Blackstone strategist Joseph Zidle is warning that the “mother of all bubbles” could burst if profits don’t improve. Zidle thinks there are several problems in the market right now, including the repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing.

Not to mention, every cycle ends with excess. “At the end of any economic cycle, we often get warnings that appear to be unrelated,” he wrote in a recent note. “It’s in hindsight that we realize that they were not at all random.” Investors saw this during the runup and aftermath of the housing bubble, he added, and we’re seeing it now. “Cyclicals and low-quality stocks should outperform in an improving earnings environment; new highs in equity markets will likely be set,” Zidle said according to Market Watch. 

And the “mother of all bubbles,” according to Zidle is the sovereign debt market. He believes that that is the catalyst for the next recession and expects the bubble to pop between mid-2020 and the end of 2021.

Retail Apocalypse Amplifies: Media Ignores The Debt Catalyst

Zidle also believes that a rise in quarterly profits that will boost markets in the near term. “The first three quarters of 2019 faced the toughest [comparables] since this profits cycle started in 2016,” he writes. “Earnings are flat this year. Next year, year-over-year comps should be easier.” Because stocks tend to rise in the six months leading up to a recession, Zidle also thinks there’s plenty of room for more gains this year. “Cyclicals and low-quality stocks should outperform in an improving earnings environment,” he said. “New highs in equity markets will likely be set.”

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The national debt, corporate debt, and personal debt could all play a major role when the economy experiences a downturn.  The inability to make payments will ripple through the economy quickly impacting every sector.  It makes sense that Zidle is calling debt the catalyst and the “mother of all bubbles.”