Saturday, September 13, 2008
A thought on bubbles
While in a conversation with a portfolio manager on Thursday, it occurred to me that we are now experiencing the first time since early in the Clinton administration when there is no asset class that is rising in value absurdly. Unless I'm missing something, we are bubble-free for the first time in roughly 13 years.
Anybody smarter than me -- all my co-bloggers, for instance -- disagree with that? And does this mean that we are in for tough times, turning the corner, or neither?
13 Comments:
By 
, at
Sat Sep 13, 05:27:00 PM:
I know this is off topic by why isn't the US News Media reporting about the Muslim Terrorist attack in India's capital yesterday?
Could it be that they are afraid that reporting on this would hurt Obama and help McCain?
http://www.sajaforum.org/2008/09/breaking-news-b.html
By 
Andrew Hofer, at
Sat Sep 13, 06:15:00 PM:
Actually, I think the credit crisis has begun to scale the symmetrical opposite of a bubble.
In 1999, any kid with a little internet traffic could extrapolate geometric growth in profits and raise money accordingly.
Now, any missteps at a financial institution and investors extrapolate nothing short of complete insolvency. Look at AIG, for instance. This is a huge and valuable franchise. They will certainly suffer some losses from their credit swaps. But their bonds trade like they might go belly up (14-15%).
Bubbles and shocks are both products of pricing model uncertainty. Rising bubbles are more orderly and pleasant, but the overshoot phenomenon is the same.
Don't get me wrong, things are pretty bad. But these firms priced for bankruptcy are not all going bust. We didn't know which internet stock would be Amazon and we don't know which i-bank will bite it.
By , at
Sat Sep 13, 06:48:00 PM:
Let me know when you find out!
Oil was doing pretty good there for a while...
I don't know, maybe the bubble is now in corn? Five years ago, who would've guessed food prices would spike the way they have (besides Malthus, of course).
By , at
Sat Sep 13, 07:15:00 PM:
Dreck ... what about Glass-Steagall?
Seems to me these banks have really screwed the pooch, taking depositors money and writing loans so bad even FNM and FRE wouldn't buy them. Now the FDIC is looking at insuring deposits gambled with by the banks to make a few people super rich.
Sure, not all the banks are going down, but they're not coming back to high valuations anywhere in the next 10 or more years.
I read a story recently about the rise in secondhand 'toys' - repossed luxury items like boats and stuff. What a time to have money in pocket this is going to be (not that I need a boat, or more cars, or a plane, or have the ching for it, but there's plenty of other stuff to snap up).
By , at
Sat Sep 13, 07:29:00 PM:
As a simple minded investor, i.e., one who buys and holds companies in periods of cyclical bull markets, I will say that we have never completed the cyclical bull run that started on March 11, 2003 We have not recouped the nasdaq or dow highs of 2001 which is the benchmark of cyclical movements. We have retested the current bottom (S & P 1214) 4 times, as late as this week, intraday. The sturm and drang in the financials may be mostly over.
No asset class is likely to exceed the general market when there is no obvious market trend in place. There is a mountain of cash (approx 3 trillion dollars) on the sidelines when this uptrend reveals itself. The 60 day put/call ratio(a contrarian indicator) is highly favorable at 1.00. Core inflation is still relatively low. Historically, Nov thru May are the best up months, but we should far exceed this time frame if the cyclical bull starts to run which I believe it will later this year. Until then its time to hold your head up, and not throw in the towel.
By Miss Ladybug, at
Sat Sep 13, 07:29:00 PM:
I think I'm glad I bank with a small credit union... They aren't out there making all kinds of risky high-dollar loans...
By , at
Sat Sep 13, 07:50:00 PM:
By Miss Ladybug, at
Sat Sep 13, 08:39:00 PM:
Based on the membership requirements and the types of loans they offer, yes, I'm sure...
By D.E. Cloutier, at
Sat Sep 13, 10:14:00 PM:
"And does this mean that we are in for tough times, turning the corner, or neither?"
U.S. arms exports are up sharply.
The NY Times says "the Department of Defense has agreed so far this fiscal year to sell or transfer more than $32 billion in weapons and other military equipment to foreign governments, compared with $12 billion in 2005."
The newspaper adds: "Less sophisticated weapons, and services to maintain these weapons systems, are often bought directly by foreign governments. That category of direct commercial sales has seen an enormous surge as well, as measured by export licenses issued this fiscal year covering an estimated $96 billion, up from $58 billion in 2005, according to the State Department, which must approve the licenses."
Link:
http://www.nytimes.com/2008/09/14/washington/14arms.html?ex=1379044800&en=1b9e58b21516f1b8&ei=5124&partner=permalink&exprod=permalink
By , at
Sat Sep 13, 10:25:00 PM:
DEC,
It this (upsurge) primarily to Iraq and the rest of the Persian Gulf states, in fear of Iran?
And the former nations of the Warsaw Pact, now fearing Russia?
And also perhaps, Afghanistan?
Interesting insight.
-David
By D.E. Cloutier, at
Sat Sep 13, 10:34:00 PM:
The whole enchilada, David.
In addition, many small companies that sell and install security equipment at universities, government buildings, etc., are doing very well.
By , at
Sun Sep 14, 06:50:00 AM:
One word: Gas
Not oil, but gas.
Don
By , at
Sun Sep 14, 04:07:00 PM:
Two asset classes in a bubble:
1. U.S. Treasury notes and bonds,
2. U.S. farming property.
Repeating the mid-1980s, the next financial/social crisis in the U.S. will be in the Midwest 'farm belt' as landowners get hit by excessive leverage, rising interest rates, and falling crop prices.
