Watch out for those…!

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The burst of the US real estate bubble and the resulting bust of subprime credit was the main reason for the heaviest economical crisis since the Great Depression. Everybody vows that it shouldn’t and must not happen again, but let me show you the bubbles which are currently being inflated

Just when I was thinking about the posts on BraveNewFinance and what their current denominator is, I stumbled upon this article by Charles Wallace. He raises the question which other bubbles in global finance are only waiting to burst, and here are the ones he found (and the related articles in BraveNewFinance for more info):

  • Gold
  • Real estate in China (BNF)
  • Alternative energy (BNF, BNF2, BNF3)
  • Commodities
  • Apple
  • Social networking (BNF)
  • Emerging markets stocks
  • Small tech companies
  • The US Dollar (BNF, BNF2)
  • US government debt (BNF, BNF2)

After reading this, I was asking myself why so little is apparantly done about about those inflations if it is this evident. I found two possible answers:

1. – It is, despite the seemingly factual list above, incredibly difficult to measure risk and its possible effects on a global scale – have a look at Cecchetti’s, Fender’s and McGuire’s “Towards a global risk map”

2. Profiteering from rising prices and stocks before and falling prices and stocks after a bubble burst is incredibly attractive to investors, as can be seen from this statement by Sy Harding, president of Asset Management Research Corp:

“Picking the location of those bubbles will probably be very profitable over the next year or two. The initial betting is that they’ll be in commodities and emerging markets, and that bond prices will tumble. Other possibilities will also emerge. It’s bubble-detecting time!

In comparing these two aspects, I came to think that politics need reliable data, as could be derived from a global risk map, to sustain their decisions. Investors, on the other hand, often act without having complete information.

Thus, the big question for me is: How can we reconcile the incomplete financial markets data with sound policy-making?

-B-

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4 Responses to Watch out for those…!

  1. nice post! As a matter of fact, financial markets seek for bubbles of any kinds…it is a fact, that potential profits from investing in bubbles seem to be the predominant reason for a further enlargement of a bubble.
    For your interest, I would like to draw your attention to this week’s change in price trends:
    as an example, this article from bloomberg/newsweek explains that commodities prices slumped. Reasons were a weakening of China’s economic growth and investors fearing a bailout of Ireland…
    In my eyes, the question is always the same: how intense will a bubble burst?

  2. rudi2020 says:

    Nicely collected.

    Watch how Warren Buffet explains a bubbles’s main ingredient: “making money effortlessly” in this very short video.

  3. Pingback: What’s up in 2011? | BraveNewFinance.

  4. Pingback: Bernhard Loock (bravenewloock) – Personal Development in Blogging (Blogpost # 10) | BraveNewFinance.

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