A concerned reader wants to know if there are any precedents for the monetary printing we see today, and also when and how this all ends.

Hello Mish,

I wish to get your opinion as to how, or the possible sequence of end games to this bubble economy.

The Fed, ECB, and BoJ all print trillions of $$ to keep bubble inflated. Are there any historical times that match we have seen here?

Are there any measurements that would trigger an avalanche of storms in stock market and economy?

I just cannot believe this bubble will keep going perpetually.


What Cannot Go On Won’t

What cannot go on won’t, but that’s about all anyone can say at the moment.

There are no precedents for the trio of negative interest rates and massive amounts of QE by numerous countries simultaneously in a clear game of competitive currency devaluations.

Even if there was a precedent, there would not be any guarantees things would play out the same.

End Game Speculation

We are all speculating how this ends. No one can tell you because no one knows.

There are too many variables in play.

  • Does Japan or China start the mother of all currency wars?
  • Does Trump start a global trade war? Hillary?
  • Does the US get drawn into a China-Japan war over rocks in the South China Sea?
  • Will the 5-Star movement win in the next Italian election, then take Italy out of the eurozone?
  • What happens if Merkel unexpectedly bites the dust?
  • Can central banks keep markets levitated forever?

The answer to the last question is “no”, but it matters greatly if there is a crash starting tomorrow vs. a prolonged torture by a thousand cuts starting three years from now.

My best set of guesses is we have another huge deflationary asset bubble collapse at some point, that prime minister Abe goes totally crazy in Japan, that the eurozone does not survive intact, that yen-hedged Japanese equities soar, and gold is a safe haven in this mess (especially when central banks respond with still more QE madness).

The most painful scenario would likely be slow torture along the lines of a 10% correction this year, a 6% correction next year, then a 5% rally, followed by a 15% decline, a 7% rally and another 15% decline, etc., for a period of seven years or so.

At the end of seven or 10 years, investors would be down 40-50% without a crash. It would destroy pension plans. Heck, given 7.5% assumptions, even a flat market for seven years would destroy them.

Stocks are more ridiculously valued now than any time in history except 1929, 2007, and 2000 but know one knows when that matters.

Anyone who claims to know for certain how this ends is a fool.

Mike “Mish” Shedlock