10 Market Bubbles That Could Soon Burst

[GHook93]

Look all the way at the bottom and they predict the US Government's bubble bursting! Ouch!
Scary ones are gold! All you hear is buy gold and let's get back to the gold standard, yet that is the #1 bubble!
US Dollar is another! However, when the dollar shrinks to new lows, manufacturing will boom!

Rogue US Informant David Headley Lived in Two Different Worlds
1. Gold. The price of gold bullion has risen from $294 an ounce in 1998 to $1,404 today, an increase of 377%. "It's the biggest, baddest bubble of them all," says Robert Wiedemer, author of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown. Gold has no intrinsic value. A telltale indicator that gold is a bubble: incessant cocktail party chatter about buying gold and endless TV commercials offering to buy gold jewelry. The SPDR Gold Trust ETF (GLD) is up 28% since the beginning of the year.

2. Real estate in China. Chinese real estate prices are up only 9.1% this year, which may seem more frothy than bubbly. But rising prices are generating rising demand, which is a clear sign of a bubble, says Vikram Mansharamani, whose book, Boombustology: Spotting Financial Bubbles Before They Burst, will be published early next year. The participation of amateur investors like waiters and maids in the property boom is a clear sign of a property bubble in China. The fact that developers are building more apartments than there are buyers is another giveaway.

3. Alternative energy. Solar technology is still uneconomic, yet governments all over the world are subsidizing solar energy firms. "There are plenty of people who shouldn't be in the solar energy industry who are," says Mansharamani. Do we really need 250 venture-capital-backed solar cell companies? The Market Sectors Solar Energy ETF (KWT) had a 100% gain this year, before dropping back.

4. Commodities. Blame it on the weather, China or the Fed, but commodities have shot higher in recent months. Wheat is up 60% this year, and other food commodities like corn have also risen dramatically. "The focus is on the food category for bubbles," says Wiedemer, but industrial metals like copper are also very frothy.

5. Apple (AAPL). OK, everybody loves their iPad and iPhone (except if they live in New York or San Francisco, where signal strength is a problem). But Apple shares are up 1,200% since 2001, which has to come close to being the definition of a bubble. "Apple is a high-fashion company," says Wiedemer. "If CEO Steve Jobs either leaves or dies, I think they will have trouble maintaining that incredible fashion sense, and as such it's time will go," he says.

6. Social networking. Sure, Facebook has 500 million members, but what is that worth? Some estimates put the company's market value as high as $35 billion, but shares in these social networking companies are not listed and are so far only traded by a few insiders. Twitter, with almost no income, is said to be worth $1.5 billion, and LinkedIn is also estimated to be trading at a market value of $1.4 billion. "There aren't any anchors or valuation methods to guide investors in terms of valuation," says Mansharamani. "When you have that lack of clarity, almost anything is possible." Many in the tech world try to figure out what these companies might be worth some day far in the future and then discount that back to some reasonable price today. Remember Boo.com?

7. Emerging market stocks. As an asset class, these shares have risen 146% in the past two years. "We're only halfway along the way to a gigantic eventual bubble in the emerging markets," says Barton Biggs, the former Morgan Stanley Asset Management chairman who accurately predicted the U.S. stock market bubble in the late 1990s. These countries, such as Indonesia, Australia, Russia and Brazil, are growing wildly even though there's no growth in the world economy. Much of their gains is backed by commodity prices, which are also a bubble (see item No. 4). "I have every reason to believe this will turn into a bubble," says Mansharamani.

8. Small tech companies. It's only been a decade since the tech bubble burst, but cash-rich large tech companies are gobbling up smaller firms without regard to price. For example, Hewlett-Packard (HPQ) got into a bidding war with Dell (DELL) over computer storage company 3Par and ended up paying a whopping $2.4 billion, 325 times the firm's earnings before interest, taxes, depreciation and amortization.

9.The U.S. dollar. Although the dollar is down 10% against the euro so far this year, Wiedemer believes the greenback is firmly in bubble territory. He believes it will pop when foreigners stop buying U.S. assets such as stocks and bonds. "Foreigners say, 'I'm worried about inflation -- you're going to pay me back in dollars worth less than when I invested'." While China may hold its dollar bonds forever, he says, pension funds in Japan and insurance companies in Europe will start dumping dollars as U.S. inflation climbs.

10. U.S. government debt. "When this bubble pops you're out of bubbles -- nothing is too big to fail any more," says Wiedemer. The debt bubble is growing very rapidly and will continue to grow, he says. Basically, there's no way the U.S. government can ever pay back the $13.7 trillion it currently owes (mainly to foreigners), and eventually they will stop buying. The bubble pops when the government has trouble selling its debt -- just like Ireland and Greece are experiencing at the moment. Instead of borrowing money, the government starts printing money, which is what's happening now. The Fed's balance sheet has gone from $800 billion in 2008 to $2.2 trillion, and the central bank just announced it was printing another $600 billion. Says Wiedemer: "The medicine starts to become poison."

 

[william the wie]

Seems right to me except that Gold prices are indicator of the dollar bubble and not an independent bubble so I would substitute the EU welfare bubble for gold but otherwise a great list.

 

[GHook93]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

 

[william the wie]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Gold isn't rising fiat currencies are losing value.

 

[loosecannon]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Your point is very likely true. As is Willie's about gold simply being inverse to the dollar. The only reason why gold is really bubbled tho, imo, is that there is likely 10 times as much gold sold as actually exists. Most people buy leased gold or never take delivery.

If there was no fractional reserve in the gold trade the price might likely be $10K/to.

 

[loosecannon]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Gold isn't rising fiat currencies are losing value.

ALL of them, except for developing nations currencies which are secretly gaining value. But developed nation's currencies are in the toilet. For Sure!

 

[william the wie]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Gold isn't rising fiat currencies are losing value.

ALL of them, except for developing nations currencies which are secretly gaining value. But developed nation's currencies are in the toilet. For Sure!

And likely to head lower as the debasement wars heat up.

 

[GHook93]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Gold isn't rising fiat currencies are losing value.

It will be be subject to supply and demand eventually!

 

[william the wie]

Are you referring to the fact that gold acts as a contra-asset to money base while the economy operates off M3?

 

[editec]

Look all the way at the bottom and they predict the US Government's bubble bursting! Ouch!
Scary ones are gold! All you hear is buy gold and let's get back to the gold standard, yet that is the #1 bubble!
US Dollar is another! However, when the dollar shrinks to new lows, manufacturing will boom!

Rogue US Informant David Headley Lived in Two Different Worlds
1. Gold. The price of gold bullion has risen from $294 an ounce in 1998 to $1,404 today, an increase of 377%. "It's the biggest, baddest bubble of them all," says Robert Wiedemer, author of Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown. Gold has no intrinsic value. A telltale indicator that gold is a bubble: incessant cocktail party chatter about buying gold and endless TV commercials offering to buy gold jewelry. The SPDR Gold Trust ETF (GLD) is up 28% since the beginning of the year.

People with too much money seeking to protect it from future inflation.

I'll tell you one thing that I SUSPECT....a lot of people are buying VAPOR GOLD. (expecially vapor GOLD futures contracts

No proof of that, just a suspicion of mine based on what I know about the Llyod Carr copper swindle of the late 70s.

2. Real estate in China. Chinese real estate prices are up only 9.1% this year, which may seem more frothy than bubbly. But rising prices are generating rising demand, which is a clear sign of a bubble, says Vikram Mansharamani, whose book, Boombustology: Spotting Financial Bubbles Before They Burst, will be published early next year. The participation of amateur investors like waiters and maids in the property boom is a clear sign of a property bubble in China. The fact that developers are building more apartments than there are buyers is another giveaway.

EVen if they're not overbuilding, if the Chinese economy falters, it seems likely that RE is going to be overpriced.

3. Alternative energy. Solar technology is still uneconomic, yet governments all over the world are subsidizing solar energy firms. "There are plenty of people who shouldn't be in the solar energy industry who are," says Mansharamani. Do we really need 250 venture-capital-backed solar cell companies? The Market Sectors Solar Energy ETF (KWT) had a 100% gain this year, before dropping back.

I don't know. Sounds plausible.

4. Commodities. Blame it on the weather, China or the Fed, but commodities have shot higher in recent months. Wheat is up 60% this year, and other food commodities like corn have also risen dramatically. "The focus is on the food category for bubbles," says Wiedemer, but industrial metals like copper are also very frothy.

Too much money chasing too few profits. If there's a downturn in activity, how can the price of commodites go up?

5. Apple (AAPL). OK, everybody loves their iPad and iPhone (except if they live in New York or San Francisco, where signal strength is a problem). But Apple shares are up 1,200% since 2001, which has to come close to being the definition of a bubble. "Apple is a high-fashion company," says Wiedemer. "If CEO Steve Jobs either leaves or dies, I think they will have trouble maintaining that incredible fashion sense, and as such it's time will go," he says.

The apples that go up, must come down. Fortunes are made and lost with Apple every decade.

6. Social networking. Sure, Facebook has 500 million members, but what is that worth? Some estimates put the company's market value as high as $35 billion, but shares in these social networking companies are not listed and are so far only traded by a few insiders. Twitter, with almost no income, is said to be worth $1.5 billion, and LinkedIn is also estimated to be trading at a market value of $1.4 billion. "There aren't any anchors or valuation methods to guide investors in terms of valuation," says Mansharamani. "When you have that lack of clarity, almost anything is possible." Many in the tech world try to figure out what these companies might be worth some day far in the future and then discount that back to some reasonable price today. Remember Boo.com?

How fondly I recall the dotcom boom. I laughed and laughed when it burst.

7. Emerging market stocks. As an asset class, these shares have risen 146% in the past two years. "We're only halfway along the way to a gigantic eventual bubble in the emerging markets," says Barton Biggs, the former Morgan Stanley Asset Management chairman who accurately predicted the U.S. stock market bubble in the late 1990s. These countries, such as Indonesia, Australia, Russia and Brazil, are growing wildly even though there's no growth in the world economy. Much of their gains is backed by commodity prices, which are also a bubble (see item No. 4). "I have every reason to believe this will turn into a bubble," says Mansharamani.

If people aren't buying how can stocks be rising?

8. Small tech companies. It's only been a decade since the tech bubble burst, but cash-rich large tech companies are gobbling up smaller firms without regard to price. For example, Hewlett-Packard (HPQ) got into a bidding war with Dell (DELL) over computer storage company 3Par and ended up paying a whopping $2.4 billion, 325 times the firm's earnings before interest, taxes, depreciation and amortization.

It's cheaper to buy good ideas than to create your own, I guess.

9.The U.S. dollar. Although the dollar is down 10% against the euro so far this year, Wiedemer believes the greenback is firmly in bubble territory. He believes it will pop when foreigners stop buying U.S. assets such as stocks and bonds. "Foreigners say, 'I'm worried about inflation -- you're going to pay me back in dollars worth less than when I invested'." While China may hold its dollar bonds forever, he says, pension funds in Japan and insurance companies in Europe will start dumping dollars as U.S. inflation climbs.

Everybody's worried about inflation. But as long as people are out of work I don't see how its going to kick in.

10. U.S. government debt.

"When this bubble pops you're out of bubbles -- nothing is too big to fail any more," says Wiedemer. The debt bubble is growing very rapidly and will continue to grow, he says. Basically, there's no way the U.S. government can ever pay back the $13.7 trillion it currently owes (mainly to foreigners), and eventually they will stop buying. The bubble pops when the government has trouble selling its debt -- just like Ireland and Greece are experiencing at the moment. Instead of borrowing money, the government starts printing money, which is what's happening now. The Fed's balance sheet has gone from $800 billion in 2008 to $2.2 trillion, and the central bank just announced it was printing another $600 billion. Says Wiedemer: "The medicine starts to become poison."

Maybe.

 

[GHook93]

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

 

[william the wie]

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

Absolute agreement on that specie is less prone to inflation than fiat currencies but the Alexandrian and Spanish hard currency inflations destroyed both of those empires.

 

[Norman]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Your point is very likely true. As is Willie's about gold simply being inverse to the dollar. The only reason why gold is really bubbled tho, imo, is that there is likely 10 times as much gold sold as actually exists. Most people buy leased gold or never take delivery.

If there was no fractional reserve in the gold trade the price might likely be $10K/to.

The whole paper gold thing means gold is OPPOSITE of a bubble. It means real gold is worth MORE than it is sold for in other words it is undervalued, not overvalued.

 

[Picaro]

You think Gold can keep raising in price and people will be able to just afford it?

No F'ing way!

Since the movers in the gold markets are mostly for the very wealthy, and many governments, it can go up a lot further. But, I think it will only run up to the $2K to $3K range, and that in 2012-2014, when the other shoe drops on the U.S. and European economies.

It will be be subject to supply and demand eventually!

Maybe, but doubtful, since those relationships are unstable and rarely rational.

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

Yes, indeed; excellent point. We will be seeing a repeat of the 70's and 80's, with both food and energy going up in price; people forget there was also a global food shortage during the oil shocks that helped fuel 'stagflation' as well.

The only reason why gold is really bubbled tho, imo, is that there is likely 10 times as much gold sold as actually exists. Most people buy leased gold or never take delivery.

Yes.

If there was no fractional reserve in the gold trade the price might likely be $10K/to.

$10K I wouldn't bet on, but it's certain to keep rising, until the world's governments can again offer the Super Rich guaranteed high returns on investments and they 'invest' large sums of money into economies again; until then, gold will keep rising.

The whole paper gold thing means gold is OPPOSITE of a bubble. It means real gold is worth MORE than it is sold for in other words it is undervalued, not overvalued.

Yes, as a matter of perceptions, gold is a hedge, but a hedge with a huge speculative market surrounding it. It's still an international currency, and will likely always be, as is silver.

And, the author posted in the OP was wrong; both gold and silver have significant intrinsic value, particularly in electronics.

 

[william the wie]

Until the fed gives up on quantitative easing gold will continue to rise but silver is likely to keep on increasing because it is in actual shortage since it is the closest approximation of a room temperature superconductor currently available.

 

[editec]

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

Yes, I understand and quite agree.

There are many factors that might lead to inflating or deflating currency values.

But we are not in the positions of Post WWI Germany or Zimbawaue.

WE are in this economy, and right now, (as you know, conditions can change with the stroke of pen) I see no evidence that inflation is the problem.

Not that I do not believe that it could become a problem, merely that it isn't a problem now.

And one of the primary factors for this is the employment problem.

First unemployed people don't put a whole lott upward pressure on inflation because they're not consuming much.

Secondly, those Americans still working are currently SAVING at a rate of about 5% of their aggregate incomes.

Right now the rich have too god damned much money, and the working classes too little.

That is not the formula for inflation, if anything it's the formula for DEflation.

 

[editec]

Interesting analysis, but inflation and devaluation of currency can happen regardless of people being in or out of work. See Zimbawae or Germany after WW I!

Inflation could drastically increase even if unemployment hits 20-30%!

Absolute agreement on that specie is less prone to inflation than fiat currencies but the Alexandrian and Spanish hard currency inflations destroyed both of those empires.

I don't know much (read any) about the Alexandrian inflation, but the Spanish empire's inflation really did happen because the amount of specie (gold) dramatically increased thanks to the conquistadors stripping it from the AmerIndians.

Naturally when there's more specie chasing essantially the same amount of good and services the price of things is going to rise EVEN IF YOU'RE PAYING FOR IT WITH GOLD!!!!!!!!!!!

And let's remember that Charles was also fighting wars against the Reformation (Protestantism) AND the Ottoman empire at the same time Spain was colonizing the Americas. It was sucking up so many resources that one couldn't find good GALLEY SLAVES TO MAN WARSHIPS for love nor money.

Naturally with rising demand (the outrages cost of empire), but no REAL increase in productivity (no real rise in supply of good and services), even though Charles had more HARD CURRENCY (gold) the prices of everything rose dramtically.

And how did Europe overcome this imbalance between DEMAND (driven by all that hard currency) and SUPPLY (that was essantially not rising)?

AFRICAN (and to a much lesser percent AmerIndian) SLAVERY.

Yeah that's right, Europe increased SUPPLY by turning people into THINGS to be bought, sold and EXPLOITED.

And THOSE people ten started creating REAL wealth as they were exploited to mine and farm and create SUPPLY that eventually found a new blance between SUPPLY (real stuff) and DEMAND (gold).

 

[william the wie]

The Persian treasury contained several years of income in specie. When that money hit the Macedonian treasury corruption knew no bounds and the embezzlers including Aristotle poisoned (or at least attempted to poison) Alexander at the same time he purportedly died of "disease". Plutarch and Arrians give a greatly different take on the poison plot than most modern histories. The same fate awaited Pizzaro and his Canyari allies also some of the Tlascan leaders who used Cortez as a front man in Mexico were killed but Cortez avoided execution.

 

[Trajan]

apple makes me laugh. or that is the folks who continue to buy apple stock. that they didn't split last year before the Ipad speaks volumes for their confidence in the ipad and where they are going long term. Apple at 300 is over priced imho. I don't think anyone will ever see a real dime buying in at that price unless they are prepared for a 10 year wait. Intellectual property and a co. built on intellectual acumen only is always iffy. tis is why Jobs is striving to carev out and crate apple in the same form as, say Microsoft where in he crates his won self perpetuating proprietary profit structure.

2-3 lean years in an intellectual vacuum and a new whizzo gizmo created/built by someone else on or around their same or like 'inventions' ala ipod, Iphone ( already happeneing) and ipad ( the ipad will drop out like the Newton imho) will crash their stock and asIi said, no one buying in at above say 225 will see it as worthwhile in the end.

 

[loosecannon]

TRajan, Just before Gates retired from microsoft he bought a buttload of apple stock. Apple will surpass Microsoft if Jobs survives 5 more years.

Microsoft stock is overpriced and may be worth zero within 10 years. Trust Gates on this one. He's got the inside scoop.