Moron Bubbles

The bubble is in paper assets, particularly sovereign debt. Historic lows in interest rates mean that prices are at historic highs as rates and prices move inversely. Take into account the solvency factor, and the conclusion is inescapable that such paper assets are in the biggest bubble in history. Sadly, the vast majority of people will not understand this until it is too late and their savings have been destroyed.  - Robert Fitzwilson on King World News (link below)

First I quickly want to point out that yesterday, despite the rosy headlines reported with regard to weekly mortgage applications, which increased due to refinancing applications, the purchase index absolutely plunged by over 11%.  This follows a big decline the previous week.  In addition, today the annualized, seasonally adjusted existing home sales number came in well below the Wall Street consensus expected number.  Wall Street, the media and the National Association of Realtors are doing what they can to shamelessly slather lipstick on the pig, but the truth is that the housing market is collapsing again.

To be sure, it would appear that there might have been a slight bounce in the housing market in the early part of 2012, but as I've demonstrated in previous posts, with the data to back it up, the majority of that "bounce" was fueled by in an influx of "investors" buying homes to rent out, a brief decline in mortgage rates which was stimulated by the Fed's "Operation Twist" money printing scheme and a liberalized, tax-payer subsidized mortgage finance initiative extended by the FHA, which includes the ability to buy a home with no money down.  Given the amount of Government intervention in this marketplace, you would have thought that the dollar devaluation operation conducted by the Fed and the taxpayer-financed lending by the Obama Clan would have sparked a bounce in the housing market that we actually noticed...

This leads me back to the quote above, which comes from a must-read interview with Robert Fitzwilson by Eric King.  Fitzwilson explains why the biggest bubble in the history of the world is the bubble in paper assets and specifically, the bubble in sovereign debt.  To illustrate his point, I took the liberty of sourcing a chart of total credit market debt (Government plus private sector debt) for just the U.S.:

(click on graph to enlarge)

THAT, my friends and colleagues, is what a REAL bubble looks like!  I would also like to point out that the slight decline shown starting around 2009 is not a true decline, per se.  Rather, it represents the amount of mortgage and other private market debt that has been either written off by the banks or written off by the banks and monetized by the Fed - primarily the latter.

Finally, Fitzwilson contrasts the debt bubble with the media-induced idea that gold is in a bubble: 

Nothing could be further from the truth. The perception is so far below the reality that we effectively have a negative bubble. Buyers of these three assets are speculating fools according to the mainstream media. The only thing that is foolish is not holding onto positions and not adding as nominal prices periodically come down.

Here's the LINK

Judging from what looks to be like possibly the worst sentiment I have seen in eleven years of my involvement in the precious metals sector, I have to concur with Mr. Fitzwilson.  Bubbles do not culminate with extreme negative sentiment toward an investment.  In fact, the hallmark of a bubble is the exact opposite.  And for the most part the general public has been largely sellers of the their gold and silver (witness the mania in cash for gold - this is you selling, not buying).  How can there possibly be a bubble in something which the public has yet to participate?