Asset bubbles are underway

[Elmore Furth]

Loose money and unsupported fundamentals are seen in speculative bubbles.

When the dumb money is going into an investment because 'you can't lose', then it's a dangerous sign -- notice Glenn Beck and gold?

Notice how both Barack Obama and the Republicans are touting tax cuts as a way to reinflate the economy? Loose money? Can't lose? Hold on to your hat.

Michael Nairne, Financial Post · Tuesday, Dec. 14, 2010

'Bubble, bubble, inflate and trouble." Macbeth's witches would surely be chanting this incantation at the spectre of the frantic efforts of central bankers to re-inflate the economies of the developed world. Both the Federal Reserve and the European Central Bank have stepped up their quantitative easing, essentially printing money by buying government bonds.

The result is a world awash in cheap money. Unfortunately, cheap money is the witch's brew that fuels asset bubbles, which, following their inevitable crashes, are so devastating to so many investors. The U.S. housing price bubble is the most recent example of a manic cycle created by easy money. In the late 1990s, the massive run-up in the price of technology stocks in the dotcom boom was abetted by the Fed's flooding the world with cheap dollars during the Asian crisis. Even the epic Japanese stock and real-estate bubble of the late 1980s was fuelled by easy credit policies.

Every bubble begins with a displacement, a new phenomenon in the economy that begins to attract and excite investors. The Internet that gave birth to the tech boom is the classic example. The rise of OPEC in the 1970s, which fostered the energy bubble, is another. . . The second stage is expansion; as investment dollars pour into the new opportunity, it is soon transformed into a boom.
. .At some point, the boom becomes euphoric. Increasingly, projects are marginal -- oil drilling in the Arctic, unneeded skyscrapers in Tokyo or firms like Pets.com.Yet, prices keep rising and more investors flood in as speculative fervour becomes rampant. . .
Ultimately, the apex is reached. As prices first crack and then free-fall, panic sets in. Virtually overnight, fear replaces euphoria. Distress is everywhere as the final stage, aptly named, revulsion, sets in.


There is no question that precious metals and commodities are the leading candidates to turn into asset bubbles.

Asset bubbles are underway

[slackmaster]

1. K&R - A lot of people are going to get burned on precious metals

In my opinion.

[customerserviceguy]

3. It won't happen until there is general inflation in the economy

and we're not quite there yet. Just my observations from watching the markets thirty years ago.

[Art_from_Ark]

8. People who jump in feet-first might get burned

People who buy generic foreign gold coins @ 60% above melt will probably get burned.
People who buy polished up Morgan dollars @ $40 no doubt will get burned.

However, the fundamentals for precious metals are much different than for other commodities, and the political and economic situations today are much different from what they were in the 1979-80 period.

[Crazy Dave]

2. I'm surprised that gold hasn't crashed already n/t

[Po_d Mainiac]

4. Crashed? Compared to the what?

US FED Reserve IOU's :rofl:

[Art_from_Ark]

9. Hey, didn't you know? Gold is just like tulip bulbs!

:rofl:

[westerebus]

6. It will correct, not crash.

In 06 gld started at 500 to top in May at 700 and end the year at 600.

It was nine months to retrace back to 700 in 07 and ended the year at 850.

In march of 08 it hit 1000 then back to 700 in Oct. The May high of 06. Ending at 850 for the year.

It wasn't till Oct of 09 that 1000 was hit and in Dec a 1200 finish.

For 0'10 a start a 1100 till May at 1200. The high at 1400 and lowering from there.

The numbers are all approximates given the time lines.

What's it all mean? GLD goes up, GLD goes down.

There's another correction coming.

As the high priests of the tribe say: BUY THE DIP

[Taitertots]

5. Markets can remain irrational a lot longer than you and I can remain solvent

Ride the bubble up and short it on the way down.

The value of gold isn't based on a profit stream or usability. It is a market that is at it's core irrational. It is an asset bubble at almost any price.

[Art_from_Ark]

10. That is a ridiculous statement

"It is an asset bubble at almost any price"

Gold has served as a monetary medium longer than any other medium, because it best meets the requirements for a monetary medium. It has never been worthless, except under the most extreme conditions in limited areas. I would say that trusting in paper money or securities, which can both be issued in unlimited amounts and which both rely solely on confidence in the issuing authority for their value, is far more irrational.

[Taitertots]

12. The price of gold is absolutely an asset bubble at almost any price

We abandoned it as a medium of exchange because of the horrible distortions of the economy that it caused.

Rapid price level fluctuations are not prevented by commodity money. The gold standard worsens changes caused by outside shocks, preventing accommodative policy.

The price of gold is a bubble at almost any price. It doesn't offer an income stream, like a bond. It doesn't represent equity and an income stream, like a stock. The only thing supporting the price of gold is that people think the price will go up and they can sell it later.

[Art_from_Ark]

13. Wrong

That is a ridiculous comment. Gold certainly does represent equity. It has been a monetary medium since money was invented, and it is still considered a monetary medium. It doesn't pay dividends, but so what? Neither does land. Neither do most stocks

The asset bubble is unbacked paper money and equities that are being created in virtually unlimited quantities. Bonds might offer income streams, but what is that income today? Hell, some recent US Treasuries were offering a negative return. And you 'd have to hold a Japanese bond for 200 years before you'd double your money.

Stocks are crap. You have to rely on the truthfulness of the companies, and as you should be aware by now, companies often lie their asses off about their actual results, like Enron and WorldCom. And even if they pay dividends, the stock can crash like a lead balloon-- just look at GM and Citigroup for a couple recent examples. Lots of other stocks are way overvalued-- like Netflix. Is a company that merely rents videos through the mail really worth 60X earnings? And stocks can only grow so far until they stagnate and eventually decline.

Really, you have no idea what you're talking about.

[Po_d Mainiac]

14. What's the name of that fiat currency that's outlived PM's

as a medium exchange of value? Geez I should know the answer to this.
Guess I'm just stuck on stupid at the moment.

[Art_from_Ark]

15. Continental Currency?

No, wait a minute.. The utter failure of unbacked Continental Currency was the main reason why the Founding Fathers insisted that the Constitution include a provision about gold and silver serving as the nation's monetary media

[Extend a Hand]

7. I don't think the price of gold will come down

until long term interest rates go up.

[Art_from_Ark]

11. I don't think interest rates will be going up for average investors anytime soon

The big banks are getting too much "free" money from Uncle Sugar. So they don't really need to pay anything to get it from Joe Blow.