We are currently experiencing the biggest, global-scale, financial bubble in history (the “mother of all bubbles” or MOB) and this is not a one-dimensional bubble like the “Crash of 1929”, the 2000 dot com bubble or the 2008 housing bubble: the MOB is simultaneously present in all asset classes: stocks, bonds, and real estate. Because of these properties, the MOB is both quantitatively and qualitatively in a different category than any previous bubble. The driver behind this enormous bubble is central bank intervention that has been sustained since 2008 on an unprecedented scale when viewed by the aggregate activity of the world’s central banks: the US Federal Reserve, the European Central Bank (ECB), the Bank of Japan (BOJ), the Bank of England (BOE) and the Swiss National Bank (SNB). What also makes the MOB categorically different, besides its size and ubiquity, is its vulnerability to a massive implosion due to inherent structural defects:

The MOB’s network architecture is the three-tiered hierarchy and dense interconnectedness of {currencies ⇋ bonds ⇋ derivatives} and this network is embedded in every global systemically important bank (GSIB) node, not just a single node failure like Deutsche Bank (or Lehman Brothers in 2008) in the GSIB network architecture. Simply, it is a network nested inside a network. A bond selloff has high network centrality in every node, not just one, and then radiates outwardly simultaneously from each and every node — it is like every major star in a galaxy exploding at the same time. The MOB’s gargantuan size is highly appreciated but this architectural vulnerability and its detonation is an unrecognized hazard — a black swan hereby is now a gray one.

Throughout history all financial bubbles have the same fate — they all collapse, sooner or later. Due to sociological phenomena, they never deflate in an orderly manner; greed and fear dominate as actors in a zero-sum mindset exit simultaneously in an attempt to maximize personal gain or mitigate losses.

The sheer enormity of the presently still expanding MOB bubble dwarfs previous bubbles. The MOB’s collapse is inevitable but the timing and trigger event are unknown. (Source page: @jsblokland)

Because the sovereign bond market is the underlying reference asset for much of the world’s total derivative exposure (particularly US Treasury bonds which benchmark everything) while composing what is considered high-quality collateral for maintenance of margin in leveraged positions throughout the structure, a bond collapse (i.e. a rapid increase in interest rates) is both functionally and structurally the detonator for the entire derivatives network which notionally exceeds USD 1Q (one quadrillion US dollars).

Bill Gross on negative interest rate bonds (NIRP).

In other words, the Achilles heel of the global financial system is a sustained, high-volume, sovereign bond selloff. The timing and precise trigger event for the bursting of the MOB are unknown but there are several known possible triggers, many of which are mentioned below. The collapse of the MOB is inevitable and is already on borrowed time; even though the consequences are dire the event itself will be an iconic anti-surprise — there is absolutely no reason that any rational person can’t see this coming. Because of the all-encompassing, unprecedented nature of this mega-bubble, the conditions in its aftermath are purely speculative, even defiantly unpredictable due to the number of moving parts on many levels from political quandaries to legal entanglements to impact of societal blindside. Quite possibly, this will burst a multi-century, fiat-currency based “trust bubble.” But for now, tragic complacency reigns.

Latest big picture MOB events to watch:

This is the story to watch, global bond yields. Not a problem as long as this selling remains orderly…

Long-term perspective of our current status in the 30-year bull run:

China has been steadily selling foreign exchange reserves since mid-2014. (Source: Financial Times)

A steady and controlled devaluation of the Chinese Yuan. (Source: CFETS, Bloomberg | Source page: @WorthWray)

US Treasury yield (30 year) breaking back above 3.00% (Source page: @SoberLook)

Bitcoin is not an answer (it can be manipulated with violence in the course of a few hours which is not a property of a stable means of storing value):