For years we have forecasted bubble after bubble, and many of them have burst right along with our predictions.

But the one bubble that just won’t seem to burst is the one happening right now. When it finally pops, it won’t sound like a balloon — it’ll go off like a blimp!

After the U.S. and global stock markets finally burst in 2008, for the first time in history central banks stepped in and decided: “These bubbles shall not burst and financial institutions shall not be allowed to fail.”

Somehow, they thought they could raise the temperature and single-handedly prevent the next winter season.

Now, I doubt you have studied as much history as I have, and certainly these academics have not… but I would never look the Universe or Mother Nature in the face and say: “Go ahead, make my day!”

But that’s exactly what they’re doing.

All this stimulus has turned into one big game of “Whack-a-Mole” with the economy. They take one bubble burst, whack it with massive money creation, and then create the next bubble, wait for it to burst, and whack that one too.

What they can’t seem to get through their heads is that you can’t keep a bubble going forever. When it finally does burst, it will only be worse.

We had the stock bubble in 1987, the tech bubble of early 2000, the real estate bubble in early 2006, another stock bubble in 2007, oil in mid-2008, gold in mid-2011…

They’ve all burst, or are still in the process of bursting. This latest stock bubble is no exception. Try as they might, the grand arbiters of the economy aren’t going to stop this one from going “POP.”

The gold bugs have been looking for inflation or even hyperinflation as the consequence of endless money printing, but we have been warning that the problem is the even bigger bubble that they have created, as it will eventually have to burst.

The simplest common sense insights into life would tell you that you don’t get something for nothing, just like you can’t keep an accelerating drug lifestyle going forever. Eventually, you’ve got to hit rock bottom and detox. That’s the way the cycle runs. Ignore it, and one day you push it too far, overdose, and… you get the picture.

But that is the bill of goods we have been sold by central bankers, economists, politicians, and stock brokers — seemingly well-educated and reputable people who so far as I can tell don’t know their ass from a hole in the wall.

What I want to reassure you is that this bubble economy will not go on forever, perhaps not past a few more weeks or months.

So much of what we have been forecasting has already happened or is in progress. We saw the U.S. dollar rising vs. almost all other currencies. It has appreciated 41% since the recession started in January 2008 and is likely to go another 20% to 30% higher after a near-term correction.

US dollar index

We’ve been predicting for years that the Aussie dollar would go from $1.08 at peak back down to the 60–70 cent range, and the Canadian dollar similar. Today the Aussie is at $0.76 and the Canadian at $0.78. They are getting there fast.

We predicted the commodity cycle was peaking and that oil would eventually hit $10 to $20 and gold $700 minimum (though more likely $250 to $400). Both have fallen far lower than most economists saw.

We’ve been arguing that the real estate markets that didn’t peak in past cycles would start to pop, and we’re starting to see that now, particularly in China and Singapore.

But there are too many bubbles that clearly haven’t peaked yet and have defied our predictions: major stock indices in the developed world and the same sovereign and high-quality bonds.

This is where central banks have continued to be effective with their something-for-nothing, easy-way-out, BS policies. If you have a better name for it, let me know!

Japan’s stock bubble clearly peaked in late 1989, Southern European countries in late 2007, China and most emerging countries in late 2007 (our favorite long-term country India being the exception).

But U.S. stocks are higher than late 2007, except the Nasdaq which will likely retest those highs just ahead. And Germany’s DAX is nearing 12,000, a potential top, and it has the worst demographics ahead of any major country in the world, like Japan in 1989.

Our indicators from here suggest the remaining bubbles will burst over the next five years. Our four key cycles for the developed world are all pointing down, which only happens once in a generational lifetime — not to mention the commodity cycle which will continue to ravage emerging countries.

Stocks in leading developed countries will peak, followed by the top real estate markets — London, Manhattan, South Beach, San Francisco, Vancouver, Sydney. We’ll see an initial crisis response in gold that bursts when deflation sets in, and when the worst looks over, major sovereign bonds will spike and burst those bubbles.

This has taken longer than we would have initially expected from history, but it is unprecedented that governments and central banks would fight this natural deleveraging and bubble-burst cycle with massive money printing.

Be patient, and be safe. This final bubble burst and financial crisis is coming sooner than later — the worst of it likely in the next two years, and almost certainly in the next five years. Central banks are fighting a deflationary trend that’s much more powerful than easy money can win. It’ll happen… it’s just a matter of time.

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Harry Dent
Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.