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FRED
10-01-08, 11:13 PM
http://www.itulip.com/images/sueddeutsche.de.jpgThe Last Bubble

by Eric Janszen

Written for the German broadsheet daily

http://www.itulip.com/images/suedd.gif

Oct. 2, 2008

That was it. The housing boom. The leveraged buy-outs. The high flying hedge funds. Mega houses. Super cars. Big dreams of endless credit. All gone. All over. Done, once again.

A fantasy creation of the latest grand experiment in global Ponzy capitalism. A Disney world of wealth produced by debt.

This last great credit bubble grew since 1980 until its peak in 2007 when nearly US$5 of new debt was needed to fund a single dollar of US national income growth up from US$1 a generation before.

It started when the US abandoned the international gold standard in 1971, replaced with a global monetary regime based on dollars that the US could issue in unlimited supply. Nations outside the US created dollar demand and value not as a reward to the US for a positive balance of trade but for lack of other international pricing and transaction options. As demand for dollar denominated financial assets grew, the market price of finite global commodities, such as oil, was distorted downward, interest rates declined, money became cheap.

Cheap money funded asset bubbles. The LBO bubble of the late 1980s. The 1990s technology bubble. The 2000s housing bubble.

The era of cheap credit to fund asset price inflation ended with the crash of the securitized debt market in the spring of 2007.

The physical world left behind will be with us for decades, the way the credit bubble of the 1920s haunted us with its images of excess through The Great Depression, WWII, the Soviet era, all the way into the 1980s in some nations before the wave of socialization and nationalization receded and market economies recovered, before finance capitalism arose once again.

As we face the economic wreckage of the second credit bubble in a century to rebuild, our leaders will promise restoration of the mirage. But our old debt based reality was a fantasy, a dream. We have no more chance to recreate it than we have in the morning after waking from a lovely dream to fall asleep again back into it while the alarm is ringing.

To preserve the great institutions of American capitalism, government will need to cut tax subsidies to non-productive industries, such as real estate, become less dependent on borrowing and domestic consumption, encourage saving and investment, and reallocate financial and human capital to rebuild America’s physical and economic infrastructure, a new economic foundation that nurtures the next generation of globally competitive American private enterprise.

In a decade, after our economy recovers, the history books will echo the age-old refrain “what were we thinking?”

Eric Janszen is the Founder & President of iTulip, Inc., previously CEO of Bluesocket, Inc. and Autocell, Inc., EIR Trident Capital, Managing Director Osborn Capital.

Adeptus
10-02-08, 02:05 AM
So erhem... How can this be the last bubble (which I agree) if you in Harper's magazine talk about the next infrastructure / alternative energy bubble?

EJ, did you underestimate the size of this bubble's pop? Am I not understanding your Harper's thesis somewhere? (I'll admit, I'm a newbie), or can you confirm a new outlook based on recent events?

Love your site and especially the intelligent user comments - Thanks for sharing (everyone!)

Adeptus.

Wild Style
10-02-08, 12:17 PM
Adeptus

In EJ's Harper's Magazine piece, I thought he said the "new" economy will be based on alternative energy, infrastructure etc. He said it doesn't have to be in the form of a bubble. It may be a bubble but this isn't 100% certain.

don
10-02-08, 12:53 PM
With respect to the forum quoted, Dos iz alts!

Yiddish for 'that's it, it's all over, it's gone..."

:cool:

jtabeb
10-02-08, 01:20 PM
Adeptus

In EJ's Harper's Magazine piece, I thought he said the "new" economy will be based on alternative energy, infrastructure etc. He said it doesn't have to be in the form of a bubble. It may be a bubble but this isn't 100% certain.

Key question is how long? or how fast to get there?

In his harpers article, EJ hints at one last big push to get this new bubble rolling before the collapse of the previous ones makes it not possible.

I'm wondering if he still thinks that is possible.

I personally think so, the more things change, the more they stay the same. (There is ALWAYS going to be a bubble in a FIAT capitalist system SOMEWHERE.) The question is can you get on the train before it takes off and get off before it crashes)

The argment seems to be if all the trains have crashed, what are you going to catch a ride on?

I think that people should remeber ONE THING.

It takes an extrodiary amount of credit to finance the "next bubble".

The source of that credit is usually in response to a "crisis" like LTCM, Asian currency crisis, Latin amercian debt crisis, etc, etc. So, from where I'm sitting, we've got our crisis, and soon we will have our huge influx of new credit in response to that crisis, AND a real need for infrastructure and alt-e. So puttiing this all together to me means ONE THING.

The GAME IS AFOOT. (GAME-ON!!!)

You may all have a different view and take a different approach. Me? I'm throwing down and pillling into all of the plays that I wanted to make, but have not yet done so.

(Not all at one time of course) But my words of wisdom would be

"Accumulate, CAUTIOUSLY " but keep a big pile of ready cash until you see clear signs. (As an aside, when I was screaming at people to buy gold in 2004, no one would listen and it did basically nothing, till last quarter of 2005. It was worth the wait and the ridicule, trust me.)

And remember, successfully riding one bubble can make you comfortable, two in a row can make you well-off. Three and you are done.

(Didn't play Tech, +100% in housing, +300ish% PM still holding that so not really fair but just to illustrate, ?? ALT-E) remember thats not cummulative, that's percentage gain during each, cummulative is about +600% in 5 years, not bad and I DON'T TRADE except to get in and get out. I'm keepin my PMs though, I don't think they are close to done yet (BTW you can't buy much of any physical now, near zero supply in Ag/Au eagles, maples, 100oz CMX silver bars) , my free capital (about 30% cash) is going for new next bubble.

I'm though step #2, I'll let you all know how #3 turns out.:D

V/R

JT

Not investment advice, just letting you know what I've done and am going to do. You MAY poke fun from the sidelines, (I encourage you to do so) that's why I'm here.:)

bill
10-02-08, 01:46 PM
Getting rid of toxic paper via a few bailout bills and placing it in take the loss slowly government vault will clean balance sheets. Capital re-inflate processing companies can then ramp up and get the next bubble on its saving the economy way.
Going to get exciting in a few weeks when we know who will be our next policy bill producer. We know the theme, getting it right investing in the details over the next 6-12 months will be the fun part.

ax
10-02-08, 01:52 PM
Key question is how long? or how fast to get there?

In his harpers article, EJ hints at one last big push to get this new bubble rolling before the collapse of the previous ones makes it not possible.

I'm wondering if he still thinks that is possible.

I personally think so, the more things change, the more they stay the same. (There is ALWAYS going to be a bubble in a FIAT capitalist system SOMEWHERE.) The question is can you get on the train before it takes off and get off before it crashes)

The argment seems to be if all the trains have crashed, what are you going to catch a ride on?

I think that people should remeber ONE THING.

It takes an extrodiary amount of credit to finance the "next bubble".

The source of that credit is usually in response to a "crisis" like LTCM, Asian currency crisis, Latin amercian debt crisis, etc, etc. So, from where I'm sitting, we've got our crisis, and soon we will have our huge influx of new credit in response to that crisis, AND a real need for infrastructure and alt-e. So puttiing this all together to me means ONE THING.

The GAME IS AFOOT. (GAME-ON!!!)

You may all have a different view and take a different approach. Me? I'm throwing down and pillling into all of the plays that I wanted to make, but have not yet done so.

(Not all at one time of course) But my words of wisdom would be

"Accumulate, CAUTIOUSLY " but keep a big pile of ready cash until you see clear signs. (As an aside, when I was screaming at people to buy gold in 2004, no one would listen and it did basically nothing, till last quarter of 2005. It was worth the wait and the ridicule, trust me.)

And remember, successfully riding one bubble can make you comfortable, two in a row can make you well-off. Three and you are done.

(Didn't play Tech, +100% in housing, +300ish% PM still holding that so not really fair but just to illustrate, ?? ALT-E) remember thats not cummulative, that's percentage gain during each, cummulative is about +600% in 5 years, not bad and I DON'T TRADE except to get in and get out. I'm keepin my PMs though, I don't think they are close to done yet (BTW you can't buy much of any physical now, near zero supply in Ag/Au eagles, maples, 100oz CMX silver bars) , my free capital (about 30% cash) is going for new next bubble.

I'm though step #2, I'll let you all know how #3 turns out.:D

V/R

JT

Not investment advice, just letting you know what I've done and am going to do. You MAY poke fun from the sidelines, (I encourage you to do so) that's why I'm here.:)

Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.

jtabeb
10-02-08, 02:13 PM
Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.

Ash, I'm jealous of you. Here I am still playing games in the military and you are living and Oregon and get to tickle the wife and beat the kid every night. (The wife and I are both from Eugene, my son is an Okie and my two daughters are Jersey Girls). Wish you all the best, my friend.

Slimprofits
10-02-08, 04:57 PM
Getting rid of toxic paper via a few bailout bills and placing it in take the loss slowly government vault will clean balance sheets. Capital re-inflate processing companies can then ramp up and get the next bubble on its saving the economy way.
Going to get exciting in a few weeks when we know who will be our next policy bill producer. We know the theme, getting it right investing in the details over the next 6-12 months will be the fun part.


We need more of bill on the Itulip forums!

Senator Clinton on the floor of the Senate yesterday:



In fact, we will be stimulating the economy for Main Street while we pass this rescue package for our credit markets. I think that is the right combination. But we need to do more. Instead of toxic securities that nobody can understand, are so complex and lack all transparency and accountability, banks should be investing in clean energy facilities in Buffalo or new auto manufacturing plants in Detroit to build more fuel-efficient cars.

We should be repairing our bridges, our roads, our tunnels. We should be investing in high-speed rail and making sure Amtrak is not a second-class railroad but competes with the best anywhere in the world.

Congressional Record (http://frwebgate.access.gpo.gov/cgi-bin/getpage.cgi?dbname=2008_record&page=S10215&position=all)

rj1
10-02-08, 09:00 PM
It's impossible to prevent bubbles just as much as it's impossible to prevent a stock to become overvalued. They'll always exist.

metalman
10-02-08, 09:40 PM
Who would poke fun of those returns? For all of our back and forth on this site about policy and economic direction, the bottom line for all of us is capital preservation/expansion. A road map through the world's largest casino is always appreciated. Thanks and good luck.

until the harper's article bubbles were a mystery, or dopey accidents of madness of crowds. now we know how they happen. we are watching one form before our eyes. the deregulation. the tax subsidies. somewhere bankers are cooking up new financial products to fund it. the media are lining up to sell it.

it's awesome.

jtabeb
10-02-08, 10:11 PM
It's impossible to prevent bubbles just as much as it's impossible to prevent a stock to become overvalued. They'll always exist.

False, notice I said in a FIAT capitalist system (and with out 100% reserve requirement) in that case yes.

metalman
10-02-08, 10:41 PM
False, notice I said in a FIAT capitalist system (and with out 100% reserve requirement) in that case yes.

how come no bubbles in france since john law?

how come no housing bubble in france but one in spain in the 2000s?

the riddle is solved: government and law.

jtabeb
10-03-08, 10:27 AM
the riddle is solved: government and law.

I stand corrected:)

(should have said in the US FIAT CAPITALIST DEREGULATED NON 100% RESERVE REQUIREMENT CREDIT BASED ECONOMY), better?

tombat1913
10-16-08, 03:55 AM
until the harper's article bubbles were a mystery, or dopey accidents of madness of crowds. now we know how they happen. we are watching one form before our eyes. the deregulation. the tax subsidies. somewhere bankers are cooking up new financial products to fund it. the media are lining up to sell it.

it's awesome.
I agree, it's phenominal seeing it happen when you know what they're up to. However, it seems for some reason EJ is not sure that a new bubble is even possible anymore.

tombat1913
10-16-08, 04:06 AM
Whoa, wait a minute! Is the Alt-E bubble out? Can't they devise some new mechanism to replace FIRE and re-stimulate the economy? All we really need is the F to create TECI, the IRE can crash.

jtabeb
10-16-08, 10:42 AM
Whoa, wait a minute! Is the Alt-E bubble out? Can't they devise some new mechanism to replace FIRE and re-stimulate the economy? All we really need is the F to create TECI, the IRE can crash.

I think what EJ is realizing is that a new bubble will NOW require a new monetary system as a prerequisite. (It's comming BTW, hang in there guys)

friendly_jacek
10-16-08, 10:44 PM
C'mon, haven't you noticed the latest bubble?
Its so easy to see, it's everywhere!
So funny EJ and itullipers didn't notice it yet.

The presence of the new bubble was tipped by Paulson trying to prevent it from happening in the first place: ...short ban.

It's shorting and inverse ETF universe, you know, SKF, QID, SDS, FXP, DUG and all that good stuff.

Now, if you late to the party, enter at you own risk! We all know what happened to people rushing to china stocks in october 2007, gold in march 2008 or oil in July 2008.

tombat1913
10-16-08, 10:51 PM
C'mon, haven't you noticed the latest bubble?
Its so easy to see, it's everywhere!
So funny EJ and itullipers didn't notice it yet.

The presence of the new bubble was tipped by Paulson trying to prevent it from happening in the first place: ...short ban.

It's shorting and inverse ETF universe, you know, SKF, QID, SDS, FXP, DUG and all that good stuff.

Now, if you late to the party, enter at you own risk! We all know what happened to people rushing to china stocks in october 2007, gold in march 2008 or oil in July 2008.

I hardly think short ETFs classify as a bubble.

friendly_jacek
10-16-08, 11:23 PM
I hardly think short ETFs classify as a bubble.

Why not?

http://www.whoscounting.net/Whos%20Counting%20Three%20Stages%20of%20Truth_file s/image001.gif<!--[endif]--> "All truth passes through three stages. First, it is ridiculed.
Second, it is violently opposed. Third, it is accepted as being self-evident."
- Arthur Schopenhauer (1788 - 1860)

tombat1913
10-17-08, 03:49 AM
Why not?

http://www.whoscounting.net/Whos%20Counting%20Three%20Stages%20of%20Truth_file s/image001.gif<!--[endif]--> "All truth passes through three stages. First, it is ridiculed.
Second, it is violently opposed. Third, it is accepted as being self-evident."
- Arthur Schopenhauer (1788 - 1860)
Fancy.

You know what, never mind. You could be absolutely right about this. I just have a feeling that if enough people sell off index shares that the reciprocals become hyper inflated, the fund managers will become just as insolvent as the banks who collateralized debt. I could be wrong, and I don't think it wise for me to try to argue on this point.

I'm not bashing the ETFs either, I put 100% of my retirement money into URPSX last October. I also sold it all last month because I don't want to be stuck holding them when they're outlawed/insolvent. These emergency actions by the SEC have happened with hours notice if any at all, so who knows what the hell they're going to do with their new found authorities.

I'm at a loss as to what to do next. Can I trust paper gold? Should I cash out, take the tax hit and buy physical PMs? Should I position for an Alt-E bubble? Can an Alt-E bubble even happen now with the FIRE economy in shambles? Is it safe to get back into shorts and ride this the rest of the way down? I have no idea. Good luck.