Bubblenomics

Are we in a new bubble?

That’s the question today. As stock prices make record-setting gains after falling record-setting amounts, some wonder whether a new bubble is in the works. To answer this, it helps to understand what it takes to form a bubble.

First, you need to have a new technology that seems to “change the game” in a major way. Second, the new way needs to displace the old way and lead some to conclude that “it’s different this time” and that old analytical rules no longer apply. Finally, a broad swath of investors need to jump in, enticed by rising asset values and the prospect of easy leveraged riches. Both the internet and the housing markets went through these steps.

So, are any bubbles forming now?

Stocks certainly aren’t in a bubble. Too many people are too skeptical. Ditto for real-estate. Bonds? Please. Sure interest rates are low. But most folks expect rates to go up, not prices.

But how about Gold? Gold prices have recently spiked, and many gold investors are saying that the economic slack that might prevent inflation doesn’t apply this time. Most remain skeptical, however. For there to be a real bubble, you need a general mania.

Financial bubbles are highly destructive and hazardous to everyone’s economic health. While it pays to be vigilant, it doesn’t look like we’lll see one any time soon.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

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By | 2014-09-05T13:34:08+00:00 October 26th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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