The global credit bubble has reached insanity levels

Things have gotten pretty crazy out there.
No, "crazy" isn't the right word. I should say "complacent".

Known as Wall Street’s “fear gauge”, the Vix has been trading at historically low levels for a few years, stymieing the efforts of traders to make money and raising concerns about investor complacency.
...The Vix fell 1.4 per cent on Friday to 9.75, the lowest closing level since 1993 and a steep drop from its long-term average of 20.

What's wrong with that?
Is it wise to believe that stock prices have almost no chance to fall when prices are already too high?
When the markets have no fear, and everything is already expensive, strange things can happen.

100-year bonds from who!?!

This week, Argentina startled the markets by issuing $2.75bn worth of century bonds, with an effective yield of 8 per cent. You might have thought this would be a hard thing to sell. After all, Argentina has defaulted on its debts eight times in its 200-year history, with no fewer than five defaults in the past century alone, most recently in 2014 amid a legal dispute with the Elliott hedge fund.
....But investors do not seem to care: there were $9.75bn of bids. And Argentina is not the only peculiar event in bond markets this month. Take a look, for example, at Ivory Coast. In recent weeks, this west African nation underwent yet another military uprising. But this month it sold 16-year bonds with a 6.25 per cent yield — and these were also heavily oversubscribed.

A gold rush on bad debts???

Bad loans are rapidly becoming the latest hot commodity in China as more domestic and foreign investors rush into the market and bid up prices.
Non-performing loan prices have risen more than 30 percent this year, according to distressed investor Belos Capital Asia Ltd. The average selling price of NPLs has climbed to around 50 cents on the dollar in the past two years, from 30 cents, said Victor Jong, a partner in the deals and business recovery services unit of PricewaterhouseCoopers LLP in Shanghai. Such a high level is “very rare” in international markets, Jong said.
...Non-performing loans at the country’s lenders jumped 61 percent in the past two years to 1.58 trillion yuan ($231 billion) at the end of March.
In the previous NPL cleanup in China, between 2001 and 2008, secured debt was typically sold at 20 cents on the dollar, and unsecured creditors got back only 5 cents, said Wang Yingyi, a partner at Bald Eagle in Beijing.

These examples are obviously bizarre, but the craziest examples are in the tech field.
Let's consider Netflicks. I was watching Orange is the new black last night. Little did I know I was also watching a bonfire of cash.

On Monday, Netflix reiterated that it expects to have a negative free cash flow of $2 billion in 2017, versus $1.7 billion in 2016.
Netflix is confident it will make that money back over the long run, but expects negative free cash flow "to accompany our rapid growth for many years." It's that "many years" part that has Wall Street a bit concerned.

Netflicks is far from alone.
Uber is losing money by the billions, and investors don't care.

The ride-hailing startup said Wednesday it lost $708 million in the first three months of the year. The financial data was paired with Uber announcing its search for a chief financial officer.
To many readers, the loss is nothing short of staggering. But for Uber's investors, it's actually something to be applauded.

Snapchat, Twitter, the list of tech companies hemorrhaging cash seems endless.
And yet, that isn't anywhere close to the craziest thing in the tech world.
For the truly insane you must look at cryptocurrencies.
crypto1.jpg

Bitcoin has clearly become more user-friendly in its eight years of existence, and the other cryptocurrencies and blockchains will certainly follow that trend.
But if you look at Ethereum, right now the world’s second biggest blockchain platform, you need to be a HIGHLY experienced software developer in order to create one of its ‘smart contracts’.
Again, look at the Ether token that runs on the Ethereum blockchain; on January 1st of this year the Ether price was less than $10. Today it’s nearly $350.

That’s a 35x jump in just over six months.

It’s hard to find another asset with that sort of performance. Ever.
Even John Law’s doomed Mississippi Company stock in the 1700s only increased 20x in a year.
In fact, Ether has outperformed the 17th century Dutch tulip bubble, the 18th century South Sea Bubble, and the 20th century dot-com bubble.

Yes, yes. The explosion in prices is nuts...and yet that wasn't what I was talking about.
What I want to talk about is something even more strange - an ICO.
No, not an IPO (initial public offering). I mean ICO, Initial Coin Offerings.

Last month, the technology developer Gnosis sold $12.5 million worth of “GNO,” its in-house digital currency, in 12 minutes. The April 24 sale, intended to fund development of an advanced prediction market, got admiring coverage from Forbes and The Wall Street Journal. On the same day, in an exurb of Mumbai, a company called OneCoin was in the midst of a sales pitch for its own digital currency when financial enforcement officers raided the meeting, jailing 18 OneCoin representatives and ultimately seizing more than $2 million in investor funds. Multiple national authorities have now described OneCoin, which pitched itself as the next Bitcoin, as a Ponzi scheme; by the time of the Mumbai bust, it had already moved at least $350 million in allegedly scammed funds through a payment processor in Germany.

These two projects—one trumpeted as an innovative success, the other targeted as a criminal conspiracy—claimed to be doing essentially the same thing. In the last two months alone, more than two dozen companies building on the “blockchain” technology pioneered by Bitcoin have launched what are known as Initial Coin Offerings to raise operating capital. The hype around blockchain technology is turning ICOs into the next digital gold rush: According to the research firm Smith and Crown, ICOs raised $27.6 million in the first two weeks of May alone.

If you don't understand what an ICO is, try watching this Max Keiser video.
If it still makes no sense to you, well, you aren't alone.
To me this smells like Ponzi Scheme, which often pop up at the peak of bubbles.

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So, people can invest directly in the ether, now. I'm not selling my virtual treasure island until its value goes up a lot, though.

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Orwell: Where's the omelette?

Pluto's Republic's picture

When you see debt as a line item, you are advised that the number represents income in another part of the economy.

So, it's all good.

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____________________

The political system is what it is because the People are who they are. — Plato

The only overhead they really need are for the servers that run the app and the tech people to program and maintain those servers. They probably also need some marketing people and the usual accounting people. All the other costs, the cars, the fuel, the phones for the apps are all taken up by the drivers. It's not like they're Yellow Cab or another overhead intensive transportation company. Smells like a scam.

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Beware the bullshit factories.

@Timmethy2.0 Especially with the free publicity they get. Uber is in the news quite a bit.

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"We'll know our disinformation program is complete when everything the American public believes is false." ---- William Casey, CIA Director, 1981

@Timmethy2.0 there are other subsidies

and the "contractors" are getting screwed

in an interview, someone who has followed them noted that they have not found any way to make the process cheaper

amazon.com can make cheaper with IT

no magic from Uber and some of the money is leaving

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lotlizard's picture

@DonMidwest  
What other fields of human endeavor will Amazon metastasize into next?

With anti-trust enforcement dead, what can stop malignant spread?

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Lily O Lady's picture

@Timmethy2.0

stepped down. We've seen how much these VIPs require to go quietly.

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"The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

@Timmethy2.0 That's how raiders sucked the life out of Hostess Foods. First thing they did was end the pension plan and divide the money up as bonuses. Then they raised their salares to ungodly levels and stiffed the suppliers to pay for it.

I never understood why the bankruptcy court didn't claw back their bonuses and salaries. Bribery maybe.

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I've seen lots of changes. What doesn't change is people. Same old hairless apes.

@Timmethy2.0

So, asking as One Who Knows Nothing, where are these hundreds of millions/billions of tech company dollars hemorrhaging to? Or do they just mysteriously vanish somewhere off-shore, perhaps under a shell? And will the public have to bail out all of these debt-buyers when they crash, only to wind up with a bankrupt country in the grasp of international finance, like Greece?

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

Lily O Lady's picture

@Ellen North

cards, dice and tokens until the next round.

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"The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

@Lily O Lady

Too bad there wasn't a limit on use of the 'get out of jail free' card for the 'exceptional few' with the money to buy politicians...

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

Lily O Lady's picture

@Ellen North

free" cards.

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"The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

@Lily O Lady

And this is how we get creamed by the psychopaths rising to the top...

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Psychopathy is not a political position, whether labeled 'conservatism', 'centrism' or 'left'.

A tin labeled 'coffee' may be a can of worms or pathology identified by a lack of empathy/willingness to harm others to achieve personal desires.

Ken in MN's picture

@Timmethy2.0 Naked Capitalism did a ten-part series on why Uber has not made money and why it never will unless it attains global monopoly status and drastically raises rates charged to passengers.

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I want my two dollars!

Pricknick's picture

Demand they cough up $1 for every dollar a stock is valued at.
Speculation runs the world. And it's all bull$hit.
You may now resume your deep sleep.

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Regardless of the path in life I chose, I realize it's always forward, never straight.

thanatokephaloides's picture

@Pricknick

Show me the money!

Demand they cough up $1 for every dollar a stock is valued at.

Even better: Demand they cough up $1 for every dollar of notional value on every derivative out there.

Speculation runs the world. And it's all bull$hit.

NO lie! There are more dollars worth of notional value in derivatives than the entire Planet and everything on and in it are worth! Bad

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides

@thanatokephaloides creative destruction, blah blah blah. Great if you're on the creative side, not so much in the destruction ditch. It is ugly and cruel and inhumane. "That's the system." I remember someone on another blog telling me years ago "The Story of Stuff" was simplified bullshit, not economically sound. Now practically all corporate expense has been externalized, "labor" is totally expendable like replacement parts, yeah that was bullshit and we are not drowning in crap as the world burns. Just choose another vendor. mmph

Not sure where I found this, sorry I don't know who to credit.

Digital disruption that has already occurred:

Worlds largest taxi company owns no taxis (Uber)
Largest accomodation provider owns no real estate (Airbnb)
Largest phone companies own no telco infrastructure (Skype, WeChat)
Worlds most valuable retailer has no inventory (Alibaba)
Most popular media owner creates no content (Facebook)
Fastest growing banks have no actual money (SocietyOne)
Worlds largest movie house owns no cinemas (NetFlix)
Largest software vendors don't write the apps (Apple & Google)

Welcome the new virtual overlords!

peace

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mimi's picture

@eyo
virtual overlords. Why do we need them? Should I be happy to be poor?
Jeez.

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@mimi do you know the misheard lyrics meme? Forever I thought this song was saying Simple Life. What a beautiful lol when I finally read the words. I'm pretty happy with frugal living, just already cut to the bone, can't really take any more increased costs of living that's all. We'll see. Happy Sunday, church bells rang about 40 minutes ago, I hear them every Sunday. This place is full of churches, there's a cool converted one a couple doors down, it is full time living space now.

A Sinful Life - Timbuk 3

peace
Edit: forgot the postscript.
P.S. https://en.wikipedia.org/wiki/Creative_destruction

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lotlizard's picture

@eyo  
The place where Ray and Alice lived, with ample room for friends to stay as house guests, was a deconsecrated, converted church.

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Creosote.'s picture

@lotlizard were doing something similar.
Now the eighties seem as distant as the thirties.

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The rich would rather burn their greenbacks than get their hands dirty by actually investing in bricks, mortar, or people. Too much like work.

My other theory: Too many people with gambling addictions have too much fucking money.

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thanatokephaloides's picture

@eltee

My other theory: Too many people with gambling addictions have too much fucking money.

Too many people with gambling addictions have too much of the fucking money, while those of us simply working to build lives have access to far too little of it.

Diablo

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides

Pricknick's picture

@eltee
only if those who gamble have nothing.
Casinos don't gamble. Lotteries don't gamble.
They count on those who have nothing to bet their lives on fortune.
It's a modern day gold rush. Good fucking luck.

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Regardless of the path in life I chose, I realize it's always forward, never straight.

thanatokephaloides's picture

@Pricknick ..... the richest of the rich do their gambling, with the rest of our livelihoods and lives.

Of course, they euphemize this gambling as "investment", but plain old gambling is what it really is.

The headquarters Casino of this type is in Wall Street in New York City, but others exist as well worldwide.

And you're right, Pricknick: "good fucking luck"!!

Bad

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides

enhydra lutris's picture

@thanatokephaloides
other people's money.

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That, in its essence, is fascism--ownership of government by an individual, by a group, or by any other controlling private power. -- Franklin D. Roosevelt --

lotlizard's picture

@enhydra lutris  
The advice for entrepreneurs was, you don’t need to be good at anything except “leadership” because the trick is to use OPM, OPB (“other people’s money, other people’s brains”).

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thanatokephaloides's picture

@lotlizard

A bygone fad in business how-to-get-rich self-help books

The advice for entrepreneurs was, you don’t need to be good at anything except “leadership” because the trick is to use OPM, OPB (“other people’s money, other people’s brains”).

There's a reason it's a BYGONE fad! Many, many so-called "entrepreneurs" of that ilk went seriously bankrupt during the 1980s and 1990s.

The only worse offender was the related genre of "Buy investment real estate using the old owners' money and credit!"

People who do this kind of thing are con men and crooks. The only show on CNBC worth watching, American Greed, is devoted to schemes like this.

Diablo

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"US govt/military = bad. Russian govt/military = bad. Any politician wanting power = bad. Anyone wielding power = bad." --Shahryar

"All power corrupts absolutely!" -- thanatokephaloides

crypto currency isn't quiet comparable...

Other then bitcoin none of them have market caps that are note worthy in the scheme of things.

And bitcoin is overvalued due to its utility in international crime. The whole house of crypto cards will come crashing down the moment the government becomes annoyed with it. Also a very large number of bitcoins are lost from its early days, and its real market cap is much lower.

I am surprised by the thirst of debt from economies not controlled by the west, Argentina, Africa... Then again, the shear amount of capital that is sitting around uninvested atm is absolutely massive, And I wonder how much of this debt is going to make its way into AAA rated CDO's and sold to pension funds.

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Song of the lark's picture

central bank vapor fiat created ex nihilo what can you expect but complete and utter repression of the volatility index. VIX is flatlining, like a "patient etherized on a table" to go all literary on you fucks, that's Prufrock for you illiterates. If you look at a chart of credit creation (debt) it goes at a forty five degree angle straight up for almost 15 years. There is this little flat leveling line for several months during the worst of 2008-2009 credit freeze up and then it continues up again. That was the crash that destroyed trillions of asset value. nothing was fixed and it is worse now. They have completely lost control of their fiat currency hi jinks. Japan created a quadrillion yen in the last several years. Insanity/complacency same coin different sides. This will not end well. I surmise it will end suddenly, just vaporize in thin air as it was created. Flash crash but it one that doesn't get fixed. Ice nine will grip investors and freeze their loins, right down to the short hairs. Figure out what you value and hold tight to it and you will survive. Everything else...not so much.

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Song of the lark's picture

Three times over subscribed. This from a country that has defaulted 7 times in a hundred years. Most recently 2001. When Zimbabwe was hyper inflating their stock market went up massively but you had to cash out in worthless currency. We are seeing the beginning of global hyper inflation of assets and then a crash to deflationary swoon when value disappears forever. Get ready for breakfast for a dollar except you have no money to buy it. I think Einstein called it the special theory of relativity, and Heisenberg uncertainty principle with Schroedinger's cat thrown in for good measure. Loss of faith credit freeze up.

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the banksters are going to come to the world governments and say, "We've lost $50trillion, pony up suckers or it all goes kablooey! (oh, and there's a $500,000 speaking fee in it for you)" and someone will say, "You're under arrest!"
Trump might do it, but he'll probably say, "I did it 4 times and it worked out fine for me."
Bernie might do it, but he'd probably be afraid of all the short term starvation. Besides, they'd kill him first.
But someone would say no, and the whole thing would go kablooie, and the world would suffer for a year or two, and then the only problems the world would have is what to do now that there is no wage slavery, and why are we wasting all those perfectly good buildings housing banksters; why don't we just hang them and convert the prisons to schoolrooms or museums or something?

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On to Biden since 1973

lotlizard's picture

@doh1304  
and for one brief epoch in history, the desperate majority of common people, driven mad from suffering, actually celebrate them and follow them.

What ensues is a Great Simplification, with much bloodletting, as in the science fiction classic A Canticle for Leibowitz.

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dervish's picture

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"Obama promised transparency, but Assange is the one who brought it."

edg's picture

the recent Ethereum flash crash when a single investor cashing in a relatively small (low millions) amount drove the price down to 10 cents from $319. You wrote an essay about the prospect of that happening with Bitcoin not long ago.

Ethereum Flash Crash

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