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2017: The Year of the Bubbles

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2017 may well go down in history as the year of the bubble.

We’ve talked a lot about the stock market bubble in recent months, but there are a whole slew of bubbles floating around out there – most of them created by loose monetary policy that has dumped billions of dollars of easy money into the world’s financial systems over the last eight years.

Even the Federal Reserve has taken notice of the stock market bubble and seems to be a bit spooked by the monster it created. According to the most recent FOMC minutes released by the Fed, several participants “expressed concerns about a potential buildup of financial imbalances,” in light of “elevated asset valuations and low financial market volatility.”

But the stock market isn’t the only bubble that’s blown up over the last year. Earlier this month, Mint Capital strategist Bill Blain warned us about the bond bubble.

The truth is in bond markets. And that’s where I’m looking for the dam to break. The great crash of 2018 is going to start in the deeper, darker depths of the credit market.”

We’ve also reported the student loan bubble and the auto bubble. We even told you about a shoe bubble. Last summer, US Global Investors CEO Frank Holmes called global debt “the mother of all bubbles.”

Bank of America chief investment strategist Michael Hartnett recently said he expects the stock market bubble to burst in 2018. He said the record number of investors calling equities overvalued combined with simultaneously falling cash positions “an indicator of irrational exuberance.”

Icarus is flying ever closer to the sun. And investors’ risk-taking has hit an all-time high.”

Hartnett has also put together some interesting bullet points that reveal the expansive bubble economy created by eight years of central bank intervention. Hartnett calls 2017 “a perfect encapsulation of an 8-year QE-led bull market.”

  1. Da Vinci’s “Salvator Mundi” sold for staggering record $450 million
  2. Bitcoin soared 677% from $952 to $9700 (and still going up)
  3. Bank of Japan and the European Central Bank were bull catalysts, buying $2.0 trillion of financial assets
  4. Number of global interest rate cuts since Lehman hit: 702
  5. Global debt rose to a record $226 trillion, record 324% of global GDP
  6. US corporates issued record $1.75 trillion of bonds
  7. Yield of European HY bonds fell below yield of US Treasuries
  8. Argentina (8 debt defaults in past 200 years) issued 100-year bond
  9. Global stock market cap jumped1 $15.5 trillion to $85.6 trillion, record 113% of GDP
  10. S&P500 volatility sank to 50-year low; US Treasury volatility to 30-year low
  11. Market cap of FAANG+BAT grew $1.5 trillion, more than entire German market cap
  12. 7855 ETFs accounted for 70% of global daily equity volume
  13. The first AI/robot-managed ETF was launched (it’s underperforming)
  14. Big performance winners: ACWI, EM equities, China, Tech, European HY, euro
  15. Big performance losers: US$, Russia, Telecoms, UST 2-year, Turkish lira

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