January 09, 2018.

It's Officially the Biggest Bubble of All Time (and Bond Yields are the Needle)

The market is now officially in the largest bubble relative to the economy in history.

Warren Buffett once famously stated that his favorite means of valuing stocks was the stock market capitalization to GDP ratio. This was the very metric he used when he decided to avoid investing during the Tech Bubble.

Bill King of The King Report notes that based on this metric, stocks are now valued at 144.15% of US GDP, surpassing their previous peak set at the absolute top of the Tech Bubble in March 2000.


Source: The King Report

While some pundits may point to the economy or the Trump economic agenda for this, the reality is that everything the markets have done since 2008 has been driven by the Fed creating a bubble in US sovereign bonds, also called Treasuries.

When the Fed did this, it forced Treasury yields to record lows.

And because these yields represent “the risk-free rate of return” for the entire financial system ALL risk, (EVERYTHING including stocks), adjusted accordingly.

This is why I coined the term the everything bubble in 2014. And it's why I am growing increasingly concerned about the recent moves in Treasury Bond Yields, as they broke above their their 20-year downtrend.


 When bond yields rise, bond prices fall.

When bond prices fall, the Bond Bubble bursts.

When the Bond Bubble bursts, the everything bubble follows.

What’s coming will take time for this to unfold, but as I recently told clients, we’re currently in “late 2007” for the coming crisis. The time to prepare for this is NOW before the carnage hits.

Make No Mistake... the Fed is Preparing For NUCLEAR Levels of QE

Since the late ‘90s, the US has increasingly financed its “growth” with debt.

As a result, the amount of debt in the system, relative to GDP, has skyrocketed.


The notion that we can “grow our way” out of this is ridiculous. The US Government has brought in RECORD amount of taxes since 2014… and the Government has STILL runs $400+ Billion deficits Every. Single. Year.GPC19182jpg

Put another way, the US Government is spending an extra $400 billion every year DESPITE it bringing in a record amount of cash.

Now, the Fed claims it’s taking advantage of the current economic stability to tighten policy, but this is a joke. The Fed balance sheet has dropped only $80 billion in TWO YEARS.

And the second the credit cycle turns, the Fed will face a choice… let the system reset (as it almost did in 2008) or monetize everything.

Which option to you think it will go for?

With that in mind, there is only one course forward: printing more and more money. The outcome of this will be inflation… and not the good kind.

Best Regards.

Deo Talaverano.

Chief Market Strategist DHF.

George Town. Cayman Islands.