Jan

6

The Bubble NebulaWhat is a bubble?

I generally think of a bubble as when the majority of agents in a particular market are buying something simply because they think someone else will buy it from them at a higher price shortly after, instead of buying something because they think it has fundamental value as an investment, consumption value, or because of a macroeconomic change.

To be sure, every market has speculators, one can debate all day about the difference between "speculators" and "investors," and this definition surely is not robust. But I believe when the majority of actors in one market are buying for the same reason (that they believe someone else will pay more) instead of just a fraction buying for that reason, it is indicative of a bubble.

Jeff Waston adds:

Isn't a bubble knowable only in retrospect ?

Russ Sears writes:

No, If Greenspan can spot one in his irrational exuberance speech, then investors should be able to. But this example shows that, while spottable, it can be hard to make them profitable..the easy kill is only in hindsight. Paulson's and like on MBS show the sophistication required and perhaps the size an inside track needed to make such a killing.


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search