“Bubbles”


Originally Published: December 20, 2006
Amazing how the word has come to a meaning almost entirely distorted from what it’s definition was in the first place. With this thought in mind I started out on my venture.

First stop…Webster’s Dictionary. A bubble is defined as “A state of booming economic activity (as in a stock market) that often ends in a sudden collapse”.

Next let’s reminisce. When did we have a “Bubble”? South Sea Bubble was definitely a bubble. The real estate frenzy in Florida ending in 1926 was such a bubble that many didn’t even have what to lose when stocks crashed 3 years later. Stock markets in the 20s, 50s and 90s – when analysts from all walks of life suddenly became “ticker gurus” – Bubble.

Then came the Real Estate Boom in the aftermath of the 2000 meltdown. Here’s where I get hazy. Comes forth Steve Forbes in one editorial and says “A bubble isn’t a bubble if everyone knows its a bubble”. Hmm. I guess were now seeing the truth behind that statement.

Now, fast-track another few years and EVERYTHING is a bubble. We now have a commodities bubble, a gold bubble, another Dow bubble, a derivatives bubble, a China bubble, for heavens sake, we even have a deficit bubble!

It seems that in the eyes of the average-minded American anything that goes up and gets, even some, media attention “must be a bubble”.

Let’s look back at the initial definition. I juxtapose “A state of booming economic activity”. Does anyone you have ever come in contact with see a “commodities bubble”?

Let’s recap. No “The-only-mining-stock-you-ever-need-to-own” analysts, No cheerleaders on Forbes, CNBC and Marketwatch, many business sites don’t even have gold or commodities listed. No billboards blaring out “Instant trades with your futures broker for a quarter the price”, No friends boasting to your family how much money they made last week buying silver bullion and definitely nobody in the elevator would give a damn how much corn futures or pork bellies rose yesterday.

This is not bubble activity. It’s actually quite the contrary. It’s what people tend to do after seeing so many bubbles. Instead of educating themselves with the facts, they – as usual – insist on speculating away they’re aimless lives convincing themselves that either a) they made their money and are eerily convinced that this is as high as we can possibly go (cutting their gains), or b) they missed the opportunity and have to convince themselves that there isn’t much steam left on this ride (letting the losses run).

If you really want a simple “Bubbles Guide”, I suggest go to your local library or bookstore. Look at the shelves. Top is bubbles, bottoms are probably worth reading. (Looking for Jim Roger’s book, “Hot Commodities”, I knew exactly where to find it. Commodities truly “get no respect”).

So ladies and gentlemen, here’s all I can say. “Go ahead. Believe what you will. Trust those – and those only – who tell you what to do and follow the blind-reasoning that you have so mischievously placed in your close-minded brain and continue listening to the news as if it will be the Magic-8 Ball of tomorrow.”

Markets tell us one thing, and one thing only. What everyone was thinking yesterday. To know what they will do tomorrow, look no further than the simple fundamentals behind the economics that has governed money from the day man first picked up a commodity for barter.

In the late 90s people got up in the morning, called themselves “Investors” and bought companies with no earnings, let alone some that didn’t even have sales. Today is no different. People choose to run day and night after a fiat currency run by a government that has given us more warnings than for the first-class passenger on the last flight to London.

This too may turn into a bubble, but at least I have much time and profits before then, as well as the satisfaction knowing that I won’t the last idiot who buys waiting for the bigger idiot to arrive.

We all act the same, but as the sages of old love to put it “The wise do in the beginning, what Fools do in the end”.

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