String of investment bubbles marked 2000-09

NEW YORK (AP) -- A string of exploding investment bubbles that started with the dot-coms and ended with mortgages and oil dominated the years from 2000 to 2009. And it looks like the next decade will be no different.

It doesn't seem to matter to many hedge fund traders and other professional investors that the Standard & Poor's 500 index has turned in its first losing performance over the course of a decade, having fallen 23 percent from 1,469.25 at the start of 2000 to its current 1,126.20. Or that they or other investors helped create and then destroy the bubbles that left stocks worth $2.5 trillion less today than when the decade began -- and that's before adding in the effects of inflation.

A mix of investor hubris, ignorance and piles of easy money created the bubbles. New ideas about where to invest seemed foolproof and greed crowded out doubts. Many investors looking for the best returns failed to see the potential problems with an Internet business that had no sales plan, or that thousands of expensive homes bought with no down payment might end up in foreclosure.

Now, these investors who fled the last blowups risk running smack into others. The Federal Reserve is keeping borrowing costs low to help revive the economy, and that means there's still plenty of easy money around, helping traders to inflate the price of everything from stocks to commodities such as gold.

"They've put out the biggest punch bowl in U.S. history and people are guzzling from it," said Haag Sherman, chief investment officer at Salient Partners in Houston.

It begs several questions: What will be the next bubble? Or is it already here? And, how do individual investors protect their savings?

A useful retrospective on the Bubble Decade. I was left wondering if we're living in a Bubble Economy, one which hasn't ended as of yet.

Since the focus is on investments, and the author didn't want to be "controversial," the Federal Reserve and other central banks aren't mentioned as causative forces. Bubble-blowing is presented as a side effect of the Fed's rescue operations, which is consistent with the "AP Mainstream^TM" point of view. So is the "we'd like the regulators to step in, but sadly they can't" trope.

One quibble I had with it: given that we're coming off the end of a huge bear market, it's likely too early for bubbles to blow up. They need prosperity to feed off.

However, the asset-allocation advice is sensible...even if it hurts a little to slice off a chunk of the big winners and transfer the money into the "do-nothings."

It's easy to see why gold could be in a bubble. Many investors who have bought gold are speculating that inflation will start rising because of all of the money coursing through the financial system. One of gold's greatest appeals is as a hedge against inflation. "It will move up, but the music always stops," Krosby said of gold.

Oh brother. Gold is not in a bubble. This third nearly-ten-percent drop in 2009 is sufficient proof of that.

It will be a bubble at some point but it's not there now. Ok folks I'll post this one last time this year and then it's everybody off to bed. Here's a repeat of my post of November 8, 2009, which is a repeat of my post of September 16, 2009, which is a repeat of my post of March 12, 2009 (when gold was approximately $900):

- Nothing can be in a bubble unless it is well past the previous inflation-adjusted all-time high

- Gold regularly drops up to ten percent in three days or less and once dropped more than twenty percent nearly without a break in 2008. Bubble price action goes one way.

- In every case, gold “corrections” have taken weeks and months to recover. Bubble price action is exponential — not a grinding, grudging “recovery”.

- It is almost a commodity, yet supply is not readily available. That’s a supply shortage, not a bubble.

- Boiler-room companies (i.e. cash4gold) are begging the masses to sell to them, not to buy from them

- CNBC is still bashing goldbugs instead of worshipping them

- We haven’t seen a TIME or Business Week magazine cover with a cartoony John Q. Public engaging in borderline-sexual acts with Lady Liberty from the Saint Gaudens Double Eagle

- Nobody you know, knows what Lady Liberty from the Saint Gaudens Double Eagle looks like

- Hollywood hasn’t yet made gold-related TV shows, movies, etc.

A clarification: Yes there are plenty of commercials on TV (up to three in a single commercial break on many FOX daytime shows for example) for people begging you to buy gold, but these are long-established companies not recently created companies like cash4gold. We’ll see boiler-room operations springing up to sell gold, but they aren’t here yet.

http://www.freerepublic.com/focus/news/2381730/posts?page=24#24

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