Wikinvest Wire

A decade of asset bubbles

Wednesday, December 30, 2009

It's virtually impossible to look back at the decade about to conclude and not see former Fed chief Alan Greenspan's fingerprints all over it. Though current Fed chief Ben Bernanke may outdo his predecessor by blowing even bigger bubbles, their size and destructiveness will not be seen until the 10's, a decade that, as far as bubbles are concerned, will be all his.

As for the 00s, the Associated Press files this report on the many Greenspan bubbles.

A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like the next decade will be no different.
A mix of investor hubris, ignorance and piles of easy money created the bubbles. New ideas about where to invest seemed foolproof and greed crowded out doubts. Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.

Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there's still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.

"They've put out the biggest punch bowl in U.S. history and people are guzzling from it," said Haag Sherman, chief investment officer at Salient Partners in Houston.
Despite the claims of many in Washington and on Wall Street, they'll never be able to do much about either investor ignorance or hubris, so the only way to prevent more bubbles is to stop the easy money policies, but, given where we are today, that seems to be out of the question.

There's lots more in this story - from the Nasdaq bubble all the way through the housing bubble along with a little gold-bashing and a reminder that Ben Bernanke doesn't see any signs of a bubble at the moment.

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Anonymous said...

Indeed Tim, I do suggest you rename your blog The Mess Bernanke Made as of Jan 1, 2010. This Greenspan guy, now half-dead in a wheelchair, is so so yesterday. You need the new refreshing hubris of a Bernanke to give your blog punch.

Anonymous said...

Ben has printed far more than Alan ever did. His plan to remove the punch bowl is to print even more (to pay interest on reserves). The final destruction of the dollar may come in the next couple of decades, along with the biggest bubbles in history.

Ben's lack of understanding is almost equal to his tremendous hubris. He thinks he is on a crusade to save the world from 1930, so any risk he takes (with other people's money) is worth it.

Ben may lead the country to disaster.

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." John Maynard Keynes

Blissex said...

«rename your blog The Mess Bernanke Made»

What about "The mess that Bernanke continued"?

My impression is that the mess started in 1995, and was created mostly by 3 factors:

* Most USA voters becoming middle aged petty rentier asset owners and voting for low tax or tax free capital gains on their assets (the "F*ck you! I got mine!" class).

* Newt Gingrich's Contract On America majority and their enthusiasm for helping middle aged boomer rentiers.

* The Japanese ZIRP and the ensuing yen carry trade.

* Only last, Greenspan's willingness to help boomer rentiers, and to fight the Japanese ZIRP with his own.

Also, let me repeat here a link to one of the best analysis of the mess that Greenspan supported and Bernanke continued:
«The state of received wisdom (as elucidated by various actors) 2004-2007.
[ ... ]Middle-class pre-bubble owners:
Stratospheric housing prices are great, because we get free money. It is a great thing that given todays prices, we cannot buy the house we live in, with our current income. (just read the comments on this very blog by the boomer middle-class on housing topics). Roubini et. al. are chicken littles»

«State of received wisdom today, by the same actors
[ ... ] Middle-class pre-bubble owners:
Inflate, inflate, inflate. We are so stupid that we think its good for us.»

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