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     Jun 30, '14

No bubble?
Commentary and weekly watch by Doug Noland

Early last week, BlackRock's Larry Fink commented on CNBC: "A bubble is predicated on leverage." Fink was implying that he didn't see the type of leverage that fueled the previous bubble.

As part of my bubble analysis framework, I have posited that the more conspicuous a bubble the less likely it is to be systemic. The "tech" bubble was conspicuous, though gross excesses

impacted only a relatively narrow segment of asset prices and a subsection of the real economy.

I received a lot of pushback to my mortgage finance bubble thesis during that bubble period. The conventional view held that excesses were not a major issue, especially when compared to the Internet stocks and all the nonsense illuminated with the technology bubble collapse. The Fed's unwillingness to move beyond baby-step rate increases (to aggressively tighten credit) played prominently in bubble dynamics.

Today, conventional thinking sees a system that has been working successfully through a multi-year deleveraging process. Leverage and speculative excess are believed to be nothing on the order of those that gave rise to the ("100-year flood") "Lehman crisis".

As an analyst of bubbles, I've definitely got my work cut out for me. I have seen overwhelming evidence in support of my "granddaddy of all bubbles" - global government finance bubble - thesis. Yet the bubble is so comprehensive - so systemic - that the greatest financial bubble in human history somehow goes largely unappreciated - hence unchecked.

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Doug Noland is a market strategist for the Prudent Bear Funds.

(Republished with permission from PrudentBear.com. Copyright 2005-2014 David W Tice & Associates. All rights reserved.)




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