Heading into one of the largest asset bubbles of recent centuries

Welcome to the perfect storm of global economic policy that could lead to the largest asset bubble that modern Western nations have ever experienced. "It's like a storm coming, you don't have to be a weatherman to see clouds".

But first, a note of caution. As one of the below articles warns, "fear can be dangerously seductive and influential when it comes to financial news and one should always take a deep breath and a pause for thought when reading anything deeply bearish (or bullish)." Of course, after taking that deep breath, you are now ready to panic like a pro.

We are now in a world where credit expansion policies and low interest rates from central banks have led to massive asset price inflation as a staggering excess of cash chases diminishing returns. There is a glut of cash and limited places for it to go. And with limited options, investors will be increasingly tempted into highly risky investments.

One recent article states "We're in the third biggest stock bubble in U.S. history". But despite some minor pullbacks, there are no signs of a significant slowdown. Bloomberg TV asked "Is the U.S. Stock Market Already in a Bubble?" and the answer was (paraphrasing) "There's allot of prognosticators out there predicting some sort of correction but basically they're all still bullish in the longer-term and even they believe this bullmarket has years to run."

If the easy money keeps flowing, we could be heading into the largest asset bubble, across all asset classes, ever seen in modern Western economies. And there are no signs that governments have any real commitment to take effective action. Raising rates in any meaningful way would be political suicide given how highly leveraged much of the electorate has become thanks to real estate price inflation and cheap mortgages. So expect more of the same over coming years. Expect government policies that will open up existing asset classes to more buyers (e.g. easing of foreign investment restrictions on local assets such as residential and commercial real estate, farmland, water rights, etc), expect greater regulatory restrictions on innovation and competition as investors lobby to protect their investments in incumbent industries, and expect growing social unrest as increasing numbers of the economically disenfranchised vent their frustrations.

Another excellent article sums it up: "Welcome to the Everything Boom and, quite possibly, the Everything Bubble":

Things are going to get interesting.

 

Bubble? Bubble? where have I heard that word before?



OC

 

Get with the programme, aren't you aware that there is a bubble bubble!

 

Crazy talk. Clearly the fundamentals only point to a bubble boom, or booble* to use the technical term.

*Any similarity between the term "booble" and the act of searching for questionable adult images is purely coincidental.

 

The question is, what happens next? And for us, what happens to the price of silver and gold over the next few years?

If so many asset classes continue their collective boom then will precious metals be carried up by the tide? Or will they stagnate as they continue to lose their lustre amongst investors and others desperate to jump onboard the yield train?

 

I think the question will be, "what is the purchasing power of gold and silver over the next few years?"

If the world currencies go pear shaped, what will be the measure of value? Oil? Coal? Iron ore? my money is on gold and silver.As a minimum, I could live on 20oz of silver a week. I reckon this will hold true regardless of the future value of fiat. This means that the arbitrary stack of 1,000oz will keep me going for a year. That's my worst case scenario, it may strengthen threefold or fourfold.

 

SS,

That has been my basic thinking for about 4 years.

I fully expect that G & S will outpace inflation, and because of 'supply and demand' will in fact reach almost unthought of levels. On todays values I expect that 5 to 10oz of Silver will cover most of what a small family will need, given prior prudent accumulation of all that families needs over the next 3 years.

And if anyone has that sort of amount of G & S, I strongly recommend a bank safe custody facility.

JMO


OC

 

...and yes we certainly do have a 'bubbles bubble'.

Every second 'expert' uses the buzz word to add impact to what his message is.

As I stated once before, the only real bubble I have ever seen is the Tokyo property market, and its allied stock market in the late 1980s/1990s. I CANNOT see a real bubble anywhere in the world at the moment.


OC

 

I think we do not think. These bubbles are ubiquitous. There is so much news about the news, with one outlet repeating opinion from another outlet, we lose sight of the original causes and effects and start to give credence to the hype more than the substance.

 

Gold and silver certainly are not in a bubble. Does that mean that they would be a good thing to buy now based on the idea that they are not over priced?

 

Certainly!

 

That can't be true.

First of all, if currency (which can be considered an investment class by itself) is expanding in quantity as much as or even more than asset prices, then currency is also in a bubble as big or even greater.

Second (and consequently), we perceive a rise in all investment classes because we are measuring them in something that is always being printed and therefore depreciated. But different classes rise at different paces, once nothing is never perfectly balanced. In truth, the ones rising less are actually falling whereas the others are the ones trully rising.

Third (and finally), if currencies don't allow you to perceive those differences, stop using currencies as reference to value everything else. Compare stuff with stuff or simply pick another investment unit (from a different class) to work as reference.

 

Massive expansion of the money supply is devaluing people's holdings of currencies. Investors are chasing yield, they want a return on their assets, which is why they are pumping money into asset classes that provide better returns than simply holding cash. So while cash/fiat itself can be considered an asset, its one that is rapidly being devalued by central banks and investors are rushing to put it into something else.

Investment yields are generally correlated with risk. Everyone understands (or should) that different asset classes have different risk profiles. Its stating the obvious to say different asset classes show differential returns over time.

Sure, use an once of gold as the base unit, or a barrel of oil, a Big Mac or even lap dances.

 

Show me everything that is losing lustre amongst investors as that is the first flag for the beginning of a bull market and I would not mind to spend some ours looking at it in order to assess the investment potential.

To answer your 4 questions, first I must say I believe in wealth cycles. I believe in the human nature to intuitively seek for everything that is rising and to run away from everything that is falling. That causes growing unbalances and ultimately bubbles in what people ran to and extremely low valuations in what people flatly avoided. Every bubble is doomed to burst and every historical bottom is doomed to rise (eventually entering in a bull market). Note that I'm talking about investment classes, not companies. A construction company can go to zero, real estate can't (we will always need houses). A jewelry company can grow 80% per year for 10 or 20 years (as long as it's still far from the total market size), precious metals can't. This is what I believe in, which is both supported by logic and history.

Now, answering your questions:
3 - In the short-term, no one knows. In the long-term, sure.
4 - That kind of desperation will only increase the bubble on popular investment classes and increase the opportunity on less popular ones.
2 - It depends. The burst of the current bubbles will quickly affect the price of metals (and everything else that doesn't burst). While that doesn't happen, you can expect more or less the trend we have been seeing (unless there is a supply drought, which would make the prices to spike). When will those events take place? Nobody knows. But as soon as they happen, silver and gold prices will only go one way... up.
1 - Too many factors to take into account make it impossible to predict the sequence of events and the ultimate results. Pay attention to: the currency huge bubble, the stock bubble, the real estate bubbles of different countries (which defer a lot), the value of gold and silver in comparison to the last bubble and historical average values, the metals demand and supply and future trends, among other factors.

 

Yes it is devaluing...but not as much as the quantity is expanding. You can only assess the "popularity" of an investment class by the total amount of value there is on it. And you can only get that number by mutiplying value by quantity. In other words, if currency is experiencing a great expansion while the migration to other investment classes is not as great, then we can say there is an increase (probably irrational or unaware) in popularity on currency as an investment.

I'm neither talking about yields nor risk. Sure that companies pay dividends while metals can't go out of business, meaning that different assets carry different kinds of risks and returns. In the end, investors value them differently and thus each one of them gets a fair value (nothing wrong with that). The issue is when they begin to deviate from their fair value, either by rising or falling (according to the popularity they get).

 

To be practical, gold and silver fell badly during the last crash.
To my mind, bubble=crash.

 

#8,

I forgot one small "bubble", and that was Poseidon Nickel. Went from a couple of bucks to $280 in a matter on months, if not less.

I had a workmate that had recently paid off his house. Re-mortgaged it and put the lot on at the very top. Cost him his marriage.

OC

 

Everything's in a bubble except the metals!!!

 

Focusing on gold, one reason could be that large investors consider gold not so much as an investment asset but as a zero-yield store of value. And it's all about yield.

Additionally, it has been claimed that the gold price is negatively correlated with investor confidence in future economic performance and political/social stability. Overall, investor confidence is very high at the moment which diverts money out of gold and into stocks, real estate, etc.

 

You can work with a bubble you know? Can ride inside it & benefit, watching the signs, whilst your metals talk to themselves in your draw. They'll shine sure! But not just yet.

Learn to time things. Get in. Get out.

I've mentioned before how my miners are going. I began watching a small list I'd researched as they were reduculously undervalued.

2 months down the track. Wanna know the percentages on each I could've earnt had I jumped in & stayed a little while? I got out only to enter oil. I'll soon know where I'm at with that. Wouldn't do it again but, bubble? What bubble? Sure it's not fear driving the concern? Gina's sure waiting on the Vic gov to approve her little gas punt she's sitting on......er,,,,,what does she know (along with other politicians in the game)?