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Bitcoin is not the only bubble around



You may have noticed how the term "bubble" has recently picked up a hidden partner. In financial media, now it is usually accompanied by the word "bitcoin".

At this time, there is even some bubble in the whole history of the "bitcoin bubble".

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Take a look at the Google search trends table for the term "bitcoin bubble". In the last week, the number of people seeking this term has skyrocketed. The price of bitcoin also broke the price threshold of US $ 10,000 during this period. Coincidence?

Regular readers will know that I've been playing with bitcoin for some time now … (see Stop procrastination and buy bitcoin now and The bitcoin bubble is just beginning). But I also recognize that the broader cryptography market is becoming bubbly … in some ways, it is more than absurd.

Example? A friend of mine sent me this screenshot today. It's a LinkedIn post from someone in your network. Take a moment to read it.

Now, one thing is "shill" (that is, blatantly) an initial cryptographic currency offer (ICO). But look at the language used. For example, "It is projected at 1000x in less than 1 year". For real? A return of a thousand times in a year? Who is projecting these figures anyway?

Or jump to where the LinkedIn member said: "It will follow what Bitconnect did in less than 10 months …" – this is particularly ironic because Bitconnect is widely recognized as a very dubious Ponzi scheme type.

Ah … and the publication does not contain a single detail as to what cryptography is, what problem it resolves … nothing. Only promises of "1000x returns".

I've said it before and I'll say it again, there will be blood: sooner or later, participants in the encryption market will learn the hard way that many, if not most, of these kinds of projects will fail. It does not take a genius to realize that huge amounts of capital will be wasted during this speculative boom.

But where does this mania come from?

In my opinion, the origins of this bubble are found in another ..

Let me explain.

Money. Money. More money ….

As my colleague Kim Iskyan pointed out earlier this week, most people in the developed world are still waiting for the "recovery" to appear after the global economic crisis, almost a decade later of the crisis. [19659002] In fact, in the USA. UU It has taken a full decade for real median family incomes (adjusted for inflation) to return to their 2007 level. Economic growth has disappointed perpetually and has not fulfilled the forecasts

But meanwhile, the prices of financial assets They have shot up. The S & P500 is now 70 percent above its previous peak and 260 percent above its global economic depression.

But the real income, the monthly cash flow that families trust? That is only going back to pre-crisis levels now. There are no bubbles in the income, that's for sure …

But there is a bubble in the "money" … and it keeps growing.

Take a look at the table below. It shows the accumulated balances of the four main central banks of the world; the Federal Reserve of EE. United States, the European Central Bank (ECB), the Bank of Japan (BoJ) and the People's Bank of China (PBOC).

The Fed may be closing its balance sheet and selling assets effectively (that is, by not renewing the maturity of the bonus proceeds in new bonds). But other global central banks are not.

But it is enough to observe the magnitude of the action of the central bank in the last decade. In January 2007, these four central banks had assets worth $ 5 trillion in their balance sheets.

Today, they are almost 20 billion dollars … and still growing . Central banks are still injecting more and more money into the global financial system.

Let me ask you this: do you think that bitcoin is going to US $ 12,000 (its current price) in the absence of this relentless tidal wave of money printing? 19659002] I do not.

And take a look at the following table: this shows the yields of 10-year government bonds for the US. UU., Japan, Germany and the United Kingdom since 1990. Despite hitting bottom in recent months, yields remain near record lows.

In other words, you can not get performance for love or for money.

And although it seems that it does not get much time in the air these days (with all eyes on the market value of US $ 210 billion of bitcoin), there is still US $ 11 billion of outstanding debt offered to investors a negative performance, in other words, a guaranteed loss [19659000] [19659002] A negative performance asset is crazy. The value of eleven billion dollars is madness.

In this context, is it any wonder that money flows into non-traditional asset classes such as cryptos in search of profits?

Junk squeezed

The return profiles are everywhere compressed.

Take a look at the following table that shows the historical differential of high yield debt (ie, junk / non-investment grade) on "no risk" treasures.

A spread of 350 basis points (3.5 percent) over Treasuries, spreads of junk debt are close to their lows of several decades, hit just before the global economic crisis .

Where and when does it end?

No one can answer this question.

But the simple fact that, a decade after the global economic crisis, central banks are still investing trillions of dollars in the financial system, should care about everyone.

Tell me, what are you going to do when this global economic cycle ends? [19659002] What will they do if we face a particularly acute global contraction?

Print a few trillion dollars more? Buy more bonuses? Are interest rates stuck again below zero?

I do not have the answers to these questions. Nobody does it.

Good investment,
Tama


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