Energy & Commodities
Lithium prices have traveled sideways recently. So the shares of lithium miners, developers and explorers have suffered a correction. As they often like to do, speculators are temporarily rushing out of a market simply because it’s no longer going up, up, up. They’re probably piling into Bitcoin.
Folks, nothing goes straight up (not even Bitcoin). A cooling off in the lithium market is just what the doctor ordered.
Look at these charts:
The chart on the left shows the prices of lithium hydroxide and lithium carbonate in Asia. Asia is the major buyer of lithium. Since the metal doesn’t trade on an exchange (yet), we have to use transactions in Asia to track it. You can see that 2016 and ’17 were rocket rides for the metal.
Again, nothing goes straight up.
On the right is a chart showing how lithium was consumed in 2016, the latest data reported. You can see that half of all global lithium consumption was used in energy storage. That’s all the batteries that go into electric vehicles (EVs), phones, grid storage, and other electronics. Importantly, while 50% of all lithium went to energy storage, that’s up from 30% just two years earlier. This makes for a tight market.
And going forward, what is the surge in energy storage going to do to lithium? I’ll tell you. Demand for lithium is projected to mushroom over 300% within eight years.
Where will all that lithium come from?
Indeed, the tight market is going to continue to squeak into 2018, according to Benchmark Minerals and other experts. Even as new mines come online. The mines simply can’t come online fast enough. It takes many years to find and develop a deposit. And there are risks all along the way.
So, what does this tell us about the recent pullback in the Global X Lithium & Battery Technology ETF (NYSE: LIT)? You know, the fund that holds a basket of companies that are all leveraged to lithium in all sorts of ways?
It tells us that pullback is a buying opportunity. We may not be at THE bottom. Year-end is not only the Christmas season … it’s shenanigans season for metals of all types. Funds and investors big and small rebalance, take tax losses or gains and so on. The metals markets, being small, can get pushed around.
But the bottom is close. The future for lithium is clear. And that is full throttle down when the next rally comes.
All the best,
Sean Brodrick
Big announcement: Dr. Martin Weiss and I just announced precisely WHEN gold, silver, oil, and four other commodities will EXPLODE higher. Plus, we pinpointed the precise profit potential for each. Click here now for the recording of our 30-minute emergency briefing. It was just posted on our website…
THE TRANSCRIPT: New Supercycle Profits, Part I.
Martin Weiss: Over the past few months, Sean Brodrick and I have told you that we’re in for a roller coaster ride through hell.
That the era in which governments could amass debt with impunity is ending. And that a new era in which mankind pays the price for those debts, is beginning.
It will be an era of gargantuan government debts going bust.
An era when the very essence of what government is all about will come into question.
An era that will see massive government layoffs on both sides of the oceans.
And also threaten the liberties of hundreds of millions of citizens as desperate governments move to tax those citizens, spy on those citizens, and even nationalize their wealth.
It will be an era of currency wars, trade wars, civil uprisings, civil wars and even international wars. It will be an era of more government repression, authoritarianism, fascism, leading to …
Reduced privacy, reduced freedoms, reduced returns on your capital.
No, it is not a pretty picture.
According to our research, this is the first time the world has faced such a period of possible debt defaults in major nations since at least the Great Depression.
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There will be similarities, and there will be differences between now and then.
In terms of the similarities, we’ll see economies and governments reel. We’re already seeing turmoil in the Middle East, Europe, South Asia, East Asia.
And here in the United States, we’re already seeing two of our main political parties splitting apart, into warring factions.
We see separatist movements gaining momentum overseas like in Catalonia, where 90% recently voted to secede from Spain.
In Italy, where there are at least three powerful separatist movements — in Venice, in North Italy, in Sicily. Or in Belgium where the Flemish-speaking half of the nation is almost at war with the French-speaking half.
Yet, throughout it all, there are shining lights of hope for those in the know. Beacons of light that will help you grow and protect your money like never before.
Provided you keep an open mind … provided you realize that the world is changing … and provided you use the lessons of history as your guide.
That’s what we do. We predicted the troubles overseas would create a tidal wave of fight capital, and they did.
We’ve predicted that the money would flow to the safest safe haven in the world, the United States, and it did.
We told you this tidal wave of capital would drive the U.S. stock market to all-time highs, and that hashappened.
We also told you that Europe would be among the first to fall, creating tremendous profit opportunities, and now that forecast is also beginning to unfold.
France posted nearly zero growth in the most recent quarter.
Spain’s GDP is down, nearly 10% over the last three years.
Great Britain has confounded the political establishment by voting to leave the European Union.
Standard and Poor’s and Fitch have downgraded the U.K. and they’re now warning that they’re going to downgrade it again.
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And meanwhile, Brexit is a disaster both for the U.K. and for the EU. Each is going to lose a major trading partner and hundreds of thousands of jobs.
Unemployment in the European Union is already sky-high: 9.6% in France … 11.3% in Italy … 17.7% in Spain … 22.5% in Greece!
That’s more than FIVE times the jobless rate in the United States, and it’s dangerous.
But let me tell you what’s even more dangerous. It has to do with Germany, the one major economic engine of Europe.
The German Government Coalition has just collapsed. An upstart political party, Alternative für Deutschland, has surged to prominence.
What’s next? We’ve told you all along. We’ve told you that the crisis ahead is going to be a crisis of government:
Ruthless government taxation. Government repression. And government debt.
That’s why the epicenter of the next financial earthquake will be in the market for sovereign debt — the bond market.
And now that crisis is also beginning. All over the world, major sovereign bonds have been falling in value. And all over the world, their decline has barely begun.
Now here’s the biggest payoff of all: As we’ve told you all along, the crisis will continually drive tremendous amounts of FEAR MONEY into key resources, especially in two major sectors.
That’s what the Edelson Institute has predicted. It’s coming true. And that’s what the Edelson Institute continues to predict, right Sean?
Sean Brodrick: Yes, we also predicted that our subscribers would make a huge amount of money with that trend and they had the opportunity to do just that.
Martin: Could you give us the names and numbers for those?
Sean: I will in a sec, but first let me tell you about the two major resource sectors that really benefit the most from this crisis.
The first is metals of all kinds — not just precious metals like gold, silver and palladium, but also industrial metals like copper and metals that most investors know very little about.
I’m talking about energy metals — metals that are needed for lithium-ion batteries.
And the second major resource sector is OIL.
Martin. Tell us about the metals first and then come back to oil later.
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Sean: OK. Since January 2016, the price of nickel is up about 35%. Copper? It’s up 47%! Those are the industrial metals most people are familiar with.
Martin: Those are just extraordinary price increases right there.
Sean: Yes, great, great gains. But now look at the energy metals! Lithium is up about 137% in that time frame. 137%! At the same time, cobalt is up an astounding 160%!
We wrote about lithium and cobalt before any other analysts. It’s what we told our readers about in conference after conference. And as a result, subscribers should have a slew of profits.
Martin: OK, now tell us about those profits.
Sean: OK, our Integra Gold is up 31.8%. Our Sociedad Química y Minera is up 30.7%. And our Katanga Mining is up 142%. Plus 175% on Lithium Americas. I like to let those big winners run.
And most of these positions were held for less than three months. Sometimes less than a few weeks! Now, you should know that we probably won’t be re-recommending the same instruments that made us all this money so far.
Martin: That’s logical.
Sean: Right. But we WILL be recommending brand-new investments.
Martin: I get that. But when our readers see these kinds of profit numbers, they begin to wonder, you know. “Have I missed the boat?” “Is it too late for me now?”
Sean: Everything that I see in precious metals right now tells me that, after a dip, the next leg is going to be huge.
Martin: After a dip.
Sean: Yes, right. This is exactly why we decided to hold this emergency conference right now. Because this month we’re getting the intermediate correction that we warned about, and this gives us an ideal buying opportunity right now.
The key is that our cycle charts predicted this. They said two things: First that precious metals will bottom in late December. Second, these same precious metals will march dramatically higher in January.
Martin: And we have good evidence of that prediction because we were right here in this studio in a Q&A session with our subscribers, and that’s exactly what you said.
These are the same cycle charts that have been calling the big tops and bottoms in the resource markets year after year with uncanny accuracy.
Those predictions could have helped you multiply your money many times over. And now, here we are again, in December 2017, and it looks like the markets are moving exactly on queue with what we predicted in that Q&A session just a month ago.
Sean: Yes, they are.
Martin: So share with our readers some of the fundamental forces that are behind these cycles and these forecasts.
Sean: We call it the Commodity Master Wave, and it’s driven by two critical forces.
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The first is the power of supply and demand. The very fact that commodity prices have been so underpriced and undervalued for so long has caused supplies to dwindle all over the world. That is one force.
The second force is directly related to the supercycle in government debt that converged with all the other cycles just about five weeks ago.
So as this crisis unfolds, what was once considered safe to invest in — government debt — is going to become the riskiest of all. And what was once considered risky is now about to become the choice for savvy investors all over the world: Gold, silver, oil and other natural resources.
Those resources are about to emerge as the single best safe haven for global investors. Not just as hedges against inflation but more importantly as hedges against global crisis.
Martin: Now let me throw a historical perspective on this if I may? It’s something that my father taught me from an early age and his father taught him:
Historically, commodities are ideal investments in times of crisis. Because people, societies, nations — they just can’t live without them. Food. Water. Energy. Materials to build homes. And most notably, gold and silver.
Consider for example, the last time we entered a major period of economic and political turmoil — the Great Depression.
Now, there are, of course, big differences between then and now. But like today, the political instability was mostly overseas, especially in Europe.
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You had devastating, crippling, hyper-inflation in Germany in the early 1920s. The rise of Mussolini, 1922. The fall of the Weimar Republic — the German Weimar Republic — in 1933. And Hitler’s rise to power in that same year. Then the Spanish civil war three years later.
And all the while, wave after wave of flight capital was flowing from Europe to America.
Like today, investors ran away from the dangers. And like today, they flocked not only to the United States, but they also flocked to the relative safety of hard assets like commodities.
No, I wasn’t there personally in the 1930s, but my father was there. And in the 1930s he helped famous investors like Bernard Baruch, who was an adviser to many presidents, and Joseph Kennedy, the father of JFK. He helped them invest in gold, gold shares and silver.
“There we were,” he said. “Governments failing, winds of war everywhere, debts imploding and banks on the brink or failed, and surprisingly, commodity prices were suddenly going through the roof.”
Base metals prices also soared. Aluminum, for instance. It almost doubled in price in a short two-year period. Ditto for share prices of many commodity producers.
A major silver company by the name of Bunker Hill was trading for just three dollars and change. That was 1932. In 1937, it was selling for $36.25. Most investors missed that move. But a handful of savvy investors grew their wealth by 835%.
Or look at Kennecott Copper! It rose from $4.25 to $69.38. That’s a whopping 1,432% gain right in the middle of the Depression.
Or consider International Nickel. Its share price started from a low of $3.50 per share. Five years later it reached a high of $73.38 per share. That gain was 1,887%.
Anaconda Cooper was the biggest example of all. It surged from a low of $3 per share in 1932 to a high of $69.50 in 1937. That was a staggering gain of 2,116%.
Smack dab in the middle of all the same kind of turmoil that we’re seeing in the world today.
It’s little wonder that so many of our readers right now have been filling our mailbag with questions about commodities and they’re asking,
When will I get a chance to buy?
When will the real bull market finally get underway?
When will gold and silver touch bottom? When will they blast off?
Which other resource sectors are about to hit bottom? Exactly when will they explode higher?
Editor’s Note: We have just published a new, in-depth, report with all the answers. In it, we give you:
- The cycles charts that confirm that the blast-off phase in seven key commodities is about to begin …
- The facts on the ground — the supply and demand fundamentals on gold, silver, oil, copper and other Supercycle investments — which validate this conclusion …
- Gold investments projected to deliver gains of 774% … 932% … up to 1,154% …
- Silver investments projected to deliver gains of 735% … 1,063% … up to 1,493%.
The report, “Multiply Your Money Up to 16x with 7 Supercycle Windfalls in 2018,” could prove to be the most profitable report you read all year.
It’s free. There’s no obligation, no strings attached — and it could make you very rich. Go here to read it.
Good luck and God bless!
Martin

Back in May, we first reported that Goldman became the first bank to dare to ask if the Fed has lost control of the market, if in slightly more polite terms of course. This is how Jan Hatzius phrased it: “Despite two rate hikes and indications of impending balance sheet runoff, financial conditions have continued to loosen in recent months. Our financial conditions index is now about 50bp below its November 2016 average and near the easiest levels of the past two years.” Several months later, after the third rate hike, Goldman found that once again, paradoxically, financial conditions eased further, and the market rose even more in direct opposition of what Fed rate hikes are supposed to do!
Fast forward to this weekend, when we reported that that lovely word which describes the new normal so well –“paradox” – made a repeat appearance, this time in the last quarterly report by the Bank of International Settlement, which for the nth time issued an alert on the state of the stock market, an alert which will be summarily ignored by everyone until after the crash, and reminded everyone what happened the last time financial conditions eased instead of tightening when the Fed hiked rates (spoiler alert: biggest crash in modern history). This is what the BIS’ chief economist Claudio Borio said (among other things)”

I’ve been asked about Bitcoin a lot lately. I’ haven’t written anything about it because I find myself in an uncomfortable place in agreeing with the mainstream media: It’s a bubble. Bitcoin started out as what I’d call “millennial gold” – the young (digital) generation looked at it as their gold substitute.
Bitcoin is really two things: a blockchain technology and a (perceived) currency. The blockchain element of Bitcoin may have enormous future applications: It may be used for electronic contracts, voting, money transfers – and the list goes on. But there is a very important misconception about Bitcoin: Ownership of Bitcoin doesn’t give you ownership of the technology. I, without owning a single bitcoin, own as much Bitcoin technology as someone who owns a million bitcoins; that is, exactly none. It’s just like when you have $1,000 on a Visa debit card: That $1,000 doesn’t give you part ownership of the Visa network unless you actually own some Visa’ stock.
Owning Bitcoin gives you a right to … what, actually? Digital bits?
I can understand gold bugs and the original Bitcoin aficionados. The global economy is living beyond its means and financing its lifestyle by issuing a lot of debt. Normally this behavior would cause higher interest rates and inflation. But not when you have central banks. Our local central bankers simply bought this newly issued debt and brought global interest rates down to near-zero levels (and in many cases to what would have been previously unthinkable negative levels). If you think investing today is difficult, being a parent is even more difficult. I tried to explain the above to my 16-year-old son, Jonah. I saw the same puzzled look in his eyes as when he found out where babies come from. I also felt embarrassed, for my inability to explain how governments can buy the debt they just issued. The concept of negative interest rates goes against every logical fiber in my body and is as confusing to this forty-four-year-old parent as it is to my sixteen-year-old.
The logical inconsistencies and internal sickness of the global economy have manifested themselves into a digital creature: Bitcoin. The core argument for Bitcoin is not much different from the argument for gold: Central banks cannot print it. However, the shininess of gold has less appeal to millennials than Bitcoin does. They are not into jewelry as much as previous generations; they don’t wear watches (unless they track your heartbeat and steps). Unlike with gold, where transporting a million dollars requires an armored track and a few body builders, a nearly weightless thumb drive will store a dollar or a billion dollars of Bitcoin. Gold bugs would of course argue that gold has a tradition that goes back centuries. To which digital millennials would probably say, gold is analog and Bitcoin is digital. And they’d add, in today’s world the past is not a predictor of the future – Sears was around for 125 years and now it is almost dead.
A client jokingly told me that his biggest gripe with me in 2016 and 2017 was that I didn’t buy him any Bitcoin. I told him not so jokingly that if I bought him Bitcoin, he’d be right to fire me. Maybe I’m a dinosaur; but, like gold, Bitcoin is impossible to value. What is it worth? It has no cash flows. Is a coin worth $2, $200, or $20,000? But Wall Street strategists have already figured out how to model and value this creature. Their models sound like this: “If only X percent of the global population buys Y amount of Bitcoin, then due to its scarcity it will be worth Z”. On the surface, these types of models bring apparent rationality and an almost businesslike valuation to an asset that has no inherent value. You can let your imagination run wild with X’s and Y’s, but the simple truth is this: Bitcoin is un-valuable.
In 1997, when Coke’s valuation started to rival some dotcoms, bulls used this math: “The average consumer of Coke in developed markets drinks 296 ounces of Coke a year. These markets represent only 20% of the global population.” And then the punchline: “Can you imagine what Coke’s sales would be if only X% of the rest of the world consumed 296 ounces of Coke a year?” Somehow, the rest of the world still doesn’t consume 296 ounce of Coke. Twenty years later, Coke’s stock price is not far from where it was then – but on the way it declined 60% and stayed there for a decade. Coke, however, was a real company with a real product, real sales, a real brand and real tangible, dividend-producing cash flows.
If you cannot value an asset you cannot be rational. With Bitcoin at $11,000 today, it is crystal clear to me, with the benefit of hindsight, that I should have bought Bitcoin at 28 cents. But you only get hindsight in hindsight. Let’s mentally (only mentally) buy Bitcoin today at $11,000. If it goes up 5% a day like a clock and gets to $110,000 – you don’t need rationality. Just buy and gloat. But what do you do if the price goes down to $8,000? You’ll probably say, “No big deal, I believe in cryptocurrencies.” What if it then goes to $5,500? Half of your hard-earned money is gone. Do you buy more? Trust me, at that point in time the celebratory articles you are reading today will have vanished. The awesome stories of a plumber becoming an overnight millionaire with the help of Bitcoin will not be gracing the social media. The moral support – which is really peer pressure – that drives you to own Bitcoin will be gone, too.
Then you’ll be reading stories about other suckers like you who bought it at what – in hindsight – turned out to be the all-time high and who got sucked into the potential for future riches. And then Bitcoin will tumble to $2,000 and then to $100. Since you have no idea what this crypto thing is worth, there is no center of gravity to guide you or anyone else to make rational decisions. With Coke or another real business that generates actual cash flows, we can at least have an intelligent conversation about what the company is worth. We can’t have one with Bitcoin. The X times Y = Z math will be reapplied by Wall Street as it moves on to something else.
People who are buying Bitcoin today are doing it for one simple reason: FOMO – fear of missing out. Yes, this behavior is so predominant in our society that we even have an acronym for it. Bitcoin is priced today at $11,000 because the fool who bought it for $11,000 is hoping that there is another, greater fool who will pay $12,000 for it tomorrow. This game of greater fools is not new. The Dutch played it with tulips in the 1600s– it did not end well. Americans took the game to a new level with dotcoms in the late 1990s – that round ended in tears, too. And now millennials and millennial-wannabes are playing it with Bitcoin and few hundred other competing cryptocurrencies.
The counterargument to everything I have said so far is that those dollar bills you have in your wallet or that digitally reside in your bank account are as fictional as Bitcoin. True. Currencies, like most things in our lives, are stories that we all have (mostly) unconsciously bought into. (I highly encourage you to read my favorite book of 2015: Sapiens, by Yuval Harari.) Of course, society and, even more importantly, governments have agreed that these fiat currencies are going to be the means of exchange. Also, taxation by the government turns the dollar bill “story” into a very physical reality: If you don’t pay taxes in dollars, you go to jail. (The U.S. government will not accept Bitcoins, gold, chunks of granite or even British pounds).
And finally, governments tend to look at Bitcoin and other cryptocurrencies as a threat to their existence. First, governments are very particular about their monopolistic right to control and print currencies – this is how they can overpromise and under-deliver. No less important, the anonymity of cryptocurrencies makes them a heaven for tax avoiders – governments don’t like that. The Chinese government outlawed cryptocurrencies in September 2017. Western governments are most likely not far behind. If you think outlawing a competitor can happen only in a dictatorial regime like China’s, think again. This can and did happen in a democracy like the U.S. With executive order 6102 in 1933, U.S. President Franklin D. Roosevelt made it illegal for the U.S. population to “hoard gold coin, gold bullion, or gold certificates.”
However, nothing I have written above will matter until it does. Bitcoin may go up to $110,000 by the end of the 2018 before it comes down to … earth. That is how bubbles work. Just because I called it a bubble doesn’t mean it will automatically pop.
Read more on Katsenelson’s Contrarian Edge blog.

We’ve delved deep again this year in penning our annual list of 10 Outrageous Predictions. As usual, we roam the world and ride roughshod over consensus in sni ng out these supposedly highly unlikely events with underappreciated potential – events that could have tremendous implications if they come to pass. Enjoy!
For 2018
– Fed loses independence as US Treasury takes charge
– Treasury enacts 2.5% yield cap after massive spike
– Bank of Japan loses control of its monetary policy
– USDJPY rises to 150 and then collapses to 100
– China issues CNY-denominated oil futures contract
– Petro-renminbi surges, USDCNY below 6.0
– Volatility spikes on sudden S&P 500 ‘ ash crash’
– S&P 500 drops 25% in spectacular plunge
– US voters push left in 2018 mid-terms, bonds spike
– US 30-year Treasury yields rip beyond 5%
– ‘Austro-Hungarians’ launch hostile EU takeover
– EURUSD to 1.00 after hitting new highs
– Investors ee Bitcoin as governments strike back
– Bitcoin @ $1,000
– South Africa resurgent after ‘African Spring’
– ZAR gains 30% versus EM currencies
– Tencent topples Apple as market cap king
– Tencent shares gain 100%
– Women take the reins of corporate power
– Female CEOs at more than 60 Fortune 500 companies

Each quarter, Credit Bubble Bulletin’s Doug Noland posts a “flow of funds” report that analyzes the debt and securities markets data released by the Fed in its Z.1 Report. It’s always shocking to see the numbers we’re dealing with, but even more so lately as history’s biggest financial bubble starts to dwarf its predecessors.
Here’s some of the scarier data in chart form, with Noland’s commentary:
To the naked eye, percentage debt growth figures for the most part don’t appear alarming. But there’s several unusual factors to keep in mind. First, the outstanding stock of debt has grown so enormous that huge Credit expansions (such as Q3’s) don’t register as large percentage gains. Second, overall system debt growth continues to be restrained by historically low interest-rates and market yields. Debt simply is not being compounded as it would in a normal rate environment. And third, it’s a global Bubble and a large proportion of global Credit growth is occurring in China, Asia and the emerging markets. U.S. securities markets continue to be a big target of international flows.
With global Bubble Dynamics a dominant characteristic of this cycle, it’s appropriate to place Rest of World (ROW) data near the top of Flow of Funds analysis. ROW holdings of U.S. Financial Assets jumped $724 billion (nominal) during the quarter to a record $26.347 TN. This puts growth over the most recent three quarters at a staggering $2.124 TN (16% annualized). What part of these flows has been associated with ongoing rapid expansion of global central bank Credit? It’s worth recalling that ROW holdings ended 2007 at $14.705 TN and 1999 at $5.639 TN. As a percentage of GDP, ROW holdings of U.S. Financial Assets ended 1999 at 57%, 2007 at 100%, and Q3 2017 at a record 135%.
Meanwhile, the Fed’s Domestic Financial Sectors category expanded assets SAAR $2.841 TN during Q3 to a record $95.213 TN. In nominal dollars, the Financial Sector boosted assets a notable $5.085 TN over the past three quarters, almost 8% annualized growth. Notably, the sector’s holdings of Debt Securities surged a nominal $775 billion in three quarters to a record $25.425 TN. Pension Funds were a huge buyer of Treasuries during the quarter (SAAR $1.075 TN). Over the past three quarters, the Financial Sector boosted holdings of Corporate & Foreign Bonds by nominal $427 billion to $8.026 TN. More very big numbers.
One doesn’t have to look much beyond the booming Rest of World and Domestic Financial Sector to explain ongoing over-liquefied securities markets. The numbers confirm a historic financial Bubble.
Total Equities Securities jumped $1.229 TN during the quarter to a record $43.969 TN, with a one-year gain of $5.923 TN (16.4%). Equities jumped to a record 224% of GDP, compared to 181% at the end of Q3 2007 and 202% to end 1999. Debt Securities gained $171 billion during Q3 to a record $42.385 TN, with a one-year gain of $1.080 TN. At 217% of GDP, Debt Securities remain just below the record 223% recorded in 2013.
This puts Total (Debt & Equities) Securities up $1.400 TN during the quarter to a record $86.080 TN. Total Securities inflated $7.003 TN, or 9.1%, over the past year. Total Securities experienced cycle tops of $55.261 TN during Q3 2007 and $36.017 TN to end March 2000. Total Securities ended Q3 2017 at a record 441% of GDP. This outshines the previous cycle peaks of 379% for Q3 2007 and 359% at Q1 2000. One more way to look at post-crisis securities market inflation: Total Securities ended Q3 $30.819 TN, or 56%, higher than the previous cycle peak in Q3 2007.
There’s no doubt that financial sector leveraging and foreign flows (especially through the purchase of U.S. securities) continue to play an integral role in the U.S. Bubble. Inflating asset prices and resulting bubbling U.S. Household Net Worth are instrumental in fueling the overall U.S. Bubble Economy.
As we think ahead to 2018, the question becomes how vulnerable U.S. securities markets are to waning QE and reduced central bank Credit expansion. Inflating a Bubble creates vulnerability to any slowdown in underlying Credit and attendant financial flows. And it’s the final parabolic speculative blow-off that seals a Bubble’s fate. It ensures market dependency to unusually large and inevitably unsustainable flows. The Fed’s latest Z.1 report does a nice job of illuminating the historic scope of the U.S. securities Bubble. U.S. securities markets have been on the receiving end of extraordinary international flows, while inflating securities and asset prices have spurred rapid financial sector expansion.
Note that in the two “% of GDP” charts today’s numbers are compared to the previous two bubble peaks when things had gotten so far out of hand that the following year saw massive financial crises. So the fact that we’ve blown through those two previous records portends interesting times ahead.
To sum up Noland’s analysis, the US, along with the rest of the world, has entered full Ponzi, where credit has to continue to rise at unprecedented rates to keep the system from imploding. But the more credit we take on, the more fragile the system becomes. A sudden decline in equities or bonds, geopolitical tensions escalating, cryptocurrencies threatening fiat currencies, you name it, can crack the façade of normality that rising asset prices create.
