Our market has a fascination with bubbles.

• Do we have a Private Equity bubble?
• Was there a bubble in commodities last year?
• Is the housing bubble popped?
• Are higher oil prices a bubble or just a reflection of global growth?
• Is there a debt bubble?
• If the Chinese currency bubble is devalued how will our economy react?

It seems we have so many bubbles going on that Don Ho would be envious. Just like his famous song, as these bubbles grow they “make us happy, make us feel fine, make us warm all over with a feeling that we’re gonna love them ’til the end of time.” But after the most recent stock market bubble popped in 2000, we know they don’t last forever. As a consequence, investors and commentators love to spend time on a bubble search. If you find a bubble when it is still tiny, you should invest as early as possible and enjoy the wild profits available during its expansion. But finding baby bubbles is not that easy and the bubbles we end up hearing in financial media are nearing their peak. So as you contemplate the next bubble, evaluate its stage and proceed accordingly.

Historically, bubbles are not kind to long term investors but they are great for short term speculators with either the capital or hype to extend the fantasy. The realities for the majority of investors are that bubbles are typically followed by very painful losses and on an economic scale, they are usually followed by recessions. The Tulip bubble, the Mississippi bubble (France), the 1920’s US stock market bubble, the 80’s Japanese stock market bubble, and the 90’s US stock market bubble all had recessions on the back end. Cheap debt, high liquidity and increasing risk tolerance are the factors that I think are most relevant but take a look at this article and see how many preconditions for bubbles are currently being met in the overall market and individual asset classes. Maybe it will help you on your bubble search.