Category Archives: investing

How concerned am I about a bubble?

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For The International Economy magazine, Summer Issue, 2021.
Question: “HOW CONCERNED ARE YOU ABOUT A BUBBLE?”

“On a scale of one to ten, how worried are you about the potential for asset bubbles bursting?”

My response:  9 out of10

Financial markets are indeed experiencing bubbles, spurred in part by easy money. Eventually, the bubbles will end.  A bursting could have severe adverse consequences for the real economy, as in 1929 or 2008; but fortunately, that outcome is not guaranteed.

Asset prices are high by historical standards. For example, Shiller’s ratio of US stock prices to cyclically adjusted earnings is above 37, as of June 2021.  It has been above 30 only twice before: 1929 and 2000. read more

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Will the GameStop game stop?

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February 6, 2021 — Whether one thinks that the overall equity market is currently valued properly or not, something very unusual happened in the last week of January to GameStop stock.  Its price rose 323 percent for the week, and 1,700 per cent for the month (that is, an 18-fold increase). This was a speculative bubble. That is, the price departed from fundamentals.

Some investors who got in early and got out early made a lot of money. Just as many people, who got in too late or stayed in too long, lost a lot of money, as valuations came back to earth. read more

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The Significance of Gold’s Record $2,000 Price

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August 24, 2020 — The price of gold reached an all-time record high of $2,000 per ounce this month.  Mainstream economic thinking has treated gold as a side-show since the world went off the gold standard. Nevertheless, the recent spiking in the price signals some important trends. It is not merely “sound and fury signifying nothing,” as sometimes seems true of financial markets.

There are three ready explanations for the historic increase in the price of gold: (i) monetary policy, (ii) risk, and (iii) a spreading desire for an alternative to the dollar as a safe haven.  Each of these explanations contains some truth. read more

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