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October 31, 2018 | Mr. Bubbles

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

A few days ago, when spewing about slagging markets, I also slagged a Houston-based financial dude and columnist for the august American publication, Forbes. In suggestig that Chicken Little, doomster, we’re-all-gonna-die, gonzo apocalyptic journalism is not worth following (and, so far, wrong) I held up a column by Jesse Colombo written in 2014. It warned of a “devastating crash” in the stock market – which has since risen about 40%.

Jesse wrote:

“Following the bull market pattern of the past five years, the U.S. stock market continues to climb to new highs while shaking off all reasons for pessimism as well as the warnings of skeptics. Stock market bulls are becoming increasingly brazen as they drive the market to nosebleed heights, which is convincing a greater number of people into believing in the economic recovery. Unfortunately, the public is being fooled because the U.S. stock market and economy is experiencing another classic central bank-driven bubble that will end in a calamity, erasing of trillions dollars of wealth.”

Turns out Jesse is a permabull who’s made bubbles into a growth industry. For a decade he’s been hammering away at warning people about an economic and financial market smoky hole which has yet to materialize. It seemed reasonable to recall his failed words when arguing on this pathetic blog with all the deplorable doomers who show up with their guns, flashlights, Cottonelle, MAGA hats and cans of tuna. Besides, he’s in Texas. Some big Forbes guy. What would he care about GreaterFool?

But, apparently, he reads this blog. Oops.

“This is Jesse Colombo, the “high-falutin’ financial analyst” you recently wrote about and criticized on your blog,” he says. “I tried to post my rebuttal in your comments section of that blog post, but it wouldn’t let me. Please publish my rebuttal in the name of fairness…”

Of course. In fact, Jesse – who has that American jock rockstar Alpha Dog look about him – and I seem to share some common ground when it comes to waving a yellow flag in the face of fools who keep buying stuff just because everybody else is buying stuff.

Here is what he wants you to know about the scary, debt-fueled, gossamer world in which we live.

“You completely ignored the specific conditions that I said would pop the bubble,” he argues. “Rising interest rates. As I wrote in that article you quoted…

Scenario #1: After several more years of the bubble-driven economic recovery, the Fed has a “Mission Accomplished” moment and eventually increases the Fed Funds rate (after it ends its QE3 program this year), which pops the post-2009 bubbles that were created by simulative monetary conditions in the first place. Rising interest rates are what ended the 2003-7 bubble, which led to the Global Financial Crisis.

“Come on, Garth – an article headline is not a prediction. I listed specific conditions that would cause the bubble to pop in the content of the article. It’s not fair for you to ignore that and distill my entire argument from a headline.

“I explained that this bubble would continue to inflate and grow even riskier as long as interest rates remained at extremely low levels, which is exactly what has happened. I said that the bubbles would finally burst when interest rates rise to a high enough level, which is only starting to happen recently. People are mistaken if they think I was “calling the top” back then.

“I was carrying out my mission – to give early alerts for dangerous bubbles.”

Here’s the interesting part, considering this is a blog that has long warned little beavers not to throw most of their net worth into a single inflated housing asset, since it would inevitably correct. Just as warning about the US real estate bubble years before it blew would have been useful, Jesse says he’s doing the same now about the unsustainable path the Trump-goosed US economic recovery is on.

Calling out a bubble is best before it's a bubble. Duh.

 

This is not true growth, he says, but the illusion of it – bubbles in housing, tech, stocks, bonds “and U.S. exports to countries that are experiencing bubbles of their own (Canada, China, and emerging markets).”

“It is stressful and challenging enough to be living in a world that has so many dangerous bubbles, but even worse that our fellow man makes it unnecessarily difficult to actually warn about them and prevent the damage they cause. Despite these hurdles that I see in front of me, I intend to do my best to keep warning about bubbles in hope that humanity will finally advance beyond this era of artificial economic booms and subsequent crises.”

Hmm. So I empathize with J. After all, it’s easier for a man who makes his money from investing others’ assets to fudge risks and kibitz clients. The world is full of people who lie. If he truly sees systemic risks, he’s right to call them out. He may be correct, maybe not. So far, pfft. But that’s not distant from what the canine-addicted host of this blog is all about. I’ve spent the last few years telling people they may regret throwing everything they have at one asset and taking on epic debt to do so.

Stocks & bonds bubble or real estate bubble. How are you supposed to deal with this stuff? Should you listen to the warnings and heed, or go with the crowd and chase gains?

The answer will only be clear in the rearview. Meanwhile the best way forward is a common sense one. Buy a house if you need it and can afford it without being buried in debt or blowing all your wealth. Invest in a portfolio that holds safe things as well as growth assets – balanced, diversified and liquid. Have a Plan B. Ignore the extremes. Listen to your gut. Be aggressively conservative.

Be fair.

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October 31st, 2018

Posted In: The Greater Fool

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