Stumbling Into the Bubble Zone

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Published : November 14th, 2017
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Category : Opinions and Analysis

Bubbles are a fact of financial life! We know about the Dutch Tulip Bubble and the English South Sea bubble.  Silly – right?  They couldn’t happen in this modern age!

Think again!

Consider the following examples, a few of many that could be shown. Amazon, Apple and Bitcoin.

Amazon, Apple, Bitcoin and other stocks show vertical rises – classic bubble behavior.  They might implode soon or their prices could rise even higher.  There are few limits on crazy price moves and central bank currency printing.

However exiting from bubbles is high-risk, dangerous and difficult to time.  Picking a top is like winning a lottery.  Someone wins, most don’t.

Historical Examples: Silver, Crude Oil, the NASDAQ 100, and their vertical rises and bubble behaviors.

Bubbles and vertical price moves are not limited to stocks and commodities. 

Consider the following: Official U.S. National Debt, Argentine Pesos to the dollar, and the Weimar Inflation of the Mark

Central banks assist in the creation of bubbles.

The Japanese Central Bank “prints” yen and buys Japanese stocks and ETFs. Other central banks intervene in markets also.  The Swiss Central Bank owns $ billions of U.S. stocks. The Fed owns $ trillions of debt paper purchased from commercial banks.

What about valuations?

From John P. Hussman, Ph.D.:  Link  Valuations are high and U.S. stocks are expensive.  A correction or crash is likely.

(A correction or crash is likely.)


Central bank policies, government actions, markets, and greed create bubbles.  Price rises thrill participants, but bubbles inevitably pop!.

What’s wrong with bubbles? Answer:  The morning after!  The hangover is painful. Look at what happened after bubble peaks in Crude Oil, Gold, and the NASDAQ 100.

Crude oil before and after 2008.

Gold before and after 1980.

The NASDAQ 100 before and after the crash.

The savings, retirement and living conditions for many people and businesses were devastated by bubble implosions, whether the bubble existed in debt, real estate, commodities or stocks. Examples:

  • Gold and silver investors and speculators after the 1980 bubble peak and crash.
  • Stock investors in 1987, especially if they were margined.
  • NASDAQ and internet stock investors after the 2000 peak, especially if margined.
  • House owners, condo speculators, and “flippers” after 2007 real estate bubble, especially condo speculators.
  • Stock investors during the 2007-08 financial crisis.
  • Crude oil speculators after the 2008 bubble and crash.

The history of disasters, crashes, and destruction of net worth is extensive.

WHAT ABOUT LATE 2017?  Many markets are high-risk now.

Central banks have levitated most stocks and bonds to nose-bleed levels. Consider:

  • Amazon stock has a price to earnings ratio of 286 per Yahoo.
  • Netflix P/E = 191. Facebook P/E = 39.
  • Some companies have never posted earnings but enjoy huge market capitalizations.
  • PE and other valuation ratios are double or higher above historical means.
  • Sovereign debt has negative yields in Europe.
  • Multi-decade, possibly multi-century lows, in global interest rates.
  • Derivatives are heavily dependent upon low interest rates. Their potential risk is astronomical.
  • High-yield checking accounts in the U.S. that pay 0.01% interest.
  • Certificates of deposit in the U.S. that pay 1.0% for 2 year deposits.


Expect a bad “morning after,” a nasty hangover, and tears for many.  A few will increase their wealth. The political and financial elite are protected.  Others must survive in the “every man for himself” category.

Gold and silver in late 2017 are not in bubbles, unlike 1980.  Bubbles or extreme valuations are evident in most stock indexes in late 2017, as was true in 1987, 2000, and 2007.

Many stocks and bonds are high risk speculations while gold and silver are low risk alternatives. The potential near-term upside for most stocks and bonds is limited, while their risk is substantial.  Review the bubble graphs and the graph of the DOW above.

Gold and silver will rise much higher in a few years, unless we get responsible government, balanced budgets, national debt reductions, and curtailed war efforts.

Don’t “go down with the ship” because you believe “stocks always come back.” Insure your purchasing power with precious metals protection for your savings and wealth.

If you are heavily invested in the stock market, hope that 2017-18 is not similar to 1987, 2000 and 2007.  Maybe stocks will rally for another year or two (probably not), but the risk/reward analysis indicates that stocks are in the bubble zone – the Danger Zone. Read “Asking The Wrong Questions.”

Call Miles Franklin at 1-800-822-8080 to protect your savings, purchasing power and assets.  I recommend silver, platinum and gold in that order.  If the alternative is a 50% drop in your favorite stock index, all precious metals look great.

Gary Christenson

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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