The Bubble Burst You Didn’t See Coming

Bubbles are not black swan events. They’re highly predictable.

By Harry Dent, Senior Editor, Economy & Markets:

In the next great crash, everything will get swept up in the onslaught – with virtually no exceptions. And that goes too for what we eat!

The 30-Year Commodity Cycle peaked in mid-2008 and has been the first major bubble to crash and burn. The CRB (Commodity) Index has been down as low as 67%, with the potential for 74% or lower in the next few years.

Among individual commodities, oil has been down as much as 82% in early 2016. Iron ore and steel have been down 76% with a potential for 88%.

When my Commodity Cycle turns down, these are all likely to follow. And the commodity bubble proves that when bubbles burst, they don’t just correct in a gentlemanly manner – they crash and burn so that the downside is more like 80%, not 50% as in more normal, long-term corrections.

That said… The biggest surprise in the commodity crash to me has been that even agricultural commodities like corn have crashed. It’s down 62% with a potential for 70%-plus. Look at the chart on corn:


It’s dropped from a high of $8.32 per bushel in late 2012 to $3.18 recently!

Corn is literally everywhere. It goes in animal feed. It’s in our processed food. Cornstarch, corn syrup, ethanol… it’s everywhere. And it’s down across the board. Wheat has also fallen 61% and soybeans are down 52%.

But here’s the kicker… You’d think with all these grains down so badly that the land they’re made on would be down as well. But the thing is, they’re not…


Farmland is still near its highs in many areas. In states like Indiana, Illinois and Ohio, farmland prices are still strong due to the upward pressure of suburban sprawl. But the one state that has little suburban sprawl is Iowa, and corn is its biggest crop by far. It produces more corn than most countries!

For that reason, it’s the purest state to get a feel for the farmland bubble. And the forecast isn’t pretty:


Farmland there has only fallen about 12% so far. It peaked shortly after corn in early 2013 at $8,716 per acre.

But before all’s said and done, I could see Iowa farmland crashing 63% when it bottoms out around early 2023. In general, real estate tends to fall back 85% towards its Bubble Origin as opposed to 100% in stocks and commodities.

And farmland will catch up to corn and continually lower agriculture prices in general. Whereas stocks typically crash in half the time it took for the bubble to build, commodities and real estate tend to take just as long to crash as they do to build. But the coming second and broader real estate crash will likely be what drives it over the ledge.

Given enough time, bubbles always burst. Still, when I warn that major bubbles will crash some 63% – or more like 80% in most cases – people act like it just isn’t possible. It’s simply because most people don’t understand bubbles! And that’s why I’ve written a new book on them: The Sale of a Lifetime (to be released next Thursday) is dedicated to documenting and explaining bubbles so there’s no excuse for being blindsided by them when they burst. And bubbles. Always. Burst.

In the case of farmland, the chart above shows that there was indeed a bubble that took 10 years to build from early 2013. It wasn’t as steep as most residential bubbles around the world and only had a bubble intensity of 0.38 – more average for a real estate bubble. But still high enough to trigger a 63% crash.

Again, this particular bubble peaked in early 2013. Since it took 10 years to build, it’ll take another 10 or so to burst – meaning we’ve still got about six or seven years to go with this one!

Bubbles are not black swan events. They are, in fact, highly predictable.

Farmland may hold up a bit better than commercial and residential real estate, but it’s going down with everything else. Once it does, farmers and investors should look for “the sale of a lifetime” in farmland around early 2023, and possibly earlier. Until then…

Real estate, including farmland, is highly leveraged, and banks are on the hook. With debt into the hundreds of trillions, rapidly growing debt-to-GDP ratios, it’s only a matter of time before investors get flattened! It’s no longer a question of “If,” but “When.”

In the latest infographic from Dent Research, The Global Banking Crisis 2.0, we break down the real numbers to show you what’s really going on, so you don’t end up a blind investor. Get it here.

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  34 comments for “The Bubble Burst You Didn’t See Coming

  1. Dan Romig
    Sep 12, 2016 at 9:59 am

    Farmers in the upper plains have not made money last year, and will not this year either, generally speaking. And as things trend, next year will be tough as well.

  2. Petunia
    Sep 12, 2016 at 10:38 am

    I’ve been keeping up with the news on the Louisiana flood and have read stories that talk about the effects on farmers. The area has a large farming community and the crops, cattle, and dairy farmers have been hugely affected by the flood. Some crops have been totally wiped out and some farms are still under water.

    • Meme Imfurst
      Sep 12, 2016 at 7:43 pm

      same in South Carolina and a greater area. Water…or I mean rain, lots of it…out-of-the-ordinary…rain.

      It is always the thing you hear about that have a side no one speaks of, not on MSM anyway.

      South Florida has more rain this year I can remember in 43. The winds blow in a different direction. That, has actually been happening for about five-ish years… but few notice it.

      I need to check my old Farmers Almanac and see how the weather was in the early 20ies. I know Miami near drowned about then on ‘rain’.

      ( so why have the powers not released the ‘modified’ mosquito that is designed to kill just this one breed which also carries dengay, malaria and ‘zeka’? Instead they are killing everything…. as was done with DDT, so the food chain is collapsing here. But in Florida we can NOT talk of such…sushhhhhh). Add that to the price of ‘farm land’.

      Sadly, most people have no clue that resources are shutting down, drying up, or unfit.

  3. Chicken
    Sep 12, 2016 at 10:48 am

    Privatize profits and socialize losses, US treasury debt has doubled in the past decade, no?

  4. Coaster Noster
    Sep 12, 2016 at 10:58 am

    Ah, Harry Dent! Two things:

    First, farm land can grow crops other than corn….in fact, it can grow no crops and still have value. Does gold require some economic production, in connection with the price? Demand for jewelry in India, maybe?

    And Harry Dent has joined the hip economic crowd, substituting “black swan” for the word “rare”.

    Just use rare, Harry.

    The original idea of a “black swan”, in the Nassim Taleb book (mine is in storage, or I’d give you the page, and exact quote) is as follows:

    How many white swans do you have to observe, before coming to the conclusion that there are no black swans?

    You say “Bubbles always burst”. Bubbles have a long history, are not even close to the idea of a black swan event.

    • Sep 12, 2016 at 11:08 am

      I think Harry agrees with you, and vice versa, because he wrote specifically: “Bubbles are not black swan events.” With a “NOT” in the phrase.

      You guys are on the same page! He is DEBUNKING the myth that bubbles and their busts are black swans. He’s saying they’re “highly predictable” – so the opposite of a black swan.

      • Smingles
        Sep 13, 2016 at 3:43 pm

        “You guys are on the same page! He is DEBUNKING the myth that bubbles and their busts are black swans. He’s saying they’re “highly predictable” – so the opposite of a black swan.”

        While this may be true– that bubbles are “highly predictable” (which is highly debatable)– it’s almost certainly true that predicting when they will burst is nearly impossible. This has been proven true time and time and time and time and time again.

        And if it someone can truly predict when they will burst– and not just by sheer luck of timing which seems to almost always be the case for those who have huge success– that someone is definitely not Harry Dent, who had a few good calls in the 80s and 90s and some utterly laughable calls in the 00s and more recently. A broken clock is right twice a day, and you don’t get credit for “predictions” that are not timely, which is the case for the vast majority of permabears.

        • Sep 13, 2016 at 5:26 pm

          Agreed – more or less. Predicting that something will burst is easy – though the Fed cannot figure out how to do even that.

          Putting a date on it and being correct about that date is hard, and often just a matter of luck.

          Predicting the manner in which it will burst – crash or long slow decline – is hard too. In the latter situation, you don’t know until many years later if you hit your target.

    • JerryBear
      Sep 14, 2016 at 1:02 am

      Black swans actually exist,Ii think in Australia.

    • Steve
      Sep 15, 2016 at 7:50 am

      Farmland, growing no crops, require inputs to maintain its usability (controlling weeds). Land also has an annual tax liability which in some places is quite substantial.

  5. Mike R.
    Sep 12, 2016 at 11:24 am

    I believe the farmland runup had everything to do with high oil prices, the ethanol subsidy and China’s appetite for corn and soybeans.

    Not sure where the ethanol subsidy is these days; perhaps a knowledgeable reader can fill us in. China is way down and of course we know the score on oil.

    I belive Bushy II was behind the big ethanol subsidy. To be sure, it did help a depressed farm belt, but unfortuantely like the rest of our economy, the big guys took most of the gain. Imagine a farmer with 1000 acres making (netting) a million dollars on a crop of corn. That was reality a few years back.

    As far as farm land prices crashing; not too sure about that. Remember, the US dollar inflation has to go somewhere. Yes, overleveraged farmers will bit the dust and have to sell; but strong hands may very well be willing to bid up or at least not pay fire sale prices. Farm land is valuable. Period.

    • Chris
      Sep 12, 2016 at 12:45 pm

      Don’t forget heavily subsidized insurance that farmers can obtain against lean production years. This has greatly enhanced the viability and profitability of farming as a profession.

      • Meme Imfurst
        Sep 12, 2016 at 7:45 pm

        As a corporation or profession?

    • Axle Berty
      Sep 14, 2016 at 9:06 pm

      There are currently no Ethanol Subsidies, just a mandate. Do you really believe $1000 net was possible? My guess is you don’t have a clue about the expense side of farming.

  6. lizardbrain
    Sep 12, 2016 at 12:22 pm

    Ethanol producers wouldn’t exist without subsidies and mandates. The lower cost of oil has diminished most of the ethanol demand that wasn’t contributed to these handouts. I remember talking to my buddy who farms corn in the Midwest when corn (and ethanol) was at its peak a few yrs ago. He said that all farmers know the idea of corn being wasted on ethanol is a joke, especially considering its net-negative energy, but all of the farmers love it and are in on the game because of how profitable it makes corn. They are advocates for ethanol but only because it artificially boosts demand for their product. Anytime the government creates false demand through subsidies, mandates, debt, printing $, etc. it creates bubbles.

    • Merlin
      Sep 12, 2016 at 12:51 pm

      this is the same story I get from an inlaw that farms 2k acres in west Tennessee. Was riding high when the price was up, now he’s back to hoping to break even.

      Sep 12, 2016 at 5:51 pm

      Same as my business. Obamacare. I made over $125,000 MORE last year with this Obamacare crap. I love it, but I realize it is a f’n joke and the people are far too stupid to understand it. Should I take in the Federal Reserve Notes or protest and be called a selfish nasty person? What would YOU DO?

      What did I do with the extra Federal Reserve Notes? I bought Silver Coin and more ammunition for my guns.

      • Robin Crawford
        Sep 14, 2016 at 4:35 pm

        It’s wasteful excesses as you’ve described as well as burdensome administrative costs that are required with private insurance show that single-payer or Medicare for all is the only way to go. It’s about time that the US try to move towards the 20th century and hopefully into this century.

  7. Ptb
    Sep 12, 2016 at 12:58 pm

    All the areas of real estate that have experienced huge increases in the last 4 years are due for a correction. The macro economic picture doesn’t support the prices. Many areas have now come off the boil….and we’ve entered the “waiting for the other shoe to drop” zone.

  8. michael
    Sep 12, 2016 at 1:27 pm

    While I do not disagree with your sentiment, it certainly does not look that way in Fremont. Inventory is lower than last year with higher prices. Houses still appear to be moving maybe slightly longer on the market.

  9. Bead
    Sep 12, 2016 at 3:01 pm

    Brainard has successfully reflated the bubble

    • Sep 12, 2016 at 3:41 pm

      Indeed. But the way I see it: if Brainard EVER votes for a rate increase, it would mean that the FOMC decision has been just about unanimous, that the last dove has buckled. And I don’t expect that to happen for along time.

      I think the next rate increase decision (whenever that will be) will have several dissenting votes.

    • Sep 12, 2016 at 4:03 pm

      Also, on second thought, she’s fishing for the Secretary of the Treasury job in the Clinton administration [sounds of revulsion coming from my throat], and so I doubt she’ll be open to a rate increase.

        Sep 12, 2016 at 6:00 pm

        Should not interest rates be determined by the Market?

        • Sep 12, 2016 at 7:56 pm

          What market?

        • GSX
          Sep 13, 2016 at 7:13 am

          The bought and sold paid for market run by the .001% / Congress and the FED. Seems they dont need my cash LOL

  10. Sound of the Suburbs
    Sep 12, 2016 at 4:22 pm

    Everyone, apart from neoclassical economists, know bubbles exist.

    All the mainstream economists are neoclassical economists that believe markets reach stable equilibriums.

    They don’t get out much and keep blowing bubbles because they don’t know what they are.

    Alan Greenspan and Ben Bernanke could never see bubbles.

    If they had a pencil and some graph paper they might have been better informed but they always used their neoclassical economic models.

    • Chicken
      Sep 12, 2016 at 7:56 pm

      I expect they know perfectly well what bubbles are and how to identify them, they created them on purpose on behalf of their employers.

      They also love to go on financial entertainment tee-vee and blowviate about rates so their employers who happen to have lightening fast HFT computers can front-run the episode.

      I’m not sure why this is so difficult to see….

  11. james wordsworth
    Sep 12, 2016 at 6:20 pm

    Point on corn. Look at the yields, and look where it is being grown. Yields are up because of genetic engineering. So less per bushel in price, but the take is #of bushels times the price. The number of bushels per acre has been going up … a lot!
    Secondly areas that did not grow corn before (think ND) now grow a lot because new varieties (genetic engineering) means shorter growing season variety versions can still make money. Heck they are even growing more corn up in Manitoba as these varieties catch on.
    Third the varieties are also more resistant to drought and other “issues”, which means even with poor weather the crop can be good.
    All together you get record crops and lower prices. You know, supply and demand.

    • Dan Romig
      Sep 13, 2016 at 6:01 am

      So true about corn in ND. My family ran a wheat seed company using traditional old-school breeding from 1993 to 2010 in Minneapolis, and our operations were in both Dakotas and Minnesota. We saw the relentless push corn made northward from very little around Fargo to being grown right up to the Canadian border.

      In 2012, prime farmland in eastern ND increased by 42%.

  12. Emanon
    Sep 13, 2016 at 2:00 am

    It’s actually not inconceivable that central banks will move heavily into non-financial assets once they have used newly created (i.e., counterfeited) money to buy a majority of the stocks and bonds in the world.

    Japan’s central bank already dominates the bond market and is moving into the stock market. The Swiss central bank owns a huge portfolio of stocks, relative to the size of Switzerland’s economy. The Federal Reserve owns so much mortgage debt that it has been described as the largest slumlord in the USA.

    The central bankers appear to be hellbent on counterfeiting money until they own everything worth owning, at which point they will effectively control much of the planet. Why not exchange some electrons in a computer in New Jersey for several hundred thousand acres of prime farmland? Electrons are cheap.

    They must be quietly amazed that the people who used to own the US and Europe and Japan are allowing them to buy everything, piece by piece, for nothing more than a few electrons marked on a computer drive. It makes the selling of Manhattan Island to the Dutch for 60 guilders look like a good deal for the Indians.

  13. Brett
    Sep 13, 2016 at 5:46 am

    Wow! read every comment from the top down today, some twice, very interesting views, such well informed people. :)

  14. Doug
    Sep 15, 2016 at 5:58 pm

    I fear that the inevitable crash in financial markets and real estate is precisely why the fed will get more crazy and go QE4 and negative rates. In other words, the bubble in stocks, bonds and real estate may yet have its blow off top. The crash would be so devastating it must occur despite the fed’s best, most insane efforts.

    • Doug
      Sep 15, 2016 at 6:06 pm

      I meant to say it would ONLY occur despite the fed’s best efforts. In the end, whenever that may be, I think Harry is right but he underestimates how desperate the fed will be and that it will go all in to try to prevent a collapse. I think it would confiscate 401ks if that’s what it takes and that would buy it some time.

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