Well, we've got bubble burst 2.0 of my lifetime underway, dot-condos right after dot-com. Who'd of thunk it'd be so soon after 1.0? Oh, what fools we mere mortals are..
So, the question is, will there be a 3.0? Or has humanity learned its lesson for a generation or two?
Some candidates I see are:
1) Gold
2) Oil
3) China
4) Google
Thoughts?
March 01, 2006
Burst 2.0
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21 comments:
Gold is simply a bull market. I do not own any, but it could easily rise to $1000. It's just now getting its legs and shaking off the skeptics.
The 10 year bear market in gold is one of the things that makes a bull market possible. There are so many people remaining that can change their minds and decide to become buyers.
Markets crash when the last fool buys in. That's what has happened with RE and Google.
All of these will bust someday, then boom again someday after that, as will stocks and real estate. The $64 questions for each is WHEN will they bust and HOW HIGH will they soar before crashing? Knowing those things would be the holy grail.
Agree with above. Bubble lessons will never be learned, or rather will be unlearned as they inflate - "It's different this time." Bubbles are driven by greed. Their demise is driven by fear. Those are powerful human emotions.
GOLD
Gold is rising for a reason I believe, but that by no means dismisses the fact that money managers, central banks, insurance companies, and average Joe’s will likely join the momentum party, and push gold to unimaginable prices.
Not trying to pat myself on the back, but I predicted this would happen a year and half ago.
Don’t be surprised if we see gold over the 3,000 dollar mark in the early part of the next decade. I know that sounds excessive, but I never thought I would see an average Joe making 50 grand a year buying a 600k dollar home with no money down.
Listen folks, it’s all about money movement.
Re: Bond Bubble. Well.... what else *is* the housing bubble but the bond bubble in disguise? After all, it is the tremendous financing leverage possible on RE purchases (interest only negative-am) which people are really buying.
If we had 5 years of hordes of cash buyers paying more and more for houses, only then would it really be a HOUSING bubble.
Gold is in a generational bull market.For it to top old highs it would have to go over $2000. Read http://www.house.gov/paul/congrec/congrec2006/cr021506.htm
Gold is in a bull market, but it's not a bubble. That won't start until roughly 2015 if what I am reading is on the level.
The columnists at Kitco.com and even more so at 321gold.com talk about the gold market being a three-stage market:
The first part was when gold had a net rise as it traded with a very high negative correlation to the dollar: dollar up means gold down and vice versa.
They say that now gold is rising on its own with a very low correlation to the dollar -- and that this second phase will last twice as long as the first phase, which was five years long.
If that's right, then it's ten years from roughly mid-2005 that gold gets to phase three, which is the bubble phase.
Oops, forgot to add that the 1979 gold high of roughly $800 is, simply via the reported inflation rate over the years (via this Inflation Calculator), is roughly $2265 in 2005.
"It is left as an exercise for the reader", as the math folks like to say when they're being a little lazier than usual, to determine how much the CPI has been deliberately understated in the past couple of years and to decide whether economic conditions warrant such an equivalence.
TREASURY BONDS! -- that's your bubble old sport. An interest rate going from 4.5% to 6% is a 33% change, which would be the corresponding drop in the price of the bonds. I fully expect that we'll see that come to pass in a year. Something dropping by 33% in a year was either a bubble or pretty close to it.
(FWIW and just for laffs, we might be in the early stages of a sudoku bubble which could come to full bloom in the next year or so as well, but I don't know if there's a way to make any money on it, whether you're going long or short.)
Gold will spike to $1500 or $2000 in the coming years. It will be considered a safe haven and there will be people rushing in.
Silver will ride the coat tails of Gold, but will also have a bull market of its own due to shortage and SLV ETF.
I have modest gold holdings, but much larger silver holdings.
I think there is a lot of extra cash out there that needs to move around. I sure some new bandwagon comes along to soak it up or else it will be spent on consumer goods, raising prices for everyone.
for the record, of my four choices, i don't see any bursting anytime soon. up up and away especially for gold
Keith,
I remember the bust in the late 80's and how the early 90's felt in PHX. It was gloomy as hell. The RE adds were full of priced reduced. I got the feeling that you couldn't give the stuff away. I predict that will be the feeling in about 3-4 years.
metro - i owned three houses in phoenix - all new builds
first one took 6 months to sell in 1994, broke even. second took 7 months to sell, in mcdowell mountain ranch, in 2000, barely broke even. third one in july 2005 at a crazy bubble price took 8 weeks to sell
I think they've quickly gone back to the norm (at best) - 6 months to sell, barely break even, or for newer buyers trying to sell, 30% to 50% losses.
there's just too much desert to rape still, too many houses being built as competition, and too many builders who'll take down their margins to crush the individual homesellers who compete with them in the end (after buying from them)
What's the bubble now?
1) bonds
2) U.S. resident employment and income
Question: if the dollar's going to hell, then isn't it in fact a good idea to buy a house now, even at bubble prices and with a high mortgage? I may buy a house today for $600K that, by historical measures, "should" be "worth" $450K, but if the commenters on this thread are correct and the dollar's dropping like a rock, won't the dollar value of the house continue to rise as the value of the dollar drops? Isn't real estate -- even overpriced -- a reasonable hedge against inflation? I imagine people will cite the 70s as an example of how inflation can occur while property prices remain stagnant, but I'm not sure.
Just curious as to whether people see a tension between a deflating bubble vs. a deflating dollar.
All those are bubbles for sure. Google's has already busted, while the rest may take longer than we would imagine. Take dotcom and real estate bubbles as an example. Bubble bursts only when virtually everyone talks about how great investing in them. By everyone, I mean people who wait tables, polish shoes, etc. Rational conomists started talking about unsustainable level of valuations of stocks in 97/98, but only until two years later did the market correct (in 2000). Again, real estate market experienced similar timeframe. People like Robert Shiller and Dean Baker started warning in 2003 (I still remembered some of their interviews on radio), but it's 2005 when we finally saw the down turn.
What this teaches me is that we are not ready to see corrections in oil and gold. It's not yet on everyone's mind. It's not yet talked about on every dinner table. People in this blog aren't representatvie at all to ordinary Joe's.
The previous anon has it right. The top of a mrket is not when insider articles speculate if the top is in. It's when everyone you meet, is bragging about how well they've done. I've seen it happen 3 times in my life. (Gold, stocks, RE).
I will learn from this. I will HOLD my investments longer in the future.
When the people you would least expect to be "investors" are talking about a particular investment, you are near the top or at it.
This is what I saw during mid-2005 when I panicked and got out of RE.
China's growth is completely sustainable.
They've got enough people and enough different econmic levels within the confines of their own borders to sustain growth for decades. They can even "outsource" to different parts of their own country if they need to!
They've also got almost no infrastructure (electricity, roads, etc) outside of the big cities, but TONS of people who live in those under-served areas. That's a lot of building to do! A lot of building that, unlike the US's building of the past several years (ie. soon to be empty condos and McMansions), will actually serve a fundamental purppose and help propel the economy to the next level.
They are also doing one heck of a job of increasing ties with other countries who can join in a symbiotic "you lift me, I'll lift you" relationship.
People on every continent want to "make friends with China", not to mention all the overseas Chinese and those from more developed Chinese places (Taiwan, Singapore, Hong Kong) who want to see China succeed.
The activity in China probably won't qualify as a bubble since a bubble is by definition not connected to fundamentals.
But it's sure as heck going to LOOK like one to us!
China will succeed and blow everyone out of the water no matter what.
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RickJ
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