For those who look, there are many clear signs of credit/housing bubble 2.0:
- Extreme levels of student loan debt (and rising rates of delinquency);
- NYSE Margin Debt pushing to new extremes;
- Covenant-Lite corporate debt issuance (high risk to lenders) hitting new extremes while interest rates remain abnormally low;
- Extremely high proportion of houses being bought by investors paying “cash” (aka pre-funded borrowing) rather than resident owners;
- House prices pushing back up toward the bubble peak, while affordability metrics drop;
- Corporate earnings/GDP well above sustainable levels (at the expense of high trade and government deficits, and low household savings rates;
- Rising income and wealth inequality since the newly-minted credit is unevenly distributed.
Taking the list in detail (links only for now; will put up the linked charts later):
(1) Student Loans – U.S. Dept of Education, Sept. 30 press release and FRED Graph of Federal Student Loans
(2) NYSE Margin Debt – Analysis by Doug Short
(3) Covenant-Lite Loans – Bloomberg article on Fed Warning to Lenders
(5) House prices rising in echo of earlier bubble – charts posted by Calculated Risk
(6) Corporate earnings vs. GDP – This is a reflection of unsustainable deficits elsewhere in national income accounting; excess corporate profitability leads to stock price bubbles, since the earnings are not sustainable without genuine median income growth – See the St. Louis Fed’s National Economic Trends report.
Footnote #1: I haven’t located quality plots for items 4 and 7 at this time.
Footnote #2: Smart traders can make a lot of money in a bubble. That’s part of the process by which they happen. But if the gains aren’t sustainable, the bubble is a net expense to the nation due to malinvestment and maldistribution. And it’s not an ethical time to invest if the outcome is a “negative sum game” (that is, if your gain means someone else loses worse).