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Three Bubbles in 10 years??
Old 06-26-2008, 02:46 AM   #1
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Three Bubbles in 10 years??

It seems that we have had three bubbles (market and economic disruptions) in the last 10 years.

  • Tech stock market
  • Real-Estate (subprime) mortage back securities
  • Not Future market for Commodities
Plus we may be looking at inflation to add to the uncertainty.

What's this all about. I know these things happen, but the frequency seems to be increasing and the time between then is getting shorter.
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Old 06-26-2008, 07:30 AM   #2
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I look at it somewhat how this country handles wildfires. Instead of letting nature take its course and burn off overgrowth, dead trees, etc... we step in and stop things because someone decided to build 200+ McMansions right where the fire is headed (and probably burned quite a few times over the millennia). In terms of the bubbles, the government keeps stepping in to control things under the guise of protecting the economy. The problem is that with Uncle Sam providing bailouts (regardless as to whom), people simply don't learn from their mistakes.
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Old 06-26-2008, 07:58 AM   #3
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I subscribed to this vew last year: Jeremy Grantham: All the World's a Bubble - TheStreet.com

Of course, being stupid, I just plodded along and didn't change a thing.
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Old 06-26-2008, 07:58 AM   #4
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I can't point out any underlying common theme to them, and would like to think that the government stepped in to stop people's mistakes to protect the economy, but the three all have different reasons. For one, the tech and real estate bubbles were seen as good things for the country as they had produced a massive increase in wealth for typical Americans as well as, in the case of the tech bubble, exciting new products and consumer goods. Thus, when they started to fall, it seemed that the government would try to rush in and help, but there wasn't much help for the tech collapse besides interest rate cuts and a tax cut, but say what you will with that.

For the (impending) commodity bust (if you believe it), it has generally been looked at as a negative for our economy with its "impact" on typical Americans. Personally, I have said it before but I feel the real estate bust and the energy boom are incredibly closely related, as with the low energy prices the real estate boom was allowed to occur without thoughts for interconnection and other important aspects of real estate. I don't find anything wrong with it, but as prices fluctuate as well as the economy, consumer preferences for houses change with it. I don't know why, but I feel each has a different niche about it, as opposed to the stock market phenomena of Technology, the Nifty Fifty, tulip bulbs, etc...
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Old 06-26-2008, 08:43 AM   #5
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There's almost always a bubble somewhere. But unlike some of the other bubbles, a commodities bubble impacts everyone, even those who aren't "in the market."

There's a lot of "impatient money" out there always chasing the next hot thing. Some of them will do well, but some who get into the tail end of the booms could wind up busted. Ask folks who bought tech stocks in February 2000 or who bought real estate in California or Florida in 2005...
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Old 06-26-2008, 08:43 AM   #6
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Quote:
Originally Posted by chinaco View Post
but the frequency seems to be increasing and the time between then is getting shorter.
Ah, you are just getting older -- time gets strange as we age.

(frequency... time between... Hmmm)
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Old 06-26-2008, 08:44 AM   #7
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Quote:
Originally Posted by Jay_Gatsby View Post
I look at it somewhat how this country handles wildfires. Instead of letting nature take its course and burn off overgrowth, dead trees, etc... we step in and stop things because someone decided to build 200+ McMansions right where the fire is headed (and probably burned quite a few times over the millennia). In terms of the bubbles, the government keeps stepping in to control things under the guise of protecting the economy. The problem is that with Uncle Sam providing bailouts (regardless as to whom), people simply don't learn from their mistakes.
Good analogy...I like to blame hedge funds while I am at it also
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Old 06-26-2008, 10:25 AM   #8
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Originally Posted by ziggy29 View Post
There's a lot of "impatient money" out there always chasing the next hot thing.
Ding! Ding! Ding!

Good point. Look at oil trading, a few years ago oil traders were few and far between and it was a pretty boring segment. Then they discovered the possibilities and oil traders were the next hot group. Money and talent flows into, reality gets disconnected, insanity reigns and eventually people get hurt.

I've given up trying to figure out the oil trade. You just can't fight the trend on this one, but you certainly have to be careful and not go whole hog or you will get killed.
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Old 06-26-2008, 12:28 PM   #9
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when i began reading this forum i knew so much less than i know now about money. all i knew was to work for a living. you need more money? you work for it. i didn't understand liquidity. i didn't understand bubbles. i never knew why they call it currency.

in my limited capacity while trying to make sense of what i'd rather not be dealing with, i've found some images that make it somewhat understandable to me. i'm learning about business cycles which seem to be fairly predictible waves upon oceans of finance. i'm learning about currents of money which flow between countries moved by winds and tides and now these bubbles which rise like tsunamis when they reach sloping shores.

a while back i found referenced in something i was reading an article from harper which seems to describe this new economy of bubbles...

The Next Bubble: Priming the markets for tomorrow‚€™s big crash: Priming the markets for tomorrow's big crash‚€”By Eric Janszen (Harper's Magazine)

Quote:
Our economy is in serious trouble. Both the production-consumption sector and the FIRE (finance, insurance, real estate) sector know that a debt-deflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression...
Quote:


We have learned that the industry in any given bubble must support hundreds or thousands of separate firms financed by not billions but trillions of dollars in new securities that Wall Street will create and sell. Like housing in the late 1990s, this sector of the economy must already be formed and growing even as the previous bubble deflates. For those investing in that sector, legislation guaranteeing favorable tax treatment, along with other protections and advantages for investors, should already be in place or under review. Finally, the industry must be popular, its name on the lips of government policymakers and journalists. It should be familiar to those who watch television news or read newspapers….


There are a number of plausible candidates for the next bubble, but only a few meet all the criteria…There is one industry that fits the bill: alternative energy
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Old 06-26-2008, 02:06 PM   #10
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I believe cheap money caused each bubble. Greenspan lowered rates too far to reduced the potential impact of Y2K. Lowering the cost of upgrading everything tech caused companies to spend more than they would have in a shorter time frame = Bubble. (not to mention companies cooking the books to drive their stock options higher)

Housing has always been led higher or lower based on interest rates. This was the first time in my lifetime 30 year mortgage rates were under 5% and some adjustable rates started at zero or less. This was also the first time you could borrow more than the house was worth with no money down = Bubble

Years of cheap money and government overspending caused the dollar to fall. Because most commodities are priced in dollars they started going up in dollar terms because our currency fell. Then because they were going up, traders jumped on board and are now driving them higher = Bubble.

Now that the Fed has lowered rates too far AGAIN to save banks from the sub-prime problems, they caused inflation on top of a recession from the housing bust. They will have a tough time lowering rates to spur the economy. That will only fuel higher inflation.

It's Deja Vu all over again. Welcome to the 70's. Were is Paul Volcker when you need him?

Just my two cents.
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Old 06-26-2008, 02:24 PM   #11
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Good point about the cheap money. Another reason cheap money causes bubbles is that it tends to send savings, money market and CD yields way down, causing people to start looking to other places for their money. Whether that was tech stocks in 1999, housing in 2003 or commodities today, uncompetitive interest rates on cash lead to some people looking elsewhere.

I'll bet a lot of people who have money in some of these financial markets today would be parked in cash if it were still earning 4-5%.
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Old 06-26-2008, 07:13 PM   #12
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Quote:
Originally Posted by chinaco View Post
It seems that we have had three bubbles (market and economic disruptions) in the last 10 years.

  • Tech stock market
  • Real-Estate (subprime) mortage back securities
  • Not Future market for Commodities
Plus we may be looking at inflation to add to the uncertainty.

What's this all about. I know these things happen, but the frequency seems to be increasing and the time between then is getting shorter.

Are we leaving out the HUGE bond bubble? Also,the China/Emerging Markets bubble? Bubble after bubble after bubble.

Deadbeat gets the gold star.

If it ever ends it would mark the end of the high expectations from a highly diversified, non-correlated portfolio.
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Old 06-26-2008, 08:31 PM   #13
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Scams and bubbles are a close relative of each other and I believe greed and the desire to "get rich quickly and without effort" is the fundamental driver in these situations (Investors more vulnerable to financial scams as stocks slump - MarketWatch).
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Old 06-26-2008, 08:49 PM   #14
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Scams and bubbles are a close relative of each other and I believe greed and the desire to "get rich quickly and without effort" is the fundamental driver in these situations (Investors more vulnerable to financial scams as stocks slump - MarketWatch).
One mustn't forget that Bubbles make some folks fabulously wealthy and others miserable for the balance of their lives. So it is more akin to the Lottery than to a scam.

The early birds do not go into it to defraud but simply to take advantage of an opportunity and it just (through greed, of course) gets out of hand. It is those poor souls that try to "jump on the band wagon" (through greed, of course) that end up looking for someone to blame.

or something like that.
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