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TOPIC: On the Popping of Bubbles

On the Popping of Bubbles 4 months 2 weeks ago #1

  • MichaelMedici
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I think the majority of Macrovoices listeners (and sane investors) would agree that we are in the midst of perhaps the largest bubble yet in the form of the Sovereign Debt Bubble (SDB). Even if you don't agree, let's assume this is true for the sake of this post.

As someone who leans towards a macro/event driven strategy, I started thinking about this the other day and the one question i kept coming back to was What is the Catalyst for the SDB to burst?

I wanted to analyze what could possibly cause this bubble to burst, and I felt looking at prior bubbles might be a good way to do this.

Obviously the '07 Bubble was popped due to a Non-performing loan cycle, but being relatively young I'm not exactly sure what popped the tech bubble and was hoping someone could help me out. Was there a day/event/catalyst that popped the bubble? or was it simply a shift in investor sentiment?

I really see the SDB as a huge issue, but i see almost zero catalyst besides investors shifting sentiment that would cause this bubble to burst. Any and all ideas are welcome and appreciated.

-MRM
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On the Popping of Bubbles 4 months 2 weeks ago #2

  • Michael Gebhart
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My two cents would be a recession that induces a commodity crash leading to supply destruction leading to inflation from commodities and printing press happy central bankers. Michael Oliver is predicting the 30 year will fall to 2% then spike to 4%. He has been accurate so far on gold this rally so maybe he is knowledgeable:

Here is his interview:
Interview starts at 3:20

Last Edit: 4 months 2 weeks ago by Michael Gebhart.
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On the Popping of Bubbles 4 months 2 weeks ago #3

  • LBL
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MichaelMedici wrote:
I think the majority of Macrovoices listeners (and sane investors) would agree that we are in the midst of perhaps the largest bubble yet in the form of the Sovereign Debt Bubble (SDB). Even if you don't agree, let's assume this is true for the sake of this post.

As someone who leans towards a macro/event driven strategy, I started thinking about this the other day and the one question i kept coming back to was What is the Catalyst for the SDB to burst?

-MRM

One of the best explanations of money that I've seen relates to its use as a method for dividing up resources.

Before money, according to anthropologists, writing on cave walls helped to perform a similar function.

Hunting expeditions, for example, were mapped out. Whatever language was used, the Cave Wall writer had the job of communicating tactics by written and verbal communications. (My co-workers used to call it "Powerpoint Engineering".)

It worked because, or when, there was agreement. Agreement that the writing meant something &
was to be followed.

I would bet that this involved resolving minor disputes such as "no way I'm getting the hind end this time" to
"I'd rather have the hind end, it's safer."

In any case, all the debt instruments that make up that SDB only work, for the same reason as the
hunts-mapped-out-on-cave-walls worked.


So, debt instruments "backed by the Full Faith and Credit of the US government" lose value when people realize
the Wizard of Oz nature of the affair - and decide they don't like the Wizard.
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On the Popping of Bubbles 4 months 1 week ago #4

  • c8kuMacro
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Greg Mannarino one time described a 'population bubble' that had been enabled by the debt bubble. If todays monetary technologies are still the most widely accepted means of distributing finite resources then perhaps when the confidence that those technologies are functional is diminished, we will observe capital flight from them. When a critical mass of market participants is attempting to redeem their financial assets for actual resources the price of resources is likely to rise against the paper promises. Mannarino's suggestion seems to be that there are not actually enough resources to support the current population in a sustained fashion. But that we have created the illusion that there are sufficient resources because of the perception that debt is resources. If that thesis is correct then there should be a period in the future where the redemption of paper assets for resources causes the realization that the value of paper assets in actual resources terms is very dilute.

On the other hand that narrative relies heavily on market participants to behave in a way that leads them to a realization that the paper promises they hold are dilute. It is also possible that market participants will adopt new thought processes like those described by a Resource Based Economy. That is to say the popping of the sovereign debt bubble is not an absolute certainty.

Big changes in mindset have usually been adopted after big calamity though, at least historically. I think that historical pattern does tilt the probabilities towards a popping of the Sovereign Debt Bubble. The catalyst that I've heard identified and most resonates with me is the one of a "Crisis of Realization".

The crisis of realization can described by one of the elements of Complexity Theory, the feedback loop. Happening in the market participant's mind very slowly at first, and then all at once. Each participant that leaves their accumulation phase and enters their distribution phase adds to the critical mass. And from demographic studies we know that trend is accelerating (at least in the west).

So.... I guess all that is to say the popping of the sovereign debt bubble is a wave of potentiality only realized when conceived by the observer!
Last Edit: 4 months 1 week ago by c8kuMacro.
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