The Dutch tulip mania in 1637, the US stock market in 1928, the NASDAQ in 1999, the US housing market in 2006, the US stock market in 2007. There are so many examples of asset bubbles through history that can be studied and analyzed and criticized and dismissed, that they seem almost commonplace. It's always "different this time" in different markets for different reasons. Nobody can ever agree on a bubble's existence until it bursts. The mainstream never sees them coming, and the contrarians see them everywhere.
The one commonality I almost never hear discussed is that you can see a bubble a mile away by just asking if the underlying asset can be afforded by the average person. If the asset is unattainable to the average person, or only attainable through an unreasonable debt, there is a chance we're in a bubble.
There is a lot of very extensive reporting in the USA that more than half of the country cannot come up with $500.00 in an emergency. No savings, no plan B, just pay check to pay check 52 weeks a year. Let's ask ourselves in this context, what is in a bubble today?
College? Almost unattainable to any average family without massive debts at high interest. Debts that are obviously not going to be paid. Last I've read 25% of the trillion ($1,000,000,000,000) dollar debt is not being serviced. Bubble.
Vehicles? A brand new vehicle of almost any class is the equivalent of the average US salary, a years salary for a car. The auto loan bubble that has developed is being fueled again with subprime loans that don't often mature until 8 years. Loans stretched 8 years so monthly payments are affordable. By the time the loan is paid the car will have negative equity. Much of these loans are in default and there is an oversupply of vehicles both new and used. Bubble.
Housing 2.0? Housing in most markets have reached or exceeded the 2006 housing bubble in the US. The average family cannot afford a new home, or existing home for that matter, even at historically low interest rates. Home ownership is at a 60 year low, and unattainable to most (obviously). Bubble.
Equities? The DOW is pushing 20-21,000, seems like new highs every few weeks. The stocks driving the rallies are sometimes over $800.00 per share, $500.00 per share, $100.00 per etc. and with a country where half the citizens cannot come up with $500.00 in an emergency can definitely not afford to speculate in stocks. Bubble.
The inflation we're experiencing in health care, food will become their own bubbles.
What isn't a bubble?
Mike Maloney's take above where he explores stocks, bonds and real estate in a much more expert and in depth way.
