A balloon will inflate slowly, but a graceful pin prick to deflate of the balloon is impossible. The same is true with the economy.
The Federal Reserve is now using the interest rate “pin” to prick the unprecedented economic bubbles they created, and this week’s stock market gyrations are just the early signs of the economic balloon beginning to burst.
This market selloff is nowhere near its end.
We are in an “EVERYTHING BUBBLE”.
Stocks, real estate, bonds, and derivatives.
Stocks were at all time high valuations in the longest bull market ever, and I expect to see AT LEAST a 50% drop. The Nasdaq was nearing in on valuations not seen since the tech bubble, and when it burst, we saw the Nasdaq decline by 77%. Can you afford a 70% to 80% drop in your 401k? Should you?
The real estate bubble is now 50% larger than in 2007, and began popping in the July/August timeframe. Inventory/Supply is coming on the market rapidly, and prices are starting to drop precipitously.
The bond bubble is the largest on record going all the way back to the 1700s, and corporate, government, and individual debt is now the highest ever.
Wall Street investment houses have gone drunk on derivatives. This is now a $1 QUADRILLION market which is very highly leveraged, backed by nothing, and ready to blow up everything. We got only a small taste of what damage derivatives can do when the housing market blew up a decade ago.
Money is NOT Free!
The Federal Reserve, and other central banks around the world, just ran an unprecedented zero-interest rate policy for nearly a decade. In real terms, lenders were actually paying borrowers to borrow money! Everyone sipped from the fountain of free money.
The party is now over. The Federal Reserve is raising interest rates in the hopes they can deflate the enthusiasm gracefully. A graceful bubble deflation has never happened in history, and it is not different this time!
So look for more turmoil across all markets. Expect that interest rates will be rising rapidly, well into the 4% range on the 10-year US Treasury bond (bond prices will go much lower). And also expect the stock market to see significantly more upheaval.
The only safe places are gold and silver, which actually saw increases this last week.