Whip out the bubbly...

I liked 2008. It just didn't turn out as it should have. But it was a nice year. In principle.

OK, in lieu of resolutions (which impose too much responsibility on the offerer), and hot on the heels of the last quarter's bubble-popping frenzy (the housing bubble, the securitisation bubble, the investment banking bubble, etc.) allow me to present the next three bubbles.

First, a disclaimer. I can't deny that there'll be other bubble-bursts inbetween (eg. Vanity Fair warn convincingly of an impending private equity pop). Second, they may not all pop this year. But I have tried to lay them out in the order I think they'll unfold. So here goes:

1. The US treasury. This is a stealth bubble, inflated by Bush, longstanding hubris, and latterly the Federal Reserve Bank. The unravelling will take the form of an increased impotence, as the government finds itself unable to intervene effectively. Treasury bond yields will rise, and the coporate spread will narrow. This means that the government's ability to borrow will weaken. Given that it's voluntarilly weakened its ability to raise taxes, and it's in deficit, Americans will learn the meaning of the Afrikaans post New Year phenomenon bubble-las.

2. Barack Obama. This one was popping last September, until in a rare example of an implosion shielding another implosion, the panic stemming from the housing collapse kept it going. More on this in my Jan20 note.

3. China. It's a long story, but China's been poorly managed for a long time. The banks have been a mess. It's been as dependent on overstretched Americans as the rest of us. Let's not get started on the politics, save to say that rich people don't like having their own freedom restricted. And there's an increasing amount of wealth in China. This reduces the effectiveness of extreme goverment efforts at gerrymandering the economy.
Initially, there'll be firesale attempts at prolonging the implosion. Invariably, these involve selling the most recent stocks of the familly silver (or china). In this case, they're US treasry bonds. I forget the numbers, but the overwhelming majority (80% order of magnitude) of new American borrowing over the last years has been from China. This is why in my list China is #3, and the American treasury #1. In a reversal of the bubble altruism that propelled Obama to November, we have here a case of a bubble pressganging another bubble.

OK, then. Crappy New Year.