One of the consequences of eight years of central bank easing and intervention is that…every asset class with a yield (stocks, bonds and real estate) is in a bubble of one sort or another…[and have all] become tightly correlated…[so it begs the question] “Where will the money fleeing deflating bubbles go?”
The comments above and below are excerpts from an article by Charles Hugh Smith (OfTwoMinds.com)
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…The only asset classes that are not in bubbles don’t offer yields: precious metals and commodities are value plays or scarcity plays, but
- institutions that require a yield may not be able to shift much capital into these value/scarcity plays.
- Hot money, however, can buy precious metals, oil futures, bitcoin, etc.
The problem is the markets that capital will flee [from] once the overlapping bubbles pop are worth tens of trillions of dollars each, and the markets that are not correlated to stocks/ bonds /real estate are an order of magnitude smaller.
- Privately held gold at today’s prices is worth around $3 to $4 trillion (if memory serves, all gold including the reserves held by nation-states is worth about $7.5 trillion at today’s prices), which is a fraction of the global bond, stock and real estate markets.
- The market cap of all bitcoins is around $10 billion, and
- of all Ethereum currency is $1 billion– numbers so small they wouldn’t even be visible in a pie chart of the hundreds of trillions of global financial wealth.
Where will the money fleeing deflating bubbles go?
Since the stock, bond and real estate markets are all correlated, it’s a question with no easy answer. What would $10 trillion seeking safe haven do to small asset classes such as precious metals, bitcoin, and tradable (liquid) sectors of the commodities markets?
If the bubbles in bonds, stocks and real estate all pop, what markets will be left that can absorb trillions of hot money sloshing around? The short answer is: none.
The chaos that will arise as trillions of dollars, yen, yuan and euros, etc. try to crowd through the fire exits as the asset bubbles pop will be monumental, and the…spikes in small asset class prices as the hot money floods in will be equally monumental.
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