Financial bubbles far and wide

Excessive add-debt-and-stir policies have been the cornerstone of central planners the world over for the last 20 years. The result is a planet of debt-addicted economies, that billow and crash in a series of progressively more damaging asset bubbles. Today for the third time since 2000, global financial bubbles are the most pervasive and precarious of all. The chart patterns all look the same…

China’s tech rally is fraying some nerves as investors fear that the sector looks very similar to the U.S. before the tech bubble in 2000. Here is a direct video link.

The Chinese data today is truly surreal.  Thanks to insane, self-imploding leverage incentives in the Chinese banking system over the past 5 years, Chinese household property ownership rates have reached 90%–the highest in the world. This compares with home ownership rates that peaked in the US at 69% in the sub-prime bubble of 2005 and have since retraced towards historic norms around 64% (see: US homeownership rate falls.

So far Chinese realty prices have declined some 6% year over year (and falling) which has a magnified impact when nearly all households (90%) are now experiencing a negative wealth effect. Meanwhile the Chinese economy is reaping the desserts of low birthrate mandates that spawned a now rapidly aging population that is naturally spending less year over year. Chinese domestic consumption is falling, just as exports are sputtering.

One of the under-appreciated effects of a rising Chinese Yuan (that is pegged to the soaring US dollar) is that Chinese goods have rocked some 70% higher against goods priced in Yen and 30% higher against goods priced in Euros in just the past several quarters.  The negative impact on the earnings of Chinese companies is mammoth and yet to be fully reflected in job losses and perennially optimistic analyst forecasts.  For some useful big picture charts on the downside risk inherent in Chinese asset markets today, see:  Chinese Equities or Yuan:  Something’s Gotta Give (registration required).

Thanks to globalized financial institutions and similarly educated and indoctrinated finance and central bank leaders, today’s debt-induced financial bubble is worldwide and the most extreme and synchronized ever in history.  Minimizing capital risk through international diversification is unlikely to prove an effective solution.

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