The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?)

Home > U.S. Economy
The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?)
More Threatening Than Any Single Economic Sector

By Bob Stokes
Fri, 13 Apr 2012 17:15:00 ET

Get investable insights sent to your inbox at least once a week – for free. Challenge the way you think about investing with The EWI Independent.

Privacy

History shows that once a financial bubble bursts, it can take a long time to bounce back.

Recent history offers an example: Real estate prices topped in 2006-2007 -- then came the worst part of the sub-prime mortgage crisis in 2008.

Yet instead of recovering with the passage of time, real estate prices just keep getting worse:

Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

CNNMoney, March 27

As values sink and desperation grows, the number of owners giving their timeshares away for $1 – or less — has doubled in the past year, says Brian Rogers, of Timeshare Users Group, an owner advocacy group. “There’s never been a worst time to try to sell a timeshare,” he says.

SmartMoney, April 4

Observers have called for a bottom numerous times in the five or so years since the bubble burst.

Again, this is what can happen. Recovery can take far longer than many expect.

Real estate is just one sector of the economy. Let's consider another sector:

According to Citigroup economist Steven Wieting health care is the next big bubble looming in the distance.

And to make matters all the more worrisome, his analysis suggests it’s like nothing we’ve seen before.

CNBC.com, April 12

Although health care is a huge part of the economy, it's still just one sector. Let's consider yet another sector:

The amount Americans owe on student loans is far higher than earlier estimates...Total student debt outstanding appears to have surpassed $1 trillion late last year...That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.

Wall Street Journal online, March 22

As big as each of the above sectors are, they are just a fraction of the bigger picture:

...the property market, to me, was a microcosm...of what shape the whole world is in right now - in debt up to its ears and ultimately unable to pay. And that's what crushed the real estate market and I think it's going to crush...the entire debt market across the globe...Nobody's worried...

Robert Prechter, Financial Sense Newshour interview, March 22

Far from being worried, lenders are once again trying to push credit on risky clients:

[A Brooklyn resident] just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

New York Times, April 10

As bubbles balloon in individual sectors of the economy, the psychology of the pre-financial crisis days have returned.

That's why it's important to remember that hardly anyone was concerned about the real estate market in 2006. Then the whole house of cards fell in.

Now consider the entire global debt market: the biggest bubble of all time.

Read "Signs of Impending Credit Implosion" in the latest Elliott Wave Theorist via a risk-free, special offer to SAVE 57%. See below for details.

For 3 full months, you get The Elliott Wave Theorist, Financial Forecast and Short Term Update for only $99. Plus, we'll send you a complimentary copy of the second edition of Conquer the Crash to help you prepare for what we see ahead.

SAVE 57% while this limited-time opportunity is still open. Just follow this link and get it on your screen now >>

Tags: commercial real estate, credit crisis, debt crisis, deflation, history, home sales, housing prices, Robert Prechter

July 10-13

Freedom Fest Conference

Get the Perspective You Need to Act Apart from the Herd

"The clarity of your thoughts is so powerful that I typically read an issue at least a half dozen times." - R.N., Financial Forecast subscriber

The Elliott Wave Financial Forecast is a rational voice in a volatile marketplace with an unrivaled record of providing tomorrow's news today.

It helps you take control of your investments and anticipate the larger trends that most investors don’t recognize until it's too late.

Preview the latest Financial Forecast now>>

Most Read

Highest Rated

Free 50-Page eBook

Learn to Think Independently

The Independent Investor eBook can help you to challenge conventional notions about investing and explain market behaviors that most people consider "inexplicable."
Download your free Independent Investor eBook

CLOSE [ X ]

The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.