Bubbles rising again
Jan. 14th, 2010 05:37 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
jducoeurSince folks occasionally ask "how should I invest?" questions on LJ, it seems worthwhile to point out this sobering article from the Economist last week. It's a longish but useful read.
Summary: there are signs all over the place of asset bubbles forming, in all sorts of different asset classes, because of all the cheap money sloshing around the system, including:
My guess is that you should probably assume at least a mini-crash sometime in the next year -- probably not the sort of end-of-the-world disaster we had last year, but don't get overly comfortable with current prices. I don't see any obvious investment choices that I would characterize as "safe" at this point.
(Whether it turns into a true economic debacle depends heavily on whether the Republican noise machine convinces enough people to force the government to close the taps too quickly, I suspect. While the debt issue is a real one, and needs to be addressed forcefully in the medium term, it's worth noting that a sudden reduction of government spending was a proximate cause of both the Great Depression and Japan's Lost Decade. Basically, what the Republicans are arguing for would likely pop all the bubbles simultaneously, which could be pretty devastating. I don't think that extreme is likely, but it would be fairly easy to cause a moderate version of that...)
Summary: there are signs all over the place of asset bubbles forming, in all sorts of different asset classes, because of all the cheap money sloshing around the system, including:
- By some measures, the stock market is looking mildly bubbly, although not nearly as insane as two years ago. When the Dow was in the low-to-mid 9000s, I thought we weren't looking *too* bad; now that it's in the mid-10s, I'm starting to get concerned. The article suggests that even 9000 is probably somewhat overvalued.
- Emerging-market stocks are looking even more dangerous, because of the amount of over-optimism surrounding them.
- Some are still talking up gold, and it's hard to evaluate, but when prices have quadrupled you have to suspect a bubble.
- American house prices actually don't look too bad, but worldwide things still look overvalued.
My guess is that you should probably assume at least a mini-crash sometime in the next year -- probably not the sort of end-of-the-world disaster we had last year, but don't get overly comfortable with current prices. I don't see any obvious investment choices that I would characterize as "safe" at this point.
(Whether it turns into a true economic debacle depends heavily on whether the Republican noise machine convinces enough people to force the government to close the taps too quickly, I suspect. While the debt issue is a real one, and needs to be addressed forcefully in the medium term, it's worth noting that a sudden reduction of government spending was a proximate cause of both the Great Depression and Japan's Lost Decade. Basically, what the Republicans are arguing for would likely pop all the bubbles simultaneously, which could be pretty devastating. I don't think that extreme is likely, but it would be fairly easy to cause a moderate version of that...)