Everything Bubble
The Everything Bubble is the idea that all assets classes in the United states are in a bubble thanks to the previous decade of Quantitative Easing and Negative Real Interest Rates
- Term became popular in 2018
- Central banks propped up the economy after the 2008 crisis by offering historic amounts of liquidity
- Central banks sovereign bond bubbles by cutting rates to zero (or negative) and engaging in massive QE programs
- Idea is that all financial assets are in a mega bubble at the same time:
- Stocks
- Bonds
- Real Estate
- Commodities are the only exception!
- Caused by the unprecedented money printing after the 2008 Crisis ($3.7 Trillion)
- Trillions were printed during QE1, QE2, & QE3 in the US alone
- Balance sheet rose from 900M to 4.5 Trillion
- Trillions more were printed by Non-US Central Banks
- the Fed set rates at 0 for years
- Massive stimulus from the Fed never left Wall Street
- fueled stock buybacks, M&A deals and increased dividends = higher stock prices
- however, saddled companies with lots of debt - that eventually has to be repaid
- Concerns that Fed QT programs and rate increases will pop this bubble
Concerns
- Rise in stock prices is artificial
- The real-world "main street" economy did not grow in pace with asset valuations
- Ex. NASDAQ up 200% since 2007 previous peak (inflation adjusted)
- However, only 3% gain in industrial production over that same period
- Created a large debt time bomb and wealth inequality
People Calling This Bubble (before it pops)
- David Stockman
- Donald Trump - called the markets "one, big, fat, ugly bubble" in 2016