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Productivity | Strategy | Profitability
Bubble eras like this are rare. They only come about every 90 years which is every two 45-year technology cycles. Think of the current peaking cycle as the Information Revolution with three phases and bubbles:
1) The mainstreaming of personal computers 1976-1989 with the 1987 stock bubble.
2) The Internet of Information moves mainstream 1992–2001+ bringing global data and knowledge to everyone, with the 2000 tech bubble, and
3) The Internet of Money, the digitisation and mainstreaming of financial assets from 2012 to 2021 with the bubble looking to peak around now at the beginning of 2022 for stocks.
From the beginning of 1976 through 2021 is 45 years. The 45-year revolution from around 1920 through 1975 before this one was about mainstreaming automobiles, radio, TV, a broad array of labour-saving home appliances and Interstate highways.
Before I go further, let me summarise my most important two fundamental cycles for predicting longer-term trends in the economy decades in advance. First, there is an approximate 40-year cycle wherein generational spending booms occur like 1942–1968 for the previous Bob Hope generation and 1983–2007 for the Baby Boom.
I innovated The Spending Wave in the mid-1980s which is simply a 46-year lag on the immigration-adjusted birth index in the U.S. for the predictable average peak spending here at age 46. That is 47 now and has been 47 in Europe and Japan, our fellow developed country competitors.
Central banks are not aware of these very basic cycles, so they were caught by surprise and just started printing in 2009, thinking it was a short-term financial crisis. After printing a whopping $1 trillion in 2009 to fight the worst downturn since the Great Depression, the economy did not recover on its own…it only needed more, much more. They ended up printing $3.5 trillion into a plateau into 2014, but now since COVID they have printed a whopping $4.6 trillion and still rising in less than two years.
HISTORICALLY FAMILIAR CYCLES
The 1968 to 1982 stock downturn and long recession was a result of the peaking of the Bob Hope generation and that down cycle to follow. It was not as devastating to stocks (although more than meets the eye when you adjust for inflation). And that unprecedented inflation was due to the massive Baby Boom entering the workforce at great expense and at first with low productivity. I can predict inflation trends past and future as they correlate most simply with another simple demographic factor, workforce growth.
Again, these generation cycles come about every 40 years and that was actually quoted in the Bible for generation cycles 2,000 years ago. You would have thought someone would have figured this out before I did in the mid-1980s, and this cycle is still not understood and accepted by mainstream economists and politicians today.
This other very fundamental cycle, and if anything, more important throughout history is that 45-year cycle in technology innovations I mentioned at the beginning of this article. Clusters of new technologies are born in similar periods like the late 1800s/early 1900s for phones, electricity, automobiles, highways, radio and TV; and the late 1930s/1940s for computers, software, and jet and space travel.
They create long booms and productivity surges when they move mainstream like in the 1950s and into the early 1970s previously, and the late 1990s into 2020 for this revolution. The generation boom did peak in late 2007, but this 45-year technology cycle would have naturally peaked around late 2019 to early 2020 on a 90-year lag to the 1929 bubble peak. Massive money printing has only exaggerated this bubble a lot and lengthened it a bit.
NASDAQ AND HOUSING BUBBLES
The crypto revolution was not really about individualised coins per se, but at first a way to finance new ventures without the huge expense and red tape of IPOs, and longer term: the digitisation of all financial assets. There are at least 14,000 crypto companies now out of this revolution, and most will go the way of the dot.com companies that crashed along with the tech wreck #1 from 2000–2002…in 2022-24 ahead.
The broader impact on investors in today’s economy is that we saw bubbles in everything from stocks to cryptocurrencies to real estate to art and collectibles, and so on. The first bubble period saw stocks bubble first led by the Nasdaq and tech stocks from late 1994 into early 2000 as the chart below shows. It advanced about 6.7 times in its intense bubble stage from December 1994 into March of 2000 in just 5.4 years. The second started getting intense after the correction into late 2015 and has been in bubble mode for 6 years now up 3.8 times since then. Since the second bubbles come from higher prices, you don’t expect them to be as large relatively.
Chart: The Two Nasdaq Stock Bubbles: 6.7X vs. 3.8X; 3.6X vs. 2.3X Orgasms
The funny thing was that the first housing bubble started AS the tech bubble was crashing from 2000–2002. Investors sold one off and jumped right into the next one. Its bubble was early 2000–into February 2006 up to 1.6 times as the next chart shows. Real estate doesn’t bubble nearly as much as stocks, but it is leveraged by mortgages. This second time stocks and housing have bubbled together into recent peaks with housing more thus far, up 1.8 times. January 4th is likely to be a top for the S&P 500. But if stocks peak and a recession ensues fast – as will be the case in this overstretched bubble – housing will follow soon and take a bit longer to fully burst and reach bottom as was the case after the first bubble. Stocks took 2.8 years to reach bottom; real estate took about 6 years into early 2012 from its early 2006 peak before stocks.
Note that most bubbles in history are around 5–6 years, although the broader bull market can be longer like late 1990–early 2000 for stocks. I’m calling the bubble periods only for the most intense surges for stocks here, not for the longer bull markets they occur within.
Chart: The Two Housing Bubbles
With the second housing bubble not really starting to kick in until early 2012 with its bubble is now going on 10 years. Stocks didn’t really hit their bubble period until early 2016 forward, or about 6 years now into the S&P 500 peak thus far on January 4, 2022 – again, more typical and similar to the last bubble.
Here’s the important point here. Both of these bubbles look ready to peak here, stocks will hit a little sooner and harder given their faster-moving nature. And this will mark the end of this rare bubble era, and by far the most extreme and global in history as central banks have gone wild with their newfound monetary tools. This was like giving a sack of candy to a 5-year-old-kid and expecting them not to eat it all right away!
SIT ON THE SIDELINES AND WAIT
This is the one time in your life where you should not listen to your stockbroker or financial advisor and just wait this correction out. It will not be a normal 10%-20% correction as it appears thus far. It will be a once-in-a-lifetime crash like late 1929 to late 1932.
After the 1929-32 crash, stocks went down 89% and did not get back to those levels until 1953, 24 years later. This time I expect stocks to go down as much as 86% from such an extreme bubble and with the plateauing demographics in the developed world, we may not even reach these levels quite again even at the peak of the Millennial spending boom in 2037 or so. But even that would be 16 years to at best get even.
Real estate did not have such aggressive mortgage financing available back in the Roaring 20s bubble (50% down 5-year term loans typical).
Hence, real estate did not bubble up anything like now and crashed 26%. This time real estate is set to crash 40% to 50% to get back down to reality.
This crash looks to be happening now and proof will come soon as the first wave for stocks is typically down 45% in less than 3 months and as much as 50%+ this time. This is the time to seriously review all of your financial assets and sell the ones you can and NOW for stocks and ASAP for real estate which takes longer to sell, but also tends to peak a little later.
I know this sounds extreme, but this bubble is the most extreme in history and bubbles always and only burst, and NEVER have soft landings. You risk a little more upside if I’m wrong…you risk most of your ass-ets if I’m right! EG
