Grant Williams, author of the economic newsletter Things That Make You Go Hmm who has been working for more than 2 decades in the financial industry, recorded this remarkable video presentation about economic bubbles.
In fact, bubbles are very easy to spot because of their valuations that go out-of-control and are not justified by any fundamental measure. Yet almost all people get trapped, every time again, by participating in the frenziness and joining too late.
Grant Williams says in his introduction that ”Bubbles happen because the vast majority of people can’t see for what they are”. Knowing that the first bubble dates from the 17th century, one should expect at least that the vast majority of people should approach a coming bubble in a rational way. The main point is that bubbles are purely driven by one of the instincts of human nature, being emotions. Could that be one of the reasons why this old quote still carries truth with it: “The only thing we learn from history is that we learn nothing from history.”
Although we strongly recommend listening a couple of times to the video presentation, we can imagine not everybody has the time. For the readers who only have a couple of minutes to spend, in this article we provide the key take-aways, beginning with this graph which shows where we are today in the gold bubble.
What follows are highlights and our favorite quotes from the 28-minute long video, per section. You can click on the link to jump to the video, specifically to the time that’s mentioned.
2 min 00
Our history is full of bubbles. The first bubble dates back to the 17th century.
4 min 30
A lot of (asset) bubbles have followed after the first one in the 17th century. The remarkable thing is that they all follow the same pattern. Looking at those pattern provides tips on how to ride a bubble and create wealth by doing so. These two quotes deserve mentioning: “The mania phase is where the idea gains the attention of the wide media, not to mention a thousand new so-called experts and of course the investment public. The investment public is ALWAYS the last aboard of these trends.” and “It really takes nerves of steel to ride a bull market till the end.”
6 min 20
The most recent bubbles we all should know are the Nikkei and Nasdaq boom, crude oil explosion and US home price boom. Interestingly, each and every time again you hear experts telling that “This time is different”. Grant Williams says that it’s NEVER different, because “a bubble is a bubble” as it has been for hundreds of years now.
7 min 25
Stein’s law explains what the psychology of a bubble is. The central point is that every bubble is driven by two types of emotions, either greed or fear. Likewise, the gold bubble that started around 1970 and peaked in 1980, was a fear-driven bubble. At that time, there was a lot of fear for inflation, high oil prices and Middle East unrest. Just like today?
9 min 50
All bubbles are completely obvious. Grant Williams says that “in case of every bubble, there are always a few lone voices who recognize them for what they are at the time. But generally speaking these voices go unnoticed.”
11 min 05
Today we are witnessing wo bubbles at the same time. One is about to burst, while the other one is about to get inflated. Both are driven by fear.
12 min 00
Today’s bubble that is ready to burst is based on government bonds. The yield of the 10 year treasury bond is the lowest in history. Grant Williams describes it as follows: “People are happy to pay governments for having their money.” Indeed, we have a negative yield already in 6 countries currently. Where is logic in all of this? Where are fundamentals in all of this?
17 min 00
The section as of 17 minutes till the end of the video presentation, is a must listen for everyone! Grant Williams starts by saying that: “Gold is different than other bubbles, in that in all the stages along the way, gold has been called a bubble more times, by more people, with more enthusiasm, then any other bubble that I have witnessed in all my lifetime in financial markets. This isn’t a bubble people want to get, but for some reason people just don’t seem to want to happen.” Do you see why almost nobody talks about gold and why almost nobody is aware about the real benefits of gold?
Here are the six fundamental reasons why gold is not a bubble, as mentioned in the video.
- Gold cannot be printed > it suffices to look at the growth in supply of gold vs the growth in supply of money.
- Gold cannot be printed > central banks have been selling their gold over the past years, while the gold price has been increasing simultaneously.
- Gold cannot be printed – not even by central banks > central banks became buyers in the last 3 years, especially the ones from the non G-8 countries.
- The largest, most price-sensitive institutions in the world are buyers of gold > China in particular, has increased to an incredible extent their gold purchases & reserves.
- The richest, most price-insensitive institution in the world is the biggest buyer of gold > government debts are unsustainable anymore, that’s why currencies are being debased massively worldwide by central banks. This trend is set to accelerate.
- There is not enough gold in the world at current prices to satisfy central bank demand.
25 min 15
This is a must for people who want to understand the link between today’s monetary policies by governments and how “fixing the problem has become the problem”. This is exactly how governments are setting the stage for the coming massive run for gold, the mania phase.