My 1st Million At 33 – yes, you can do it too

First it was high-tech boom. Then it was real estate. Now it is the bond bubble. Bonds have appeared to go into the last phase of parabolic rise.

Fall it must eventually, yet the timing is hard to determine. The timing could probably be approximated from the log-periodic power law which puts a hard limit on the parabolic (or rather super-exponetial) price function. For this bond bubble however, it is going to take quite a lot of “approaching infinity” for it to burst since Federal Reserve does have the capacity to print infinite amount of money to buy up bonds. According to the log-periodic power law, at the time of burst, the rate of money creation is infiinity. Let’s see if we get there. Of course, central bankers would think that the money printing power grants them a staying power for continuing to blow the bond bubble. But mathematically, the time to burst is finite in time.

Wishing to lower the long term interest rates so that housing markets will not deflate or collapse, Federal Reserve does not learn from financial history that ALL financial bubbles cannot be reflated. Not a single bubble in human history that I know of was reflated over its peak in the duration of less than 20 or even 100 years. In fact, bubbles like Tulip bubble never get reflated again. The only way to save this economy is to have dramatically lower US dollar to create mild to high inflation. That is the only way to sustain or increase the housing nominal prices at the current level, while let the housing markets slowly go back to a healthy balance between supply and demand at the inflation-adjusted price. With higher inflation, there will be higher rents. With higher rents, the housing prices are automatically supported. Lowering the long term interest rates is simply not sustainable. It is creating unnecessary further dislocation of precious capital in the marketplace.

We just passed the mid-point (2007/2/27) of current 52 years cycle of private wave of economic confidence, which will last until 2033. I would rather put this private wave as a non-public wave, meaning that gradually we will be losing more and more confidence in public government (and government bonds too). If the economic confidence model by Martin Armstrong is really correct, I think you may add another bubble after bond bubble, which could be the gold bubble.