It’s Bubble Time!

It's impossible to predict with certainty how much more insane our financial markets will get before an inevitable correction. But my personal bet is: A lot!

For my reasons why, take a few minutes to watch the chapter on bubbles below from The Crash Course. For those who haven't seen it before, the takeaway is this: bubbles pop only when greed in the market has been exhausted:

Bubbles make no sense economically. Or rationally. But they happen all the time as a part of the human condition.

Even while financial bubbles are enabled by dumb monetary and banking decisions, their actual genesis is rooted in primal human emotions. Greed on the way up, and fear on the way down.

The hardest part about these bubbles is not being swept up in them.  As the above video shows, history is chock full of asset bubbles. We humans just never seem to learn. Like Charlie Brown's endless attempts to kick Lucy's football, we get suckered in by the promise of easy riches, only to end up flat on our back when the market suddenly yanks that promise away.

Wash, rinse, repeat.

Most of you reading this might be thinking “Hey, I’m a reasonable intelligent person. I won't fall victim to the next bubble.” Perhaps, but maybe not. The numbers say that the majority of you will. Unfortunately, being smart -- even a genius -- is no protection against being ruined by a bubble.

Remember from the video that even Sir Isaac Newton, easily one of the most brilliant humans ever to live, got his clock cleaned by the South Sea Bubble:


Bubbles are much easier to enter than to exit. As they build, all your friends and neighbors are diving into the pool and enjoying easy riches. You deserve some of that good fortune, right? And there will be plenty of eager parties willing to help you get on the bandwagon. 

But when the bubble pops, though, action becomes much harder to take. At first, everyone assumes that the sudden drop is a temporary aberration and that the party will shortly resume. As prices fall further -- and they typically fall at a faster rate than when they were rising -- folks become paralyzed by fear on the way down, slowly realizing that their paper profits may indeed be gone for good. At first they're unwilling to give up the dream of the "sure thing" they so recently had, and then, once the losses start mounting, they find themselves resistant to locking in those losses by selling. Instead, they hold on to the increasingly threadbare hope that prices will at least recover to where they can ‘get their money back.’

Of course, that never happens. For all those who bought in during the mania, their money was hopelessly betrayed the moment they placed their bet. And that’s what bubbles are – merely bets. And that bet is: I bet I can get out before everyone else.

That’s mathematically impossible for the majority. It’s really only possible for a very tiny few who have the vision and the discipline (and more often than not, the luck) to pull it off. Very rare are the people who get out at the top.

Don't Be A Victim

So, to avoid becoming victim in the future, the first thing you need is the clarity to know when you have a bubble on your hands.

Well, it really doesn’t get any clearer than this:

Why Toronto (and Other Cities) Inflate Housing Bubbles to the Bitter End

Feb 20, 2017

“Let’s drop the pretense. The Toronto housing market and the many cities surrounding it are in a housing bubble,” Bank of Montreal (BMO) Chief Economist Doug Porter told clients in a note last week.

Many have called it “housing bubble” for a while, but now it’s official, according to BMO.

In January, the benchmark price and the average price were both up 22% year-over-year, with the average price of detached homes up 26%, of semi-detached homes 28%, of townhouses 27%, and of condos 15%. Double-digit price increases have become the rule in recent years.

But this jump was “the fastest increase since the late 1980s – a period pretty much everyone can agree was a true bubble – and a cool 21 percentage points faster than inflation and/or wage growth,” Porter explained in his note, cited by BNN.


Holy smokes! Or rather, what are people smoking up there? Bubble weed, or something. A 22% yr/yr gain? On top of a string of recent years of double-digit gains?

Here are two more features about bubbles we need to keep in mind:

  1. Bubble exist when prices rise beyond what incomes can sustain
  2. Bubbles always have a blow-off top

First, house prices rising a ‘cool’ 21 percentage points above wage growth over a single year is the very definition of bubble behavior. Simple math tells us that anyone who borrows to buy property eventually has to pay that loan back.

The money to pay back that property loan comes from wages. Ergo, property prices and wages cannot depart from each other forever, or even for very long, without a lot of repayment defaults resulting.

As for ending in a "blow-off top", that's just how history tells us bubbles finally exhaust themselves. They draw in every last sucker and lazy-thinking ‘investor’ until there's no "greater fool" left willing to pay a higher price. This doesn't require 100% participation from the local population; only 100% participation from everyone who can be drawn in. When that finally happens, that’s when the bubble bursts all of its own accord.

There's another way for a bubble to end, but it practically never happens. Responsible bankers and lenders could prevent the bubble's formation by simply not lending ridiculous amounts. It almost never happens for the same reasons that people buy overpriced houses: greed and our social programming to follow the herd. If all your banker buddies are making big bucks writing loans to anyone who can fog a mirror, then you'll be rewarded for doing the same. Nobody wants to be the lone, unpopular voice urging restraint when the crowds are going wild.

The quotes below from the 1850’s show how this dynamic is nothing new to society:

“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.”

“In reading The History of Nations, we find that, like individuals, they have their whims and their peculiarities, their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

Charles Mackay,in Extraordinary Popular Delusions and the Madness of Crowds

Well, the good people of Toronto -- as well as Vancouver, Palo Alto, Melbourne, and a large number of other real estate markets -- have fixed their minds on the delusion that the recent skyrocketing price appreciation means that home prices will continue to always rise from here. So get in now! You can't lose! Don't risk getting priced out of the market!

What particularly crazy about this is that we just saw 10 short years ago how this movie ends. But those caught up in the current mania simply aren't thinking logically right now. They're fully captured by the bubble mania.

And, as before, it’s lonely out here for those of us trying to be the voice of sanity and reason. Nobody want’s to hear that now.

And later, once the painful correction has wrought its destruction, those of us who dared to sound an alert may be blamed as responsible for the losses - as if by pointing out the delusion we caused the burst to happen.


I could go on and on, risking being the boy who cried wolf, and point out all the other obvious bubbles infecting our financial landscape that all but assure a very difficult future of financial and economic pain.

But I won’t at this time, having already pointed out the major bubbles in last week's article, The Mother of All Financial Bubbles.

The delusion much of society wants to believe in is that we can get something for nothing. That is, to become rich, all we have to do is buy an asset like a house or Apple stock and simply wait.

The wealth will just magically arrive. No work performed, nothing new created, nothing done. Just buy, and wait.

Of course, even a cursory examination of all of life in nature (or before humans invented thin-air money printing) quickly reveals that actual wealth comes from hard work, usually coupled with taking risks.

But somehow we’ve slipped back into the common and very human delusion of that our current culture has somehow figured out how to escape the old bonds of wealth creation. This time is different!

The Romans re-minted coins in smaller and less pure weights and it worked! For a while. Then its empire collapsed on itself.

Zimbabwe (and now Venezuela) printed and it worked! For a while. Then its citizens were left impoverished.

Society's dangerous conceit is in thinking that somehow we’ve managed to, this time, escape the hard rules of wealth creation and have discovered a new principle by which we can all get wealthy without doing anything at all. All you have to do is play the game. Put your money to work! Buy stocks and houses and you can't go wrong!

And it’s working! For now.

But when we back up a bit, it’s pretty easy to see how this cannot be true. Not for the majority. Why? Because real wealth isn't a paper gain on a house. Nor is it even money in the bank. Or a large stock portfolio.

Real wealth consists the final things you consume: food, appliances, transportation, entertainment, clothes, energy, etc.

Those are real things. They have to come from somewhere. Which means they have to be produced, stored, transported, and sold. By themselves, your cash and your stock portfolio have no value. Those are merely claims on true wealth.

So how can it be possible for everyone to be exponentially increasing their claims on real wealth, without the underlying pie of real wealth itself, increasing at an equivalent rate?

It’s not.

And that’s the painful lesson that gets learned and re-learned as each new generation gets duped and then dumped by an asset bubble.

Sadly, bubbles used to happen only once in a generation. Once those burned by the last bubble have died off, the younger generation has no living memory to prevent them from getting suckered by the next one. But for some reason, our current generation has something of an addiction to bubbles. We've lived through the tech stock bubble, the real estate bubble, and now we're living inside the 'everything' bubble.

What's wrong with us?

My advice is to sell your house if you live in Toronto, or a similarly bubblicious real estate market. Similarly, reduce your exposure to stocks and bonds at these record highs, and develop a wealth protection strategy with a financial adviser who understands the risks in today's markets.

Know what the bubble signs are and be smarter than Newton by standing aside, nodding knowingly, and tolerating your "smart" friends and neighbors.

It’s one of the very hardest things to do, but it’s also one of the most important.

Odds are high you'll be proven the smart one once the current bubble bursts.

And if you haven't read it yet, read our report How Bad Will It Get? in which we detail the tremendous scale of the losses that will result when this Mother Of All Financial Bubbles collapses. It will be a traumatizing time for society, and many, many people will see their wealth vaporize.

The key objective at this time is to position yourself for physical and financial safety. For those who do will be in a position to prosper greatly, as well as offer much-needed support to others, when the coming reset arrives.

Click here to read the report (free executive summary, enrollment required for full access)

~ Chris Martenson

This is a companion discussion topic for the original entry at

“Debts that can’t be paid back won’t be paid back.”
Is it more morally sound to allow defaulters to default or to implement a Steve Keen type Jubilee.
Or is that a false choice?
I have in mind a one-two punch of robots for production and virtual reality for humans.
There are two ways to approach infinity. We can expand into the procedurally generated universe or we can create our own universes.
Both are highly creative and counter entropy.

The biggest bubble I’m really concerned about is the fossil-fuel based one…although living in the Greater Toronto Area and witnessing the obscene price increases in housing the past few years and experiencing the ongoing push by my local council to keep expanding the suburban blight by paving over finite arable land, are pretty high up on my list of worries as well!

I want to share my perspective with boots on the ground. First of all, this city is very sick. I was born in Toronto and have lived here my whole life. It’s changed A LOT. Maybe it’s the external “shocks” that have people acting a certain way, but the city is not like it used to be. It’s a complete rat race now. Although, now that I think of it, before I wasn’t really involved or submerged in the rat race so I guess I can’t say for certain. In any case, here are a few points of how people justify (a term I use very loosely) a purchase of a home/tiny sh*thole for a ton of money.
1.) Housing always goes up – seriously, they say this.
2.) Toronto is still cheap on a square footage basis compared with other major cities around the globe (LA, NY, London, Hong Kong, etc), which leads to….
3.) HAM - Hot Asian Money. This is a big part of the marketing here in Toronto. I’m kidding, but realtors will talk about this a lot.
4.) Interest rates are low - this is my point, but I don’t use it to justify buying a home, it just helps me rationalize what’s happening. Also, for those who are unfamiliar, in Canada, I’d say 99% of people have 5-year fixed or variable mortgages. We have 10 year fixed, but no one goes for those. Another thing to keep in mind is that we can’t write off the interest to mortgages here.
5.) Immigration! Hundreds of thousands are coming into the city every year who will obviously need places to live…duh.
6.) No more land. Within the city, there’s no more land. If you want a single family detached home (avg now 1.2m I believe), there is limited supply. This is the market that has really taken off. The semi-detached market has also skyrocketed and condos have appreciated, but not nearly the same.
If you want a real laugh, check out this website for the Real Estate Expo in Toronto next month. “Real Estate will be the hottest money making opportunity for investors in 2017. Interest rates are at all-time lows, homeownership hit all-time highs and the stock market is plunging.”

“stock market is plunging”!!! !!! Hahahah. It gets me every time. These guys make the investment industry look good.

My friends are all getting married and are having kids so they are stuck because they want to raise a family in a home. What are their options? It’s very easy to get sucked in, especially when the banks are willing to lend obscene amounts of money and encourage the purchase. I have friends who are very intelligent and have well-paying jobs (100k+ CAD), but completely ignore the risks. Again, what choice do you have? If your family and your job are here and this is all you know, it’s difficult to stay in a 500sq ft box in the sky, which still can cost $500,000 easily depending on location. They aren’t going to move out of the city so they look at the monthly payments, crunch some numbers and say, we can do this!
I find it gets more difficult to live here every day that goes by. Traffic and pollution have gotten much worse. Infrastructure can’t keep up and is falling apart. The debt the city has is astonishing yet they keep funding more and more projects. While I think all the time of my next move and I’m trying to still figure out what that looks like, I also love the city I grew up in. I’ve grown up to really appreciate the diversity, culture, all the different pockets and neighborhoods. The nature within the city and surrounding it. It’s been incredibly safe. You wouldn’t feel threatened walking around alone at any time of day or night. Everyone who visits has good things to say. I’m so angry because of all the madness that’s gone on and the poor decisions and irresponsibility that I find myself not able to afford to live in my hometown. As far as cities go, Toronto is a great one. At least it used to be.

Half a world away, I feel the frustration too - I grew up in Sydney.

I’d like to see an article (from both sides) on the concept of moving to a cashless economy. It seems to me to fit Government agendas perfectly - the ability to print to the moon, taxing at source, the ability to see who earns what, spends what, how much etc. It would preclude any possibility of a bank run happening ever again - and presumably close off a hyper-inflation event. The technology already exists and it would be relatively easy to implement. It may initially lead into higher inflation but could also lead back to healthier levels of interest. I’m not sure what the effects would be on PMs - possibly quite disastrous - but that again plays into the Government agenda. Stock and bond markets would continue to flourish. It should also iron out currency fluctuations and speculation.
I wholly agree with those that say it would eventually fail by leading to cultural unsustainability. But it’s a can that could be kicked well over the horizon and certainly beyond my shelf life.
Chris/Adam - your thoughts?

“a cursory examination of all of life in nature (or before humans invented thin-air money printing) quickly reveals that actual wealth comes from hard work” (C Martenson)
Chris, I would argue that with a few exceptions, wealth among non-human life does not exist. And in those exception, the amount wealth is very limited. Alpha males in a few species have harems or prime hunting territory. Animals such as squirrels accumulate acorns for future consumption. Some primates have tools. Otherwise the only things of value in the natural (non-human) world are food, water, mates, and for some species shelter, none of which can be accumulated. It’s as though life was designed to prevent wealth accumulation. Wealth, for the most part, exists only in the human world, and without money it would be much harder to accumulate wealth.
Imagine what our standard of living would be without money and credit. Imagine what it would be without money, credit and fossil fuels. In that sense we are members of just a couple fortunate generations that had access to all three, and man have we screwed it up!

As stocks and asset prices have continued their inexorable levitation since 2009 the financial media has provided all sorts of supporting rationale every step of the way. Obviously, the most recent rationale is Trumpflation, whatever that means. As time has gone on I’ve had my own theories why the prices can’t levitate any further, and being wrong just about every step of the way. My most recent rationale was that TPTB were juicing the markets to get HRC elected.
Anyway, I certainly agree that prices must massively deflate (at least in relative terms) at some point given the ever increasing divergence between our debt based monetary system which must increase in an exponential fashion, and our dwindling vital resources on earth such as fossil fuels. So, the $64 trillion question going forward is where is the weakest link is in regards to our financial system, as that’s probably the spot TPTB are going to funnel the most money & resources. It also may reveal the potential duration of that support.
My current theory is that State, City, and private pension programs are the weakest link in regards to needing the ongoing propping of markets. We all know these pensions are precariously underfunded because of underlying growth assumptions being wildly off by orders of magnitude. If these pensions took another hit, very real pain would felt in an extremely broad fashion on the masses. Dallas is the most recent example to a long list of cities. Trickery & financial gimmickry that is done at higher levels can not be done at these local levels. So, TPTB will probably continue propping up stocks helping these pensions for as long as possible. Once people of all walks of life start getting $.20 on the dollar for 35+ years of accrued pension funds crap will hit the fan it true ptichfork & torch fashion. It will be game over on many different levels. My working theory is that this means money printing & low rates for longer than anyone can imagine, probably to the point of a complete currency crisis.

The Dow roared back today, and just happened by mere happenstance, that it went green 10 seconds before the closing bell…11th straight record!!!
Longest record streak in 30 years!!
All is well!!!

I like watching ABC national news just to get a pulse of what’s being spewed out to the American people. Anyway, last night they reported about the 140 JC Penny store closings. The ‘news’ was pondering why in world this is happening especially in the context of mass store closings from Macy’s, Sears, & K-mart. The only possibility they could come up with was online shopping was the obvious answer. There’s absolutely no mention that the economy could possibly be contracting. If you say something long enough eventually people start to believe it as perception becomes reality.
Main point being if TPTB control the MSM, keep calling every other source as fake, continue controlling the ‘markets’, and makes strides in minimizing all capital exits by the populace via a cashless society, etc., then this financial crap show can on much, much longer than any of us can imagine.

dryam2000 wrote:
Trickery & financial gimmickry that is done at higher levels can not be done at these local levels. So, TPTB will probably continue propping up stocks helping these pensions for as long as possible. Once people of all walks of life start getting $.20 on the dollar for 35+ years of accrued pension funds crap will hit the fan it true ptichfork & torch fashion. It will be game over on many different levels. My working theory is that this means money printing & low rates for longer than anyone can imagine, probably to the point of a complete currency crisis.
I concur that at some point the weakness in the system will manifest in a way TPTB have a hard time massaging/hiding. Pensions is one likely possibility. A money grab (a mandatory exchange of 401-k/IRA/money market accounts for "Freedom Bonds"?) to tide things over is also a likely intermediate stage. The TPTB are idiots, but they aren't fools. They might run the financial sitch off the rails but it's not like they can't imagine torches & pitchforks. So I keep coming back to scenarios in which they can suspend "temporarily" "for the good of the nation" the usual rules (ie confiscate savers' funds and give them [worthless] Freedom Bonds), and I get ideas like major war and/or pandemic. For an optimist, I can countenance some fairly bleak scenarios... VIVA -- Sager

It is amazing to experience, just how incredibly effective it is.
We have mostly “liberal” friends, because of our interest in localism, permaculture, organic gardening, etc. So when out with friends and acquaintances, different groups who do not know each other, when the conversation invariably rolls around to politics as it always does these days, the exact same “trumpisms” are rolled out. I mean really, I am thinking to myself, “is anybody here capable of independent thought”?! These are college educated professionals mind you.
So when I counter with, the Clinton’s/Obama deregulated the banking system, gutted the social safety net, cheer leaded us into wars, gutted the middle class with onerous trade deals, set up the prison industrial complex, turned a blind eye or supported corruption, were soft or silent or environmental regs/global warming, increased defense spending, oversaw the militarization of the police, supported and extended the reversal of Posse Comitatus, and the “Patriot” act, etc. and on and on. Usually the response is either complete incredulity, or well I guess you’re right. Did people experience collective amnesia after the election?!
No propaganda, damn it works so, so well. It is scary as hell.

My circle of friends is much like yours in their political leanings. When I have had the temerity to mention the sins of Clinton/Obama in an attempt contexualize the Trump phenomenom the response has mostly been: a) an assumption made that I am a Trump supporter (which I am not) or b) emotion/anger or both.
Since I like having friends, I have quietly added politics to the list of topics that are off-limits to comment on (as are most of the topics discussed here at funnily enough). I think I have a lot of tongue biting ahead of me...
But as we are in our safe space heresmiley I will take this opportunity to recommend a very good article entitled Are We Witnessing a Coup Operation Against the Trump White House? When I suggested as much to friends last week the response in that particular case was fortunately merely incredulity, So I put a sock in it. In any case, Lawerence makes the case far more convincingly than I did.
Thank you all for indulging me in a bit of self-pity.crying

I am also stunned by the effectiveness of propaganda.
You can show people an up close video of a building being blown up, but first set their expectations that it is collapsing and it is perfectly normal and expected, and they will “see” a collapse. And if you tell them that the top of the building is falling and crushing the lower portion (pile driver mechanism), they will see that in the video, even though it makes no sense at all and there is absolutely no evidence of this if the videos are watched closely.

Or they can be shown a building that is a classic implosion demolition, (WTC7)–yet they are mad when you point out the characteristics of an implosion to them.

Stunningly effective.
Here on TheEllenShow a magician does an awesome magic trick. Here is its explanation.

Reminds me of mind tricks like “this building is collapsing and this is normal and expected” and “these are not the droids you are looking for.”

simply exploit people who trust you and it is very easy to deceive them.

… when the poor get destroyed by the bubble, followed by the wealthy and powerful and connected having all their losses and even missed profits made good on the backs of the non-participants…
You know, when a new mode of operation opens up, it stays open as an acceptable path. The most recent example would be the TARP payoffs, followed by massive banker bonuses.
So as you tolerantly smile and nod, don’t forget that you’re on the hook for your neighbor’s bad behavior, because even if he exits or doesn’t exit, he ramping up the “missed profits by the powerful” that you’ll have to pay for. I’d suggest that you follow the smile-and-nod with a punch to the nose.
Not a thing of unforgiveness, just a warning shot across the bow. Feel free to miss.

Is our illusions, that we live a democracy, that we have fee markets, that we can continue to do what we are doing and things will just work themselves out. We are surrounded by a manufactured reality, manufactured financial data, a manufactured political reality, and “reality” TV. Its the Truman Show and we are all actors in our own reality. If you look around you can find some of the directors:
But right now it seems that many of us are too busy pursuing our own self interest to care:

But it seems that Trump's unwillingness to bow to the deep state may finally pop this biggest of all bubbles. If they do manage to destroy him politically and put another puppet in office, the process may be more eye opening then is planned. Meanwhile the deplorables are all busy making other plans. Being abandonded by the system is the biggest favor it could have for us.

Every nation and situation has unique characteristics, so we have to be careful about projecting models on specific examples, but since I have a couple of correspondents in Venezuela, I am continually awestruck by the unstoppable decline of a once-wealthy nation to widespread poverty due entirely to central state policies that favor state control of essentially everything and the cronyism that arises from that control.
Once a currency loses its value, everyone dependent on that currency is impoverished. We had a Venezuelan acquaintance who saw the writing on the wall 5 years ago, and devoted every waking moment to the struggle to legally move whatever she could into Brazil. (Not just money, but her business and personal possessions.) It wasn’t easy even then, as the state strictly limited currency conversion and transfers out of the country, and what could legally be taken out of the country. Now it has become essentially impossible.
There are few ways out in the late stages of this sort of state-engineered collapse. A prescient person who converted their Bolivar “wealth” 1/3 into USD, 1/3 into gold coins and 1/3 into bitcoin 5 years ago and moved whatever they could into other countries would still have something via one of these external forms of money. This is a key reason why I see value in bitcoin–it cannot be “stopped at the border” or outlawed via blocking bank transfers. Peer to peer trading of bitcoin is essentially impossible to limit, as China is now illustrating.

About Bitcoin, and crytocurrencies in general (See MREES recommendation of the current investability of Ethereum tokens elsewhere on this website).
CHS said,

Peer to peer trading of bitcoin is essentially impossible to limit
And this is true. While China has cracked down on Bitcoin exchanges - and opinions vary as to whether this is to protect people from various exchange-driven ponzi or leverage schemes vs. simple capital controls - the fact remains that peer-to-peer cannot be stopped. It's important to distinguish the difference between any government's ability to clamp down on exchanges vs. peer-to-peer usage.

My Momma always told us kids “Don’t lie to people. Pretty soon they catch on and then won’t believe anything you say anymore.” Or anything you have ever said in the past.
And Charles–I’m opening a bit coin account.