asset bubbles start, they keep going until they blow up out of control with devastating consequences.” Well, it sounds like we are damned if we do, and damned if we don’t!
I don’t write to spread Bear propaganda, but these are the facts of the world that we live in. There is no reason to run thought the street and panic. Oil is cheap, and America is strongest economy in the world right now. Mega deals such as the newly announced Berkshire Hathaway deal with Kraft and Heinz will continue as long as there is cheap money, but the trick is finding that happy area between bubble growth and no growth. The bubble is growing and at some point the bubble is going to pop unless the Central Bankers have a magic formula that makes bubbles magically disappear. I don’t see a magic formula anytime soon, so let’s just hope the bubbles can steadily deflate without popping, and here is to hopping that my youngest son will learn some new words soon!