By Marshall Auerback, a former investment manager who is Director of Institutional Partnerships, Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking
Bubbles have become a major focus of discussion in today’s financial markets. But very few people actually define what they mean when describing this financial phenomenon.
In a recent Harvard Business Review blog post, Markus Brunnermeier, an economist at Princeton University and a member of the Institute for New Economic Thinking’s Advisory Board, had a go at it. Brunnermeier defines the leading characteristics of bubbles thusly:
Bubbles are typically associated with dramatic asset price increases followed by a collapse. Bubbles arise if the price exceeds the asset’s fundamental value.
Well, that’s part of it. It certainly describes a characteristic of bubbles – namely that they represent a massive fundamental departure from the asset’s underlying value.
But does that give us everything?
Bubbles also are about trend following behavior that develops positive feedback effects. Larry Summers and colleagues wrote a famous paper in 1990 that set out in simple terms this kind of trend following feedback dynamic. Didier Sornette has recently done the same, though in a very, very complicated way.
Even though households have learned something from the two 50% bear markets in recent memory, in light of the recently rising stock market many now feel compelled to play the game. Money managers were taught the same lesson regarding potential loss from those two bear markets, and they also are now worried that the Fed will take the punchbowl away. But they, too, feel pressured by the past rising trend in stock prices to “play the game.”
It is this feedback effect from a steeply rising trend in past stock prices that is the hallmark of a bubble. In the United States, we are in an incipient bubble stage in which households and money managers are tentative, cynical, self-aware trend chasers. It is the unwavering corporate net purchase of equities regardless of valuations that hold these less resolute players in the game.
There is another important feature of bubbles – namely, that the acceleration of price as the object of the bubble (whether it be equities, bonds, real estate, Dutch tulips, or dotcom companies) goes way beyond the asset’s underlying value as the bubble itself matures and intensifies.
This is something the French economist Maurice Allais has analyzed. Allais noted that when the rate of past price appreciation in a market is rising not only does the memory of the rate of appreciation rise in a lagged fashion, but the market’s collective memory becomes shorter. Which means that in each successive time period a higher and higher weight in the effective memory is given to the most recent and higher rate of change instance. This mechanism makes the adaptively based expected return explosive.
I think that this idea also seems to be behaviorally familiar. Now when you put all of these plausible mechanisms together you can make an adaptive model very explosive. That is what happened in the 1990s and is one reason why the bubble went parabolic even though the real interest rate was always above the historic average and money and credit did not grow faster than nominal GDP overall for the first eight years of the ten-year bubble. Now all this modeling focuses on the dynamics of euphoric return expectations.
But there is also a parallel dynamic based on adaptive behavior that focuses on the prospective risk of loss, which can be measured via downside volatility. That adds to the rate of ascent of expectations of risk adjusted returns, as opposed to just euphoric returns.
There is a reductio ad absurdum that captures the reality of this behavioral effect. Suppose that stock prices begin to go up every day, initially perhaps by very little, but every day. Then people with adaptive behavior will come to think there is less and less risk of a price decline and therefore a loss. If the pattern of no downside action persists for a period equal to the effective memory of market participants they will eventually come to believe that stocks cannot go down. If people think they cannot lose they will not sell. In a market where some will buy but where no one will sell, prices must levitate forever.
Now, the most astounding fact about the great bubble decade of the 1990s was that there were 84 months in a row in which the market did not fall by more than ten percent. The previous high in this figure was 28 months. So naturally people began to think that not only were returns so high that you could become rich quick by participating in the stock market; but there was seemingly no risk in chasing such quick riches.
I only mention this because while I think the economics literature from Keynes onward is very good on the propensity of markets to greatly overshoot and undershoot the fundamentals, economics per se does not adequately explain what makes the dynamics of bubbles more than an overshoot. In other words, what makes them recursive, explosive, parabolic? That is the difference between real bubbles and mere waves of pessimism and optimism that move markets all the time even when there is no rational basis.
To get a full measure of this one has to enter into the realm of psychology and neuroscience. That’s where the definition lies. Bubbles, like so much else, are too important to be left to the realm of economics alone.
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Neuroscience? Really? How about looking at leverage in defining bubbles. And fundamental value? Is there really such a being? Isn’t this a bit like the labor theory of value?
“Fundamental value” does not exist in a vacuum. What is gold worth? Depends on inflation expectations. Even its value in non-inflationary times (when its use in jewelry dominates its use as a store of value) is very dependent on the state of the overall economy (it was $447 an oz in 1987 v $387 an oz in the 1992 recession. And remember inflation was higher then than now, so the price decline in real terms was even greater). Please, tell me what the fundamental value of a stock is. As I’ve stressed, equities are a very ambiguous promise, it’s “well you have a vote but we can dilute it at any time, and we’ll pay you dividends if we are making enough profit and we are in the mood.”
And even in pretty liquid markets, supply and demand can change considerably in short periods of time.
I we think we agree. Fundamental value is a very elusive notion. Is real estate in Manhattan a bubble? Might be. But every one would expect that real estate values in Manhattan would “fundamentally” be multiples of real estate values in Hoboken.
Please, tell me what the fundamental value of a stock is. Yves Smith
That should be entirely based on how good the company is wrt to pleasing consumers but isn’t because the current, wickedly insane money system recurrently impoverishes the population wrt to purchasing power.
As I’ve stressed, equities are a very ambiguous promise, it’s “well you have a vote but we can dilute it at any time, Yves Smith
Really? So the owners of a company have no say in its future share issuance? If so that is bogus on its face and needs to change.
and we’ll pay you dividends if we are making enough profit and we are in the mood.” Yves Smith
Dividends are dumb because they disperse* the assets of a company and are unBiblical too because they are a form of profit-taking. Instead, profits should be distributed with stock-splits to keep the price (measured in the goods and services the company sells or perhaps fiat) per share constant (i.e. NOT like Berkshire-Hathaway).
*The purpose of a common stock company is to consolidate, not disperse, assets for economies of scale.
A stock-spit may seem seem like an illusion but need not be, e.g. if a product a company sells used to cost 10 shares but now costs only 7 then the company has become more profitable, at least potentially so, because of a larger number of people who can now afford the product and thus “demand” its shares.
And, of course, some of the profits should be reinvested in the company.
Ah, what a great success capitalism could be if we only practiced it ethically. But if we don’t then capitalism shall prove to have been a great “success” at hastening the destruction of the World.
The promise of capitalism is attributable to the development of industry, but the practice of capitalism is an exaltation of business, and business depends on the sabotage of industry, the mushrooming of salesmanship and the continual recapitalization of assets, all focused on the extraction of monetary profit. In its current phase business is mostly about looting.
What is gold worth? Depends on inflation expectations. Yves Smith
If inflation expectations were high, might not central banks SELL their gold (god?) to vacuum up some reserves thereby depressing it’s price?
Also, gold has benefited from the delusion that it is some sort of real money but really isn’t unless so recognized by government.
Gold should be a naughty word in economics since it reeks of stupidity and fascism – not to mention pointless environment destruction.
I’m not sure you can look at leverage to define bubbles, since you can have a bubble with a single asset, and the buyers might not have to be highly leveraged to buy it. Leverage might only come in when the entire market is in a bubble.
Whether you call it “fundamental value” or something else, whenever anyone says that the market for some asset is experiencing a bubble, they must be comparing trends in the current market price with some other price – the price they think that the asset should have instead. Without implying a contrast between the actual current price and some other more appropriate price, there is no basis for distinguishing either irrational exuberance or a ponzi market from a market where the price of the asset is rising sharply because of a rational and well-founded increase in the value of the asset.
I like Marshall’s comments about “tentative, cynical, self-aware trend chasers.” In the ponzi-stage of a market, a whole bunch of investors might be entirely aware that the only reason the price is going up is because they are bidding it up. They are playing a game in which, for all they care, the asset in which they are investing might have no value at all outside the investment game they are playing. But they are all counting on their ability to cash their winnings out when the time comes before the price falls to a level below which they begin to take a loss.
I wonder if all the high-speed trading technologies have made bubbles more likely?
I think Sam Zell said that the secret to successful investing is identifying the mass delusion of the time and riding that wave until the crest is in view. Which makes his investment in the Tribune especially curious.
To prove Dan’s point, two of the greatest historical bubbles weren’t fueled by borrowing: the tulip bulb craze and the dot-com mania.
Well, one might have ended up broke in the Tulip Bubble while a credit-fueled bubble can leave one drowning in bogus debt too.
I suggest government-enabled credit creation be for the general welfare ONLY and that the new credit be spent into existence to preclude later deflation.
I lack confidence in my comment above and one of the others above was also not up to standard and some below too – no doubt because I’ve reached some depressing chapters in Jeremiah and have paused my Scripture reading for several days now – causing me to misfire a bit.
I should remember that I’m a branch at best and not the Vine: John 15:5
The dot com mania was probably fueled by borrowing, even if not by margin borrowing. You can trace it’s worst excesses to Fed reactions to the collapse of Long Term Capital Management. For all anyone knows the cash fueling it could have come from credit cards and second mortgages, and what about the shadow banking system?
If Auerback is right that the thing that causes a bubble is the perception of some asset going up in value (relative to the rest of the market?) and so those owners refuse to sell thus driving up the price when euphoria takes off, then HFT would only cause bubbles if they bought all the time and never sold – or if they bought into the euphoria and sold the boring stuff. (But aren’t they supposed to hedge everything?) So does this make general inflation of all values the opposite of bubble values; the dilution of euphoria across all assets? I think this is neuroscience, really. We’re nuts. Too bad we can’t do a long term experiment on euphoria with 3 markets and correlate the success of each market to create social goods (things that are socially good as opposed to trinkets) and equitable wealth after 10 years. One market could be the one we have – a totally fake “free” market with corporatocratic “free trade” pacts, etc. One could be a real free market, say the Bitcoin market which was strictly separate from the fake free market and the totally controlled market. And then the third market would be a totally government controlled – price controlled market. This defines value by the actual social good and equitable distribution of wealth.
Dan Kervick: “I’m not sure you can look at leverage to define bubbles, since you can have a bubble with a single asset, and the buyers might not have to be highly leveraged to buy it. ”
IIRC, the classroom experiments in the 1980s that produced bubbles had a single asset market with no leverage.
“Neuroscience? Really?”
Why not? I agree with the author “Bubbles, like so much else, are too important to be left to the realm of economics alone.”
Does suffering caused by policy disappear because it’s ignored or is it ignored because we don’t or can’t see it? Is a desire for DISPROPORTIONATE privilege an effect of an atomized society and atomizing the so-called “academic disciplines”?
Maybe other disciplines DO have insights into how to think about common problems.
http://www.ted.com/talks/vs_ramachandran_the_neurons_that_shaped_civilization.html?quote=625
And
http://www.youtube.com/watch?v=yw0qxXQkals
I found her comment starting at 3:02, very interesting and insightful. But then again, what the F—k do I know.
To paraphrase Kindleberger, “fundamentals” is the price that someone would pay if that person is to take the purchased item (commodity, usually) and use it to make something new, and then sell the new item for money.
“Speculation” is the price that someone would pay if that person is to resell the purchased item (not using the item for its intended purpose) and the sale is expected to be within a short time frame. (technically, speculation is a process, fundamentals is the thing).
Why do people speculate, since they are purchasing something they will not “use” in the expected sense? For two reasons, because they know they will make a profit since they control or influence the price of the commodity, or, to quote Kindleberger in Manics, Panics, and Crashes, “There is nothing so disturbing to one’s well-being and judgment as to see a friend get rich.” – monkey see, monkey do.
So a bubble is when prices become established by speculators, not consumers (that is, people who buy in order to use the purchase, not make money on the resale of the purchased item). As Kindleberger notes, a bubble denotes the bursting of the price escalation, and mania denotes the irrationality (to the non-speculator) of the purchase price.
As to the fundamental value of gold, what use of gold are we talking about, the use of gold as an exchange for US dollars, or the use in making jewellery?
It depends on if you think economics is a mathematical or a social science to start with. It’s always been hard to sell into a boom and buy into a downturn. And the peer pressure of seeing someone making 10% while you’re safely making 2%.
But there should at least be a level playing field. The amount of fraud behind the housing bubble was amazing and it exposed the dangers of financialization. When housing made a normal appearing correction of 10 percent and banks started going bankrupt and Iceland defaulted that is what first got me re-interested in economics.
I see high frequency trading and lack of accountable corporate governance as similar problems in the stock market. People are definitely entering a gambling casino here. Tax advantages to stock options versus incentives for productive credit also play a role.
“”Above all, D’Arista believes, the Fed can simultaneously begin to reform the banking system from the bottom up.
“Let’s forget the big guys,” she said.
They’re hopeless. We’re not going to get anywhere with them. However, the community bank is an engine of growth, and here is a way to help them. Community banks are naturally skittish. They need real reassurance for the kind of lending that isn’t corporate-scale. This could also involve them in infrastructure projects initiated by state and local governments. That’s where the Fed’s discount window could come in and help. It is a way of backstopping the little community bank and the medium-sized bank.
She envisions consortiums of small banks participating in big projects. The Fed could help organize them.
Stephen Sleigh, a labor economist and director of the national pension fund for the International Association of Machinists and Aerospace Workers union, has similar ideas about how the Fed can persuade private capital investment to finance major infrastructure projects. “Part of Bernanke’s strategy of pushing down interest rates, both short-term and long-term, is to force conservative money into investments like construction,” Sleigh observed. “That makes perfect sense, but the capital is not flowing. It’s still on the sidelines. I would love to see the Fed start talking about infrastructure. The Fed needs to be working on new tools and find ways to get the conservative money off the sidelines and start rebuilding the American economy.”
Conservative investors like pension funds and insurance companies lost an important source of income when the Fed lowered interest rates drastically. Sleigh explained: “As a pension fund manager, I need investments that are going to provide reliable, steady income that can sustain our long-term assumptions. Traditionally, the ten-year Treasury bond was a way to pay the bills, but it doesn’t do that anymore, because it is trading now at less than 2 percent.”
A solution Sleigh envisions would involve bond borrowing for public-private infrastructure
projects that would be “labor-intensive and great for long-term economic growth and would absolutely help us meet our obligations, because these bonds are going to yield 6 to 8 percent on our investments.” The Federal Reserve’s blessing and its willingness to accept the infrastructure bonds as collateral on the Fed’s lending could be a powerful lure for capital investors—including China, which owns a mountain of low-yielding US Treasuries.
“Wouldn’t that be an amazing story,” Sleigh said, “if the Chinese, instead of holding Treasury notes, invested $100 billion in building high-speed rail in the United States?” These ideas sound farfetched to the usual experts who dominate monetary politics. But stay tuned. As Bernanke surely understands, the economic crisis is not over. We are still at risk of things turning worse. If that occurs, these and other proposals for action will become highly relevant.””
Jane D’Arista, The Evolution of US Finance (Armonk: M.E. Sharpe, 1994). Jane D’Arista, interview by William Greider, The Nation, October 9, 2012. 149 Stephen Sleigh, interview by William Greider, The Nation, October 5, 2012.
http://www.levyinstitute.org/publications/?docid=1739
Always with debt as a solution? Cui Bono?
Why not instead generously fund public infrastructure with new fiat (US Notes) spent without borrowing into existence?
Or must every public good benefit some fat cat?
I thought this was a good 14 minute video by Pavlina Tcherneva which describes a more direct way of spending money into the economy..
http://neweconomicperspectives.org/2014/01/job-guarantee-2.html
NEP’s Pavlina Tcherneva appears in the following video by Rebecca Rojer. The video condenses a lecture by Pavlina explaining what a job guarantee is, its economic impact, and what we can learn from her research on the Jefes (“Heads of Households”) Program in Argentina.
Make-work is anathema to me. If lack of aggregate demand is the problem then that is a result of unjustly distributed purchasing power and restitution is required, not a patronizing, time-wasting job from the monetary sovereign.
I suggest the JG people quit implicitly blaming the victims of the banks.
Bravo, F Beard! Please don’t retire.
And Pavlina should know better since “We pretend to work and they pretend to pay us” is a Communist Russia joke?
Or was she or her parents nomenclature? Insulated from the reality of Soviet living?
Btw, I’m generally suspicious of those who move to our kleptocracy (h/t Hugh) and start giving advice on how it should be run.
make that Nomenklatura, please.
If I were a member of that machinists and aerospace workers’ union I would start worrying about my pension fund. Of course, it could already be too late.
Ex Nihilo Nihil Fit
Money is not a thing. Money is abstract representation.
Usury makes money out of money. That is no thing out of no thing.
All of finance is a bubble.
Finance could be done ethically but a government-enforced/backed monopoly money supply for private debts is an abomination that profits money hoarders and usurers.
These days it only profits speculators and usurers and looters. I can tell you as a money hoarder that hoarding hasn’t worked for six years. And the problem with bank money is monopoly and corruption of regulation. Once upon a time banks were limited to one location, then to one state. They were limited to commercial lending and that was policed to protect solvency. The idea was to keep banks small enough to regulate. Clinton turned the government over to Bob Rubin and Rubin defanged all the banking regulation. Acquisitions did the rest. We became the United States of Europe and Citigroup became Deutchbank US. Rubin’s payoff came from Citicorp, roughly $300 million for a nine year apprenticeship during which the company was turned into a black hole.
The US problem is corruption and monopoly and looting enabled by a kept Congress and bogus ideology trumpeted by toadying academics and witless media shills.
and bogus ideology trumpeted by toadying academics … j gibbs
That’s the biggest problem, imo, and super ironic for a generation that was taught to “share” in kindergarten.
I find this post interesting because it ignores the role of debt. The current stock bubble is fueled by overnight lending to hedge funds. It will crack with the first major earnings disappointment, probably some time in March. What happens next will depend on whether lenders feel threatened. If they do you get forced selling and who is left to buy?
Households and portfolio managers are now bit players. They get gulled in and are left holding the bag at the end.
Please provide some evidence. Even now with borrowing on margin at high levels, it’s still a small % of total capitalization. By contrast, debt-fueled bubbles (Japan’s real estate bubble of the late 1990s and the bubbles in the West) are characterized by the use of “market values” (based on a comparatively small % of trades happening relative to the total market) as the basis for borrowing against the assets (in Japan, the really big bubble was in commercial real estate and Japanese banks would lend 100% against the value of urban land. And unlike the US, pretty much 100% of the value of real estate was attributed to land). And here, you saw all sorts of borrowing against appreciated residential real estate.
I am no expert on shadow banking but rehypothecation somehow results in considerably more leverage. This is what triggered the crash in 2008. What is different now?
j gibbs – good posts! “The US problem is corruption and monopoly and looting enabled by a kept Congress and bogus ideology trumpeted by toadying academics and witless media shills.” Thanks for cutting through the crap. As Morris Berman likes to say, “Americans are hustlers.” Most people just don’t see the big picture, though; they don’t stand far enough back.
Not in March. A record % of companies have issued warnings re their prior guidance for Q1 already, and given accounting rules are a joke in the US, major corporations will very likely be able to meet or “beat” the (again) lowered expectations. But they will run out of room later this year, and early next.
My comment above was for j gibbs.
‘It is the unwavering corporate net purchase of equities regardless of valuations that hold these less resolute players in the game.’
Bubbles have existed for centuries. Corporate share buybacks were not a factor in the 1929 bubble, nor in other non-equities bubbles.
What IS consistent in most bubbles is a source of E-Z finance — CDOs for the great real estate bubble of 2006 (requiescat in pace); Bernanke’s QE-infinity for the current bubble blowout in stocks. That’s the nine-ton pink elephant hiding in the corner of the living room.
Collective psychology explains the ‘fat-tailed’ behavior of market-based price changes. This exists all the time, not just in bubbles. Add the fuel of E-Z money, though, and you get fat tails on the right-hand side of the bell curve for awhile … followed by one big negative fat tail on the left side.
When will the Fed’s PhD morons ever learn?
Jim Haygood – great post! Share buybacks might not have been a factor in the 1929 bubble, but you can bet (as the rest of your post alludes to) that something was. They change the acronyms, the names, call things “tools” to make them sound impressive, but it’s all the same thing – a scam run on the public every single time.
“It is the unwavering corporate net purchase of equities regardless of valuations that hold these less resolute players in the game.” Key word here is “hold”. It’s not what got them in, but is what’s “holding” them in the game.
Re corporate profits:
“And there’s more. Take a look at the recent stock buyback frenzy, which is where companies buy their own stock to goose the price instead of investing in plants, equipment, hiring, or any other type of useful, productive activity. This is from Bloomberg:
‘Multiple expansion through share buybacks have been driving indeed the stock market higher greater than earnings have. …. Buybacks rose by 18% Quarter-over-quarter to $118 billion in 2013, up 11% year-over-year to $218 billion.’ (Bloomberg)
Even so, Greenspan sees no bubble. Stock prices are based on good old fundamentals, like earnings. What could be more fundamental than earnings, right?
Take a look at this from the Testosterone Pit:
‘Corporate earnings will grow this year at their lowest level since 2009. Revenue growth at public companies is almost non-existent. Companies are buying back stock at a record pace to boost per-share earnings.’ (“What Really Bothers Me About this Stock Market”, Michael Lombardi, Testosterone Pit)
Huh? So earnings aren’t so hot either?”
http://www.counterpunch.org/2013/12/04/the-stock-market-bubble/
Apparently not. And that means the fundamentals are actually weak, which makes sense since the economy is in the crapper.
Then we ARE in a bubble, after all?
Yep. And when it bursts it’s going to cost a lot of people a lot of money. Just like last time.”
Stock buy-backs should be illegal so long as we have government-backed credit creation.
F. Beard – but how could the CEO’s suck the little guy in (in order for them to be able to “cash out”) if this practice were made illegal? Why, that could actually make the bubble pop, couldn’t it? Sarc
Excellent point since the company is essentially losing Equity (by taking on debt) but disguising it with an artificially inflated stock price. A self-generated bubble! And the CEO can turn around and sell his company short after cashing in?
However, the thermostat in Hell is beyond manipulation.
F. Beard – exactly.
And, of course, the unlimited ability of the banks to create purchasing power via government-privilege, means they can blow up the entire economy.
Yet, if there was no need to repay that credit then why should there ever be a bust? Since the new purchasing power would also drive new demand?
Please people! For the sake of sane economics, purchasing power should be SPENT, not lent*, into existence!
*No, we can’t stop all credit creation nor should we wish to but we can surely stop subsidizing it.
Bubbles of any consequence are a symptom of purchasing power that is lent, not spent, into existence; see George Soros’ “Theory of Reflexivity.”
Now imagine money supplies that are spent into existence. Then why shouldn’t we have unending prosperity so long as they (or at least some of them) are managed properly? But how shall that be arranged? Via ethics, of course.
Ultimately ethics and justice are about reducing aggregate misery so imagine the retribution awaiting those who deny their utility in favor of their own conceited ideas?
I think you dont give trend followers enough credit.
You mentioned up top that a lot of investors are self aware, that they are riding a bubble, but unwilling to miss out. I think there is a lot of that going on.
Giving the longevity and serial nature of these bubbles, riding aling us an entirely rational choice.
Cue the dance while the music is playing quote…
Definitely. Just not a good tool for productive capital investment. And the problem of everyone trying to jump off the wave at the same time.
Yeah, well, the bankers and congressmen seem to get off safely, or get tossed a life preserver.
Everyone else finds themselves trapped liked garment workers in a locked factory.
I hated musical chairs as a child and still do as an exercise in sadism.
Our money system is sadist and if wan’t designed in Hell, then surely Satan is envious of whoever did design it.
Oh I agree.
Which is while all the rest of the kids laughed and played with abandon, we sat glumly on the side and watched.
“The world is made for people who aren’t cursed with self awareness.”
Otoh, co-ed musical chairs has some interesting possibilities I now realize in sad retrospect – such as scooting under some buxom female butt at the last moment. :)
Thank you for this post. I am not participating in the stock market and have not for many years. However, based largely on the current ratio of Total Market Capitalization to GDP, I believe another bubble in equities has been blown. Whether it will continue to increase and the timing of its implosion is, like that of all bubbles, inherently uncertain. I will add that I have held this view for some time and that I have been consistently wrong as the stock market indexes have continued to rise. :-)
Barry Ritholtz, a market analyst who I respect, has said that he doesn’t believe these are bubble valuations and that the ratio I mentioned could be materially reduced by GDP growth. Ritholtz could well be right, and I hope he is.
However, I tend toward (perhaps it’s confirmation bias) the view expressed by one of the readers commenting on the HBR article to which Mr. Auerback linked when that reader, Nicholas Deitch, said: … ” ‘In the absence of (a) continued and increasing stimulus, and or (b) further systemic enhancement, the system will either break down or attempt to revert back to its natural state (completely disrupting systemic equilibrium in the process).’
If so, and I believe it is so, the question is – when will it burst, and what are the likely consequences of a complete disruption of systemic equilibrium?”
I am not sure there is such a state as “systemic equilibrium”, but I am gravely concerned about the social and economic aftermath of another imploding asset bubble should that occur. I also disagree with economist Larry Summers’ view about the necessity of repeated asset bubbles and his solution to “secular stagnation”.
Well said, Chauncey. I followed your reference and found some additional interesting discussion.
As I see things now, there are bubbles and there are also lesser degrees of overvaluation. I too see the relationship of total market capitalization to GDP to be one of the clearest data points in this regard. By this measure, we are currently at levels previously only seen prior to the 3 worst market crashes since WWII — see http://pragcap.com/updating-warren-buffetts-favorite-valuation-metric.
I also respect Ritholtz, but haven’t read his take on this. My take is that the meager GDP gains we have seen in recent years have been largely driven by the financial sector, which has an outsized influence on the U.S. economy these days. The inequality of this growth, with profits far outstripping wage growth, cannot continue. As asset prices get higher and higher in relation to consumption, the fundamental values get farther and farther out of whack and approach bubble territory. Either profits have to slow (which they have), or median income and consumption have to rise. The likelihood is that profits will level off and fall before median income and consumption rise, since decreasing marginal returns to investment. will outweigh the trickle down effect. The wealth effect will go into reverse, and then we will experience the systemic disruption you mention.
Are you comparing “total US stock market capitalization” to US GDP? The comparison probably should be to a worldwide GDP standard since many US companies earn over 50% overseas, especially the largest US companies.
We should also remember that serious proposals before Congress involve reducing the corporate tax rate from 35% to 28% or 25%. That will boost a company’s EPS by at least 25%, which will make today’s stock valuations look less expensive.
And let’s not forget the continuing sale of US based corporations to foreign ownership (Jim Beam, Budweiser, Frigidaire, Gerber, Firestone, AMC theaters, Citgo, 7-Eleven, Trader Joes, Alka-Seltzer, Purina, Sunglass Hut, Ben & Jerrys, Dial soap, The Plaza Hotel in NYC, etc.), which will reduce the US tax bite even more when their future foreign sales will escape US taxation altogether. Currently, foreign earnings of US owned corporations are “deferred” so that US taxes don’t have to be paid until brought back to the US. When future foreign earnings are distributed to a new foreign-owned company, US taxes will never have to be paid on them. That’s another big boost to EPS, especially if we see the trend of foreign ownership continuing.
But now the real question is (relevant to what value is) What kind of growth? The free-for-all that will destroy the planet?
susan – more of that Fukushima-type growth, I suppose. As far as destroying the planet, I think we’re a good deal there already. With the current elite at the helm, I don’t hold out much hope. It’s either them, or us. I mean, how long do we keep allowing these guys to destroy us?
Susan,
What kind of growth indeed? Thank you.
Chauncey Gardiner – ‘In the absence of (a) continued and increasing stimulus, and or (b) further systemic enhancement, the system will either break down or attempt to revert back to its natural state (completely disrupting systemic equilibrium in the process).’ That’s exactly how it is. No, it’s not confirmation bias. It’s reality. It’s just that you’re not valuing what you’re thinking enough, instead being led to think (me too) otherwise by people who unfortunately want to benefit financially by this bubble (hello, Mr. Ritholtz!). This is how these guys do it – they’re in big, and then they work overtime trying to convince everyone else to climb aboard the sinking ship. They know the truth, but it isn’t financially wise for them to speak it. Here’s a good piece addressed to Mr. Ritholtz:
“Barry, Shut Up. I’ve given up on Mr. Ritholtz; he’s become nothing more than a screaming shill for banksters and broad-based theft. When the time of reckoning comes his ass deserves to go in the dock along with the rest. […] And finally, what really*****es me off in regard to the outrageous hackery that passes for “journalism” these days is that nobody calls people like Barry out on this sort of outrageous and intentional distortion — presenting only the half of the impact of a given policy that shows whatever he wants to say, intentionally ignoring the other half that would refute the very point he is promoting.”
http://market-ticker.org/akcs-www?post=226951
Larry Summers is one of the big reasons America is listing heavily to one side (along with Krugman, the propaganda arm of the hustlers, who also believes in continuous bubble blowing).
See my Counterpunch link up above re the stock bubble.
I had forgotten ole Karl Denninger since he banned me years ago. I do notice his advocacy of Red-Box over Netflix is a big fail – or so it seems to me. Ole Denninger thought/thinks people will stand outside in the cold to rent a movie from a box instead of comfortably from their computers?
Still, Karl is one of the few who somewhat snapped to the use of common stock as private money but truly I fear that anyone who has made much money in the current system is incapable of the paradigm shift along with ambitious wanna-bees like Dan K. But even Ellen Browne got sucked in to the love of credit creation – if only the states do it. Truly, larceny lurks in the heart of many.
I had forgotten ole Karl Denninger since he b**ned me years ago. I do notice his advocacy of Red-Box over Netflix is a big fail – or so it seems to me. Ole Denninger thought/thinks people will stand outside in the cold to rent a movie from a box instead of comfortably from their computers?! No wonder he is always mad – being clueless as to consumers wants!
Still, Karl is one of the few who somewhat snapped to the use of common stock as private money but truly I fear that anyone who has made much money in the current system is incapable of the paradigm shift along with ambitious wanna-bees like Dan K. But even Ellen Brown got sucked in to the love of credit creation – if only the states do it. Truly, larceny lurks in the heart of many.
F. Beard – don’t agree with everything Karl has to say, by any means, but when it comes to math, he is rarely wrong.
Karl is or was a captive to math since he believes or did believe a monetary sovereign is like a household or should pretend it is one.
Barry is a mensch, imo. Although he makes me feel doubtful about my own resistance to participating in what I see as casino markets, he seems highly disciplined in his trading and anything but a CNBC-style cheerleader. He has been reporting on the QE backdoor bailouts and Wall Street corruption, but still thinks like the trader. I used to like seeing him on Dylan Ratigan’s “Fast Money” back when I watched CNBC. I never could adjust to the electronic takeover of the markets by algorithms, too much like gambling for me. A few recent BR comments from his post on “Why Do So Many People Hate QE?”
“No, it definitely doesn’t [help the little guy as much as it helps the upper crust] — but I have said that repeatedly over the years…QE is a backdoor bailout for the banks. As I note, my job is to navigate the waters as I find them… I am not sure the little guy knows, understands or hates QE. I do think they dislike an unresponsive government that doesnt seem to care of they live or die”
I enjoy his posts criticising the NSA (recent post on clemency for Snowden and NSA spying on congress) and the handling of Fukishima (cross posts from Washington’s Blog). He also writes about Wall Street corruption and inequality. If I hadn’t checked his site out today I would have missed his post of the hilarious Daily Show clip “Moral Hazard: Slumdogs vs. Millionaires”, which gave me a much needed laugh.
http://www.ritholtz.com/blog/2014/01/tds-slumdogs-vs-millionaires/
As for DB Karl Denninger, imo he is a bully who can’t stand up to a good argument. I also was ejected from his forum after calling then presidential hopeful Donald Trump a teabagger. Karl also likes to examine pixels in birth certificates and talk about the “GloBull” warming scam. I started reading him around the time of TARP, and enjoyed his fed bashing, but when he turned into a FOX-style propagandist during the election, I had enough (as he did of me).
spooz – I’ve never commented on Karl Denninger’s blog; I’d be banned too. He can be very bull-headed and stubborn, but he does at least STAND for something, which is more than I can say about many. He keeps asking how we expect things to change when we keep playing the game.
“Barry is a mensch, imo.” Definition of mensch is “a person of integrity and honor”. How honorable can you really be when you keep playing ball with the bullies, profiting from their casino, even if once in awhile you call them on it?
Many people still have IRAs and nest eggs to protect, and haven’t hid their money under the mattress. Ritholtz offers insight for those who choose to participate in the markets. I skip most of the market stuff since I’m suffering from long term traders block, but his commentary and cross posts on the other topics I mentioned is good.
Barry thinks along Keynesian lines, thinks the government should be doing more. I may disagree with what he thinks should be done, but at least his heart is in the right place. Denninger leans Austrian and no matter how good he is at bashing the banksters, he has no heart. imo.
Fair enough. But answer me something: if you’re a Keynesian, does that automatically mean you have heart? Think about it.
“Barry thinks along Keynesian lines,” you say. Fine, but what’s his motive, his intent? You don’t really know, do you? I’ll tell you some people’s intent: “Let’s crank this puppy back up, Let’s replace debt with more debt. Let’s inflate it all away so that I can make millions again. Shut the hell up, everyone, and play the game.” Same thing with fiscal stimulus, papering over everything so that no one learns anything. Is that good?
Or would it take more character to step off, stop playing, start shouting? If the country has any chance of becoming great again, it’s probably right here, right now. Claw back the bail-out money, start investigating the fraud that occurred, etc.
No? What’s the motive?
The Top 10 Signs It’s a Bubble
Sign #10
You bought it for $30 and a $300 price seems conservative.
Sign #9
Sometime in the next 50 years, everybody will have one. There’s no doubt.
Sign #8
The Fed says it isn’t a bubble.
Sign #7
Somebody graphed it and there wasn’t a zero on the Y axis except for the hundreds.
Sign #6
When you read about it on the internet it makes no sense at all, but so what.
Sign #5
Somebody is making a million dollars a year selling it and they’re 23 years old.
Sign #4
It’s not a bubble, it’s a sphere.
Sign #3
You’re willing to ignore signs #10 through #4 and buy it anyway.
Sign #2
Only a 4th degree polynomial can do it graphical justice
And Sign #1 that it’s a Bubble
The Germans are going in big!
Oh Boy, Professor Brunnermeier puts the wood to the ball with that description of a bubble. That’s one for the video tape, but maybe he was just starting and Marshall cut him off before he could start spouting math. The old Fundamental Value equation is tricky. It’s something like the discounted present value of future revenues above costs, where you’re estimating both with reasonably wild guesses and a Ouija board, minus the money you need to raise at an interest rate you predict by throwing a dart and then you do a weighted average of your probability distribution and there it is — your fundamental value. If you graph it in 3 dimensions it’s a sphere. Some people would call it a bubble but they’re either pessimists or they are no fun at all at parties.
Craazyman – that was funny!
Actually most future major costs can be fairly well estimated, plus or minus 10% (labor, rents, cost of capital, component costs, etc.) It’s the revenue side that’s often tricky. But so long as the major governments and their central banks keep “effective demand” at reasonably current levels, future sales can be reasonably estimated too.
Wondering whether the music will slow significantly in the future is always the tougher question. But even if future sales slow down, most large companies can slice off parts of their operations to ensure survival until the next economic upswing. Many individual families have a much tougher time adjusting.
Size matters. A bubble must be big enough to cause serious dislocations and damage to the underlying economy when it goes bust. I mean you can jack up the price of caviar all you want but except for a few miffed 1%ers and 1%er wannabes this is not going to be a blip on a blip in the larger economy. And when I say bubbles are big I’m saying massive, something that can be seen years out. I never did understand why Minsky thought bubbles couldn’t be predicted or stopped. They are like tidal waves. You might not be able to distinguish them when they are 10 feet tall but when they are approaching 50 feet and filled with dodgy math, lots of leverage, short-long timing mismatches, and based on neverending rises into a finite market, they are pretty much a no-brainer to see. And if you catch and pull the plug on them at this point, you will have some damage but a lot less than when the wave is 100 or 200 feet tall.
As for why this isn’t done or why investors don’t just create bubbles but stay in them too long, the reasons are greed, stupidity, corruption,and criminality. You have the fast money like the Goldmans that can be out the exits before the muppets know what is about to hit them. Or as with the Goldmans if things get really bad, the Fed will provide them with their very own private exit (bailout). The slow money of the paid off fiduciaries make their money by staying in the bubble. They have no reason to leave it and always can use the hoocoudanode line to their suddenly poor pensioners. As for the overextended as in the case of homeowners in the 2007 bubble burst, they were screwed from the moment they signed the mortgage on an overpriced illiquid asset. The politicians meanwhile don’t want to stop bubbles because they are paid not to stop them and they enjoy taking the credit for the good times which precede the bust. And of course, they make sure the regulators aren’t going to spoil the party by filling their posts via the revolving door with industry insiders and cheerleaders.
Bubbles are an effective tool of looting and hence always criminal. They are engineered primarily by the rich and are the epitome of the idea of “Privatizing gains and socializing losses”. As such, they help the rich to a bigger share of the pie, however bigger or smaller that pie eventually becomes. None of this is rocket science. So the fact that economists have such difficulty in seeing bubbles is not because they can’t but that, as members of the elites and servants to the rich, it is not in their interest to.
Hugh, it is too bad you are not Chairman of the Fed. You’re not, right?
Actually, the Fed almost got it right in 1966. It took most of the air out of a stock market bubble and the only people who got really killed were fund managers who kept playing in idiot stocks for the next three years. Then the greatest idiot stock of all, Penn Central, went broke and the Fed started bailing out the banks. It bailed them out again in ’82, ’87, ’97 and ’08. The most money was made by the biggest failures and the biggest frauds. This is called economic growth. It should be called economic cancer.
Hugh – “So the fact that economists have such difficulty in seeing bubbles is not because they can’t but that, as members of the elites and servants to the rich, it is not in their interest to.” Bang on! They are making a conscious “choice”.
Karl Denninger wrote an article entitled “One Dollar of Capital”.
“One Dollar of Capital is simply the principle that nobody be permitted to “create credit out of thin air”, thus artificially expanding the spendable supply of “money” in the system. This, and only this, is the reason for all of the bubbles and financial collapses throughout history. This sleight-of-hand is why Tulip Mania happened, it’s why we had a crash in 1873, it’s why we had a crash in 1929, it is why the tech market blew up in 2000 and it’s why we had a crash in 2008 in housing. It is why we’re threatened with collapse in Europe now. It is a scam as old as the money changers during the time of Hammurabi, and until we stop it there will never be stability in the banking and financial system. This sleight-of-hand is in fact exactly identical in mathematical and economic impact to counterfeiting of the nation’s currency, a crime which we all should recognize, condemn, and when it occurs the punishment should include both imprisonment and forfeiture of every dollar of ill-gotten gain.
Putting a stop to unbridled credit creation also removes the threat of “inflation” because it makes inflation by sleight-of-hand flatly impossible. It returns the ability to cause inflation to the one place where it should rest — the entity that is supposed to be in control of the money supply, the federal government (specifically, Congress.) We have in fact had monstrous inflation over the last 30 years; one need only look at the increase in the price of stocks, of college educations and medical services to see it. The bankers and their cronies have tried to hide its impact on the common man through offshoring of labor so as to hold down “prices” in the CPI, but that’s a lie too as a man who loses his high-paying job to some slave in China has his spendable income destroyed at the same time as he gets “lower prices” at WalMart.”
http://market-ticker.org/akcs-www?post=209282
Now I remember why I hate despise/Denninger: He thinks credit creation is OK so long as the new credit can be sterilized by the sell of the collateral if necessary. But that merely limits credit creation to the rich – a fascist ploy if I have heard one. Denninger, you’re a deceptive snake!
How about this Karl baby, let eliminate ALL explicit and implicit privileges for the banks and provide restitution to the entire population with the exception of the filthy rich?
It’s no wonder the rich have difficulty being saved if Karl is an example.
Without credit, nobody young could ever buy a house or a car, start a business, or do anything else but cue up for those jobs you (and I) despise. Your one time scheme of money from the sky to those who have been bilked by the system would be quickly siphoned up by scamsters like the common stock in those State owned enterprises of 1991 Russia. The problem isn’t the existence of banks. It is the existence of giant unregulated irresponsible banks bailed out of all mistakes and employed as engines of looting by criminal executives who own the parasites they have elected to serve their interests in political offices from which they bamboozle a public anaesthetized by flag waving and team sports.
Your one time scheme of money from the sky to those who have been bilked by the system would be quickly siphoned up by scamsters like the common stock in those State owned enterprises of 1991 Russia. j gibbs
Excellent point which is why I advocate a much more extensive releveling too such as:
1) A guaranteed income and
2) land reform in addition to the equal redistribution of the common stock of all large corporations and a one-time fiat drop on the entire population.
That way, no one need sell their shares to eat, for example, or pay a debt to the banks.
Of course the Second Coming of Christ seems more likely but I’ve no doubt that God would be pleased to delay the massive smiting and bloodshed if we repent.
But yes, government-backed credit creation IS the problem but I have no problem with government grants so long as they are granted equally such as a one-time grant to buy a house, a car, an education, etc.
But really, Americans should have so much equity by now that we should never have to borrow.
We should have learned to share long ago but better late than never.
Hay – have you been hanging out in Zimbabwe or Somalia again?
See what some diligent Scripture reading will do? The Bible requires restitution for theft and family farms that can’t be lost so who am I to argue with God?
So you are a Friedmanite.
No, I’m not, since Miltie didn’t think we needed to be free to choose what money we used for private debts.
Yet all the other stuff is bang on, see this is what I mean about “totality of thought” splintering into 40,000 sects. Although as you have said in the past “they believe where it counts” i.e. the Chicago Conference.
skippy… one point of order is a miniscule delineation when whole is viewed. So you shaved one eyebrow (choosing money) and now are a completely different animal… right?
It’s by no means miniscule since Miltie in essence believed in freedom, but only for bankers and the so-called credit-worthy.
Scr*w that!
We need to kill banking, drive a Tally Stick through its heart, burn it to ashes and then disintegrate the ashes with neutron bombardment.
320+ years of that shameful, hypocritical scam is enough. If we don’t have the balls (faith) and the wisdom to hand the Devil a huge defeat wrt to his sinister, hateful scheme then shame on us.
After this any thing else you say is moot ”
skippy January 13, 2014 at 6:00 pm
Hay – have you been hanging out in Zimbabwe or Somalia again?
Reply ↓
F. Beard January 13, 2014 at 6:04 pm
See what some diligent Scripture reading will do?”
I can’t even write what I think about you blog conditions don’t permit it. You don’t even want to know the responses I have received from forwarding your statements to health professionals.
skippy… The revulsion is physical.
Then vomit, skippy! It’ll make you feel better.
But really, if I can’t always understand you, isn’t that partially your fault too? Your safety is that a health care professional might not even be able to understand what the heck you’re talking about.
But I’m bad and an obvious climber like Dan K isn’t? I have NO ambition except to live a quiet life with my true love and to keep giving banking the hell it deserves as long as I’m pleased to do so and as long as that invention from Hell has not been demolished.
oblivious
Yep, I’m oblivious to you but can understand most everyone else quite well.
This will really make you vomit; I think I was once like you (shudder!) and while I’d like to help you, all I can say is keep reading the Bible until you develop a fondness for the Lord, even if you only think Him a fictional character for the present.
Your only quibble with Mises – Friedman is money, that leaves all the rest of the rubbish.
“Kant’s was an epistemological project. The idea was to try to figure out the base-determinants of our thinking. Mises’ was more so a neurosis; an obsessive search for justifying the “correct” manner in which people should act. Actually, we can call such a project by its name: it was an attempt to form a rigid and codified doctrine of ethics and morals. I hesitate to call this moral philosophy because that’s not what it was at all. Moral philosophy tries to hit at Universal principles by which to evaluate Particular choices we must make. What Mises was doing was more so laying out a guide to life. Again, we can and should call this what it was: Mises was trying to write a Bible.” – snip
http://fixingtheeconomists.wordpress.com/2013/07/29/kant-and-his-categories-versus-mises-and-his-praxeology/
skippy… one for the road – http://fixingtheeconomists.wordpress.com/2013/08/02/why-kants-and-mises-studies-of-man-were-based-on-a-logical-contradiction/
this is what I mean about “totality of thought” splintering into 40,000 sects. skippy
Yet the Lord knows ALL His sheep by name. Heck, even a good database program could handle 40,000 sects.
Its the number of individuals in each sect (plus everything else in T/S) and a problem of time and space. Not enough computational power on planet for that action i.e. real time reality modeling.
skippy… when you can quantum a black hole its testing time, till then its bias seeking.
Oops! Are you trying to sucker me into a religious debate?
Scr*w that and you for trying!
You’re own your own, skippy, sink or swim since I’ve got better things to do them risk being b*ned over you.
Try engaging the material and not running off when things get a bit more granular and concise beardo, you know where your argument starts to fall apart.
skippy… critique the link from pilkington if you will, can?
Sorry skippy, but I’ve bigger fish to fry.
If you can’t support the foundational aspects of your schools thinking, then just say so, rather than always running off.
“Sorry skippy, but I’ve bigger fish to fry.” – berado
Same trope I get from your mob on other econ sites i.e. your not being “rational” et al so I won’t argue with you any more, fb blocking and unblocking, dragging the conversation off into the “fog” to kill it, etc.
skippy… try this… you abandon the debate as soon as you don’t see profit in it.
II can’t give a debate with you justice with the amount of effort I’m willing to expend on what would just be a defense of sinful little ole me or my beliefs?
How many times must I tell you, this is NOT about me?
I detest Mises as a deflation-loving fascist gold-bug and Miltie I wish to slap for being a hypocrite except he’s dead and beyond Earthly retribution.
FYI I hate the Austrians as only one who was deceived by them can. But the Truth set me free as promised and now I’m a happy little loose cannon merrily smashing (I hope) opposition to ethical purchasing creation, be they Austrian or tyrants like Wray.
And now nitey-nite since a warm bed on a cool night beckons irresistibly.
None of what you just said is relevant to anything I bought up i.e. you have a few disagreements over money creation, that is all, everything else is OK in your world view. Hence your running away from fundamental issues I brought up by proxy via the links I submitted.
Zimbabwe or Somalia is a win in your book FFS, have you been there, do you have any clue what your on about, submitting others too, just so you can have your beliefs satisfied.
Skippy… its a small comfort to know…. that no matter what… your not going to get your utopia. It just gobsmacks me that anyone could be so impervious to facts.
Are ye blind? Christians are commanded to obey government, pay their taxes etc. See Romans 13:1-9 for confirmation. So I CAN’T be against government without disobeying God.
But what I hate is a government that is NOT for the general welfare but for the rich and the rest of us are to trickled on.
Right. Somalia and Zimbabwe are so much like the US. Perfect models for what we should expect. The US being what some call a hegemonic hyperpower really doesn’t matter.
Are you one of those Mises misers?
I detest Mises and the Austrians and they generally hate the Bible.
You haven’t the foggiest notion of what I stand for to ask such a thing.
I’ll add that God will show mercy to those who have been merciful so people should not dig in their heels if restitution is less than perfectly just.
F.Beard: In the Sixties, I studied economics in college. When I came home I tried to talk economics with my Dad, who was self educated. To whatever I said he replied, ‘read Henry George.’ Fifty years later I say to you, ‘read Henry George and read Veblen’.
I’ve got some Veblen books and a Henry George book too, yet unread. I consider them well-recommended now.
But really, it’s vain to think I’ll ever concede the need for a government-backed/enabled usury for stolen purchasing power cartel especially since common stock is an (the?) ideal private money form.
The problem isn’t the existence of banks … J Gibbs
For the moment I have nothing against 100% private banks (but I’d never keep my money in one) with 100% voluntary depositors should they be able to find any just in case that form of endogenous money creation is useful like the MMT advocates insist but I doubt they’d keep their money in one either. Perhaps later we can all agree that banks really serve no public good and can be safely banned but perhaps not.
The problem isn’t the existence of banks … J Gibbs
The problem isn’t the existence of banks … J Gibbs
For the moment I have nothing against 100% private banks (but I’d never keep my money in one) with 100% voluntary depositors should they be able to find any just in case that form of endogenous money creation is useful like the MMT advocates insist but I doubt they’d keep their money in one either. Perhaps later we can all agree that banking really serves no public good and can be safely abolished but perhaps not.
I think you have to distinguish between a “mania” and a mere “bubble”. Tech was a mania. I can’t count how many conversations I had with people who, sodden with industry messaging across all channels, bought the whole package in the second half of the ’90’s. Not just from an investment angle, but as a “revolution” or “paradigm shift” or “transformation” from all manner of experts from academe to whiz kids to the group nodding of heads.
The housing bubble was a different beast. This one was built on fraud, criminal negligence, a triumph of lawlessness positively treasonous in scope, but fraudulent in another sense as well, and that is the interest rates kept low by virtue of the subsidy the US economy receives from the rest of the world via dollar pricing of oil etc./reserve currency status.
Was gold a bubble? A mania? Or was it taken down? I’ll leave that one for others.
But we know the Fed has deliberately pumped assets, and in a very big way. They’ve told us so. I see 2 bubbles – stocks and shale oil (mania?) – and housing re-flation significant, but not lethally so. For stocks to go up 25% in 2013 was and is not a ‘mania’, because the bet since March 2009 has been that the Fed would not tolerate another bust.
This is a stock & trickle down bubble based on explicitly stated Fed (and Admin) policy, neither of which has a clue how to reverse the process smoothly. That makes this bubble one of stupidity, so I’m dubbing it a stubble. For an example of a very, very big stubble, check out China.