Thursday, December 30, 2010

Spoilt for choice - the next bubble to burst

They say hindsight's a wonderful thing but actually, particularly when it comes to money matters, it mostly leaves you rueful and feeling slightly foolish. How come you didn't see that great looming disaster when all the signs were staring you in the face? For example, did you see this last recession coming? The various property crashes we've had in the UK over the years? The dot com boom turning to bust? Or did you spot before anyone else that Japan was going to fall from economic star to the land of the permanent slump overnight? Maybe you did. Because none of these things came out of the blue; there were plenty of warning signs and sceptical voices pointing them out.

It occurs to me that there are some great crashes in the making at this very moment. There are certainly plenty of booms going on. Surely some of these are going to come to a juddering halt and go into reverse causing mayhem. So as we turn towards the last week of 2010 what would you nominate as the most likely boom-to-bust story in the making? What will we be talking about in the next few years like we talk about Greece and Ireland or the Sub Prime crisis? Here are some candidates:
China -

A bit like Japan in the 80s - the turbocharged economy that just continues to move astoundingly upwards and the country that everyone thinks is the future. There are apparently 65 million empty unsold properties in China, making Spain´s million or so property overhang look pretty puny. This article is typical of the sceptical view The China Syndrome - A Building Bubble
Gold -

Up more than 500% in less than a decade. Dinner party conversations about how much Cash4Gold gave you for granny's locket. I don´t see it myself but many people are calling a gold bubble e.g. 11 signs that gold is in a bubble

US Dollar -

A more or less permanent and enormous trade deficit. A massive fiscal deficit and a central bank that prints money for fun. The mother of all bubbles? Scary YouTube video says yes The Dollar Bubble
Government Bonds -

Government bond yields in most countries like Japan, Germany and America have slid and slid as a decades long bull market in sovereign debt has barely paused for breath. Cracks are appearing now though surely?
The Euro -

Sceptics have called this a disaster in waiting since its birth but it hasn't fallen apart yet. Matter of time?

Oil and other commodities -

A two year high for oil - 93€ Are they having a laugh? That can't be sustained with the weak recovery we are having.

Or maybe you think none of the above; everything is cool. Of course, with the possible exception of the Euro which is very much a political issue, these bubbles - if that's what they are - are all related. A super dollar bubble that has been blowing ever bigger since the 70s.

For what it's worth I think the Euro will avoid mayhem and destruction because the politicians will do whatever it takes to avoid a collapse however much it costs their taxpayers. I don't think the high gold price is a bubble even though, short term, there is a risk of a correction as interest rates rise next year. Oil and commodity prices merely reflect the inflationary consequences of the policy choices made by the US and China which lie at the heart of the whole show. The question is not "will it all end in tears?" but when and who will start blubbing first. I am not even going to hazard a guess though I can easily see the US Treasury market unravelling before the great China crash.

Latest article on the Advoco website covers these sort of themes in a review of the prospects for investors in 2011 What Should You Do With Your Savings in 2011
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  1. this article lacks in-depth analysis and very misleading

  2. It is a blog for occasional thoughts and comments not a place for in depth analysis. I was merely offering up a list of what many people are calling bubbles and asking for readers to think which they think really will come to be viewed as such in the future.


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