30 Charts Proving We’re In The Mother of All Financial Bubbles

Sentiment about the U.S economy continues to rise, but the looming threat of financial bubbles and economic crisis on a global scale could not be higher.

“The ‘big, fat, ugly bubble’ that Trump as a presidential candidate identified in the stock market is real and is currently being allowed to fester.

Financial bubbles have multiple facets (China, property market, etc) and could very well be expanded beyond this list. But selected below you will find 30 charts from government, private sector and independent research outlets proving that we’re in the mother of all bubbles.

The higher these bubbles get, the more dangerous the fall.

1.The Inflationary Boogeyman

Economist Lance Roberts delves into exactly what interest rates and economic growth reveal in the economic environment – it does not look pretty.  The Effective Federal Funds Rate seen below in a flatline shows just how big a problem the U.S central bank is in.

Inflationary Boogeyman

Roberts writes, “With Yellen, and the Fed, once again chasing an imaginary inflation ‘boogeyman’ (inflation is currently lower than any pre-recessionary period since the 1970’s) the tightening of monetary policy, with already weak economic growth, may once again prove problematic.”

“The biggest fear of the Federal Reserve has been the deflationary pressures that have continued to depress the domestic economy. Despite the trillions of dollars of interventions by the Fed, the only real accomplishment has been keeping the economy from slipping back into an outright recession.”

Real Investment Advice

2. Even The Rich Are Feeling the Squeeze

The Hamptons, deemed by Forbes as Where Wall Street’s Richest Retreat, are experiencing a considerable slowdown in the residential housing market. When even the top 1% of the 1% of Americans are in a housing slowdown, questions begin to rise as to how sustained our economic recovery is.

Hamptons Housing Market

Housing Hamptons Bubble

The Wall Street Journal reported this slowdown and noted that it was in part due to “too much overpriced inventory—and it is rising.” When prices are too outrageous for even the top income earners, a Wall Street housing bubble could follow.


3. Big Money Hits Historic Levels

Bloomberg ran an article looking at the growth of the hedge from industry noting that “Hedge Fund Assets Pass $3 Trillion in 2016 for First Time.”

Hedge Fund Bubble

The article expands upon this massive growth in assets, “The industry, which saw about $70 billion in outflows last year, had about $2.9 trillion in assets in 2015.”

The bigger they grow, the harder they fall.


4. Debt Slaves At Risk of Debt Crisis

Debt is no stranger to the American public. From financing cars to massive home mortgages, debt is a part of everyday life – and getting bigger. While an abundance of methods track just how debt burdens impact households, it is clear that America has a massive debt problem.

Wolf Richter writes, “There are many ways to measure household indebtedness and debt burdens. Comparing total household debt to the overall size of the economy as measured by GDP is one of the measures.”

“And per this household-debt-to-GDP measure, Americans are in 10th place with 78.8%  and look practically prudent compared to the peak just before the Financial Crisis (via Trading Economics):

Wolf Street

5. China is Going Broke

Goldman Sachs reveals its estimate on size of China’s debt… It ain’t pretty. China has a massive difference between the overall debt burden it currently holds in contrast to the overall GDP level it has been able to maintain for growth.

China's Debt Growth

China Debt Rising

The indicators above were created by financial giant Goldman Sachs’ research in which they claim the  unfolding trend, “raises questions of sustainability over the medium term, given the already-large increase in China’s debt-to-GDP ratio in recent years.”

When the top dogs on Wall Street begin to raise questions, the party is almost over.

Business Insider

6. Subprime Auto Loans: The Next Financial Bubble?

Jamie Dimon, head of JPMorgan Chase during a call with investors last July noted his growing worry about the “stretched” automotive loan market.  Dimon noted that while he does not believe it is “a systemic issue” there are considerable risks.  If Dimon’s record speaks for anything, be worried and know that it will likely be much worse (Wall Street does not have a great record for calling crashes – hell, look at 2008).

auto bubble

Subprime Auto Risk

Jeff Desjarins notes at the Visual Capitalist, “Subprime auto loans – which are riskier loans made to customers with poor credit – have helped to drive the market since the Great Recession.”

“However, with auto loan delinquencies ticking up in recent months, investors have been searching for answers about the sector.”

Visual Capitalist

7. Latest Cause of U.S. Economic Depression: Demographics

Not only is our economy slowing, but our population is now hitting its oldest on record.

U.S Aging Demographics

Economist Jim Rickards reports that, “Since economic growth is simply the sum of workers and productivity, the lack of population growth means fewer workers and, therefore, less economic growth.”

“Productivity is declining, also making the situation worse.”

The last time this happened to such an extent in the U.S. was during the Great Depression of 1929–1940.”


8. Too Big To Fail – Again

The top bank holding derivatives Citigroup, was the same bank in 2008 that saw its toxic derivatives and subprime debts explode, has over $55.6 trillion in holdings.

That means that not only are Citigroup and banks of its size and complexity holding a massive amount of money being speculatively bet, but that the risks are being backed by the U.S government.

Derivatives in the U.S

During a press conference in March 2016 while speaking on financial reform President Obama said:

“Irresponsible, risky bets with inadequate safeguards and that reward executives who take those risks greatly, can cause enormous damage to our economy overall..”

He went on to champion the reforms made and the false accusations by the press noting that, “Wall Street reform, Dodd-Frank, the laws that we passed have worked. I want to emphasize this because it is popular in the media, in political discourse, both on the left and the right, to suggest that the crisis happened and nothing changed. That is not true…”

In retrospect, the most disappointing and dangerous part of his conversation was when he announced that the administration was taking action. President Obama said:

“We are moving in the derivatives sector; a huge amount of oversight and regulation and now you have clearinghouses that account for the vast majority of trades taking place so that we know if and when somebody is doing something that they shouldn’t be doing; if they’re over-leveraged in ways that could pose larger dangers to the financial system.”

The derivative world, where Wall Street continues to hedge its bets, has not been stopped.

A large percentage of activity surrounding derivatives continues to happen in the dark. If and when this bubble pops, the extent of its damage could present catastrophic levels of burden on the U.S government and its taxpayers.

Office of the Comptroller of the Currency

9. Housing Prices in Western Economies on Steroids

Growing fears of a ‘massive’ global property price drop take root under growing conditions that signal a slow-down in the market. Across three different continents, housing prices have increased in exponential ways.

This rapid ascension surpasses the pre global financial crisis levels and offers an entirely new standard from which the world’s economy could fall in the perils of a housing bubble.

Western Housing Price Inflation

Catherine Mann, the Organization for Economic Co-operation and Development (OECD) chief economist said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”.

The Telegraph

10. Chinese Credit Soars

China has been a leading supplier of global goods over the past several decades. As many economist have written about the booming Asian giant, the demand for credit in the country since the global financial crisis has taken on in drastic ways.

The threat of economic turmoil and what it might do to the Chinese (and therefore global) economy is real.

Chinese Credit Bubble

Jim Rickards tells us, “So far, the Chinese government has been able to contain the damage from these bursting bubbles with monetary ease, bailouts and market manipulation. But the biggest bubble of all — the credit bubble — may now be getting ready to burst.”


11. Recession Speculation Swirls: Federal Reserve is Stuck

Ambrose Evans-Pritchard notes that, “The world has never before been so leveraged to dollar borrowing costs. The Bank of International Settlements data show that debt ratios in both rich countries and emerging markets are roughly 35 percentage points of GDP higher than they were at the onset of the Lehman crisis.”

The fact that the Federal Reserve cannot get out of its own way, in the face of a potential recession shows how grave an economic bubble threat is.

Federal Reserve Nominal GDP

“It is a little scary. When nominal GDP slows like that, you can be sure that financial stress will follow. Monetary policy is too tight and the slightest shock will tip the US into recession,” said Lars Christensen, from Markets and Money Advisory.

The Telegraph

12. Holiday Shopping Numbers Signal Lost Confidence

Black Friday is dead. Even holiday spenders know something is wrong.

According to the National Retail Federation, 36% of shoppers said all of their buys were sale items. When big even big ticketed items (electronic appliances, high-end retail) are not selling on traditionally high volume days – the economy should realize that deterioration is real.

Black Friday Shopping

Greg Guenthner tells us, “The data is clear: it’s becoming increasingly difficult to get customers out to stores on Black Friday.”

To this point, not only is it difficult to get them out – but it is even more of a challenge to get them to spend on normal priced inventory.

The Rude Awakening

13. Government Holding the Bill

Below is the total consumer loans that are currently being held by the U.S government that are outstanding.These consumer loans are made up primarily of mortgage loans and other big ticket real estate areas.

The sudden rise at seen at the end of the chart – that’s not normal.

Federal Reserve Money Holding

As one U.S treasury report noted, “Any abrupt change in the liquidity or performance of
these legacy assets is unlikely to spill over into broader financial markets.”

The Treasury report directly referenced the commercial real estate because they tend to shift loans and “move along with broader economic cycles” while ultimately impacting the total consumer loan operation.

The broader economic cycle experienced shows a drastic difference from the historic norm that had been part of the American experience.

The Federal Reserve Bank of St. Louis

14. Exploding Student Loan Debt

Student loan debt continues to hit record high numbers. This means that those entering the workforce, and entering into a participatory level of the economy bring a debt load that has never been seen before.

Mark Kantrowitz, one of the nation’s leading student financial aid experts noted, “I also found that students who graduate with excessive debt are about 10% more likely to say that it caused delays in major life events, such a buying a home, getting married, or having children.”

Student Loands Owned and Securitized

“We have gained an increasing understanding that how we finance post-secondary education has significant effects on a variety of critical economic outcomes, including economic growth and inequality,” William C. Dudley the president and CEO of the Federal Reserve Bank of New York.

The Federal Reserve Bank of St. Louis and Graphiq

15. Government Debt Soaring

The government debt-to-GDP has shot to levels not seen in well over three decades.

According to the OECD, “General government debt-to-GDP ratio is the amount of a country’s total gross government debt as a percentage of its GDP. It is an indicator of an economy’s health and a key factor for the sustainability of government finance.”

U.S Government Debt

The chart above is based on general government debt data from the Organization for Economic Co-operation and Development (OECD) that gathered data from 1995-2014 evaluating U.S debt-GDP. The massive swing in data upwards as you reach 2014 show a clear skyrocketing effect of general government debt.

The bubble that might just pop could be best seen in the dependency of government activity in debt.


16. Household Net Worth/GDP At-All Time High

David Stockman, Ronald Reagan’s former budget director notes this troubling trend cannot be sustainable. He tells us, “Even after the financial crisis and the results of deleveraging, the household leverage ratio is still in the nosebleed section of history at 180% of wage and salary earnings.” Meaning households are still heavily in the weeds in terms of what they make as opposed to what the economy is doing.

Household Worth and GDP

Stockman offers his analysis, “The screaming risk embedded in the green line of the graph above can be readily specified. Since 1999, for example, the value of owner-occupied residential real estate in the Fed’s Flow-of-Funds report (F/F report) has risen from $10.1 trillion to $22.7 trillion or by 5.2% annually.”

The current $22.7 trillion mark-t0-bubble for residential real estate has far less capacity to be sustained than the similar peak back in 2006, and a lot farther to fall when the day of financial reckoning finally arrives.”

Federal Reserve Bank of St. Louis and Contra Corner

17. Market Prices at Record Levels

When stock market prices reach such highs, some would argue that it becomes outright dangerous to own and invest in stocks. The potential for a massive bubble at such heights in places seen like the Russell 2000 should offer particular alarm.

Market Prices

According to Bloomberg, the financial sector make up over 27% of the index. This shows that a major portion of the financial industry is integrated within the price valuations that have hit never seen before levels.

Federal Reserve Bank of St. Louis

18. The Cheap Money Debt Trap

Bloomberg reports that the mortgages that were set in 2007 are set to mature after eclipsing the peak levels seen in 2008.

“A $90 billion wave of maturing commercial mortgages, leftover debt from the 2007 lending boom, is laying bare the weak links in the U.S. real estate market.”

Cheap Debt

The fact that the U.S commercial space has surpassed the rates at which were present during the global financial crisis should send out a warning sign. The artificial money that was pumped into commercial-property space pose a particular set of exposure to the real estate market – again.


19. The Booby Trap of Federal Debt

According to the New York Times, the Federal debt is projected to expand by a massive $10 trillion in the next ten years.

Federal Debt Held

This federal debt is of particular concern in when deliberating who might be left to bailout banks or the general public in the instance of another financial bubbles in the market.

The Congressional Budget Office (CBO) which is a strictly nonpartisan operation from the U.S Congress that conducts objective, impartial analysis notes that, “If current laws remained generally unchanged, deficits would follow an upward trajectory over the next decade, driving up federal debt.”

Congressional Budget Office

20. Dow Jones Worse than 5 Years Ago

Wolf Richter of Wolf Street notes, “Apple, whose revenues have skyrocketed by over 1,000% since 2006, from $19.3 billion to $216 billion, became a Dow component in 2015, replacing AT&T. And its revenues weren’t part of the 30 Dow components until 2015.

Total Revenues from Dow Jones

“So here’s what the aggregate revenues of the Dow components look like without Apple (blue columns) and without Apple but with AT&T (brown columns). A pure stagnation fest:”

He goes on to offer analysis that, “In both scenarios, revenues in 2016 were lower than they had been in 2008. Only 2009 and 2010 were lower. So in terms of revenues, 2016 was for the Dow components ex-Apple the worst year since 2010! And this despite the five-year binge in acquisitions!”

Wolf Street

21. S&P and Blind Bubbles

The chart below shows the cyclical nature of bubbles experienced within the S&P 500 and the historical trends of prices given in the market. We have reached levels, yet again, not seen before. While that might seem like a good thing in the market, it just means when (not if) the bubble pops it has a significant amount to drop.

David Stockman blasts the blindness of the market saying, “the S&P 500s ratio of EBITDA to TEV (market equity plus net debt) is now truly in the sky-box section of history. It has never been close to the current level of 11.3X—except during a few months of sheer stock market mania at the turn of the century.”

S&P 500 Bubble

Stockman lashes out, “Yet fools claim to see not even a hint of bubbles anywhere on the horizon.”

David Stockman’s Contra Corner

22. Rising Prices on Staple Items

Jeff Desjardins illustrates in the Visual Capitalist how “Prices Are Skyrocketing, But Only For Things You Actually Need.”

While inflation pushes prices up across all areas of a given market, the U.S has experienced a moderate increase in specific areas of the economy.  When prices begin to be artificially set, the market reset can offer high-highs and when the cycle breaks very low-lows.

Remember dinosaurs like Circuit City or Radioshack? The memory of such staple “corner stores” could soon come to those sectors experiencing significantly higher prices. When it does, the bubble, as the always do, will pop.

Rising Inflationary Goods

When the Consumer Price Index (CPI) rises over 55% over the past two decades, it shows that price inflation and overall consumer activity can be widely impacted when a bubble pops in a sector that is artificially high.

Visual Capitalist

23. Systemic Banks and Systemic Risk

Big banks are as connected and dangerous as they were before the 2008 crisis. The IMF reported that Deutsche Bank was “the most important net contributor to systemic risks.”

The threat of banks being so interconnected is that once they fail, or if they hit market turbulence, it can cause a contagion effect across the world. When one bank catches a cold, the next catches pneumonia.

Deutsche Bank Derivatives

According to the IMF report, “The blue, purple and green nodes denote European, US and Asian banks, respectively. The thickness of the arrows capture total linkages (both inward and outward), and the arrow captures the direction of net spillover. The size of the nodes reflects asset size.”

International Monetary Fund

24. Banks Bigger, More Leveraged Than Before

The phrase too big to fail might be passed around faster than it it is mentally digested. But the big banks will leave an even bigger crater when the celestial debt bubble crashes down.

According to the U.S Treasury Office of Financial Research, “Bank size is an important component of systemic risk.”

Think size matters? The bubble size below should sound the alarm:

Liability of Big Banks

Leverage of Big Banks

“…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults.”

“High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…

“The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system.”

The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.

Office of Financial Research

25. Price Shock in Order

Price to earnings cover exactly what people are making in relation to what they are spending. The chart below shows that the U.S economy is back on the roller coaster and headed for historically dangerous territory.

The cyclically adjusted price-to-earnings ratio has reached a current level seen in the three largest equity market declines in the last century. As you can see in the chart below:

Price to earnings ratio

“Commercial real estate prices have also climbed, and capitalization rates, one measure of the return expected on a property, are close to record lows. A price shock in one of these markets could threaten U.S. financial stability if the assets were widely held by entities that use high levels of leverage and short-term funding.

“A price shock that coincided with a sharp increase in U.S. corporate defaults would amplify the risks… We are concerned about the market risks facing U.S. banks and insurers.

Office of Financial Research

26. The Great American Slowdown

The GDP over a 10-year period is on a long and scary trend downward. A Gallup research report offers exactly where the economic trends per capita are headed.

A Gallup study in collaboration with the U.S. Council on Competitiveness released in December 2016 revealed analysis of “Long-Term U.S. Productivity” and showed drastic declines.

Gallup polling growth slowdown

The Gallup study remarks that, The study finds there is no recovery. Since 2007, U.S. GDP per capita growth has been 1%.”

“The Great Recession may be over, but America is dangerously running on empty.”

The report’s author got this representation based on “the real GDP per capita growth line is based on the author’s analysis of data from the Bureau of Economic Analysis. Growth rates are in inflation-adjusted dollars calculated over 10-year intervals and reported in annual terms.”

While examining financial bubbles, this graphic shows that not only are we artificially high in the markets but that U.S productivity is drastically behind.


27. S&P Trends Off the Deep End

According to second quarter reports released to the S&P 500 companies records, the earnings decline from second quarter of 2015 to 2016 was -3.2%.

While that drop might seem minimal, according to a FactSet report “The second quarter marks the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009.”

S&P 500 Evolution

That means the financial trends year-over-year are back to 2008 levels. Remember, 2008-2008 was when the U.S (and the world) experienced the worst economic shock since the Great Depression.


28. Productivity Outlook: Nowhere Close to Normal

The Federal Reserve Bank of St. Louis produced a Total Industry Capacity Utilization release. According to the regional Fed bank it defined this as:

“the percentage of resources used by corporations and factories to produce goods in manufacturing, mining, and electric and gas utilities for all facilities located in the United States (excluding those in U.S. territories).”

Translated from Fed speak: That means the percentage of available American resources being used.

Just before the financial crash Capacity Utilization measured at 80.9%, recorded in November 2007.  The utilization since then has meandered, and since November 2014 has been on a decline. As of November 2016 the Fed measured overall Capacity Utilization at 74.3, a considerable decline in resources being used overall – showing a drastic output potential in decline.

Capacity Utilized

In a nation where economic growth  sluggish recovery (or lack of recovery) persists, the slump in demands for products year-over-year is a long-run formula for disaster.

Federal Reserve Bank of St. Louis

29. Central Banks Suck Up Money

The biggest central banks in the world have seen a jump is assets as they hit $21 trillion as of October 2016.

That is 29% of the size of the global economy as of 2015 figures (double what it was before the 2008 financial crash).

Central Bank Growth

Bloomberg reported that, “the accelerating expansion of central banks’ balance sheets comes as debate rages over whether their asset purchases and continued low interest rates are creating bubbles…”

To answer the debate question they posted – yes, these central bank moves are creating massive bubbles.

As David Stockman told his Contra Corner readers, “the entire dynamic of the global bond market and financial system for the past two decades has been capture of the false bond price premiums being created by the massive central bank balance sheet expansion shown above.”


30. Housing Crisis Goes Global

According to Maslow’s hierarchy of needs shelter is a pivotal component of human motivation. That draws particular concern after the International Monetary Fund (IMF) released a report in December 2016 showing that global housing prices have reached the same levels that they were at the onset of the global financial crisis.

In a survey of 57 countries, the IMF measured simple average price index levels and found that, while there are differences across countries, increased vigilance is needed.

Global Housing Crisis

Jim Rickards reports that, “This time the property asset bubble is global, including high-end real estate, commercial office space, and warehouse facilities. (Subprime is under control, but that’s small compared to prime housing and commercial real estate. It’s never exactly the same twice.)”

“This real estate bubble is in addition to all of the other bubbles in stocks, emerging markets corporate debt, high-yield, Chinese credit, and developed economy sovereign debt.”

Rickards warns, “Cash, gold, and silver may be the only true safe havens when the next crisis hits, probably soon.”

Chart via International Monetary Fund

While financial bubbles have emerged throughout history under a variety of conditions, the clear and present danger of this economic environment presents that the threat is real.

Understanding the various factors, and exactly what to watch for can leave you better prepared when examining the market. It will also allow you to stay above the mainstream messaging and see financial bubbles before they pop.

Semper vigilans,

Thanks for reading,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning