16 Big Bubbles That Are Getting Ready to Pop
by Business Insider Apr 3rd 2013 5:00AM
We've compiled a list of the assets that analysts now believe are flashing the warning signs of over-inflation.
If you think we reached the peak of bubble-calls last spring when Robert Shiller diagnosed a "bubble on bubbles," think again.
Warning stat: The price of college textbooks is up over 800 percent since 1978.Textbooks
What the experts say: "The cost of college textbooks has been rising at almost twice the rate of general CPI inflation for at least the last 30 years," according to Mark J. Perry, American Enterprise Institute. "As Glenn Reynolds reminds us, 'a process that cannot go on forever, won't,' and the college textbook bubble is certainly one of those processes."
Warning stat: First tier cities Beijing and Guangzhou saw home prices rise 3.1 percent in February, the biggest jumps in the country. Meanwhile, entire towns will go up in China with no inhabitants. These are China's notorious "ghost cities."Chinese Housing
What the experts say: "There are obvious bubbles in the property market, and it is possible it will get out of control and crack," according to Wang Shi, chairman of China's largest developer.
BitcoinWarning stat: The "crypto currency" now trades at $63 -- double what it was at the beginning of March.
What the experts say: "In hindsight, the people who bid the price of Bitcoins up to $30 in 2011 may not have been so crazy after all. It just took the broader market, including me, a couple of years to catch up with them," according to Ars Technica's Timothy B. Lee.PHOTO: Steve Jurvetson, Flickr.com
U.S. Treasury Securities
Warning stat: Investors recently bid a record $3.16 for each dollar of the $2.011 trillion in bonds the U.S. government auctioned in 2012, Bloomberg says.
What the experts say: "Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities," warns economist Martin Feldstein. "When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt."
Warning stat: Between December 2012 and February 20130 -- when Congress proposed a new assault weapons ban -- Colorado background checks soared 102 percent. Gun sales in Maryland between December and January totaled 68 percent of all the state's gun sales in 2010.Guns and Ammo
What the experts say: "We wouldn't see the demand increase if there weren't a ban, so we're getting a bubble that's caused by that demand increase due to the ban," according to Mac Clouse, Denver University finance professor.
Warning stat: American farmland prices continue to grow at a blazing hot double-digit rate. An industry group recently forecast that values could surge 15 percent to 20 percent in 2013.U.S. Farmland
What the experts say: "It doesn't have all the hallmarks of a bubble," according to Robert Shiller. "One of them is most people have never heard of it. In my view of a bubble, it's something that gets people excited. Well, some people are excited, but most people don't even know about it."
Warning stat: January home prices surged 23 percent in Phoenix and 17.5 percent in San Francisco, according to Case-Shiller.Phoenix and San Francisco Housing Markets
What the experts say: "The real question in my mind is, 'Are we possibly off to the races again?'" asked economist Robert Shiller. "I think in cities like Phoenix and San Francisco, we might be seeing something pretty big developing. People there are very speculative-minded."
Warning stat: Casino magnate Steve Wynn bought Picasso's "La Reve" in 1997 for $48 million. In March, he reportedly sold it to hedge fund manager Steve Cohen for $155 million.Art
What the experts say: "Art is in an insane bubble with many classic pieces going from $35 to $50 million and up," warned Dow Theorist Richard Russell.
Warning stat: Gold has gone from around $1,000 per ounce in 2009 to around $1,600 today.Commodities
What the experts say: George Soros called gold the "ultimate asset bubble" in 2010 when it was priced at $1,275. We're obviously still above those levels.
Warning stat: Health care spending has grown 2.5 times faster than incomes over the past 30 years.U.S. Health Care
What the experts say: "The health care system in the U.S. reminds us somewhat ominously of the bubble in housing finance, a 'public/private partnership,'" says Citi's Steve Wieting. "Housing consumption still receives strong tax preferences, as does health insurance (reflecting underlying health care consumption). Most aptly, prior to quasi-nationalization, housing GSEs earned private profits from public subsidies for housing, as do U.S. health care providers."
Warning stat: Europe stabilized after ECB president Mario Draghi said, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."Europe
What the experts say: "To us the key word about the post summer 2012 Euro Area asset boom is that most of it is a bubble, and one which will burst at a time of its own choosing, even though we concede that ample liquidity can often keep bubbles afloat for a long time," warns Citi Chief Economist Willem Buiter.
Warning stat: Prices are up 47 percent year-over-year, and are sitting at an 8.5 year high of $432 per 1,000 board fee.Lumber
What the experts say: "Signs of a housing bubble in the world's most populous nation may force the Chinese government to take measures to 'draw air' out of the rising housing market and to clamp down on construction lending, which would likely put a significant dent in the demand for building materials such as Lumber and Copper," according to Mike Zarembski, OptionsXpress.
U.S. College TuitionWarning stat: College tuition is up around 1,115 percent since 1978.
Warning stat: Craft beer production surged 15 percent year-over-year in 2012.Craft Beer
What the experts say: Boston Beer Co. founder Jim Koch says most stores have reached their limit for carrying new breweries, and that too many breweries are making similar beers without adding anything to the market.
Warning stat: Canadian home prices mirrored the U.S. housing rally. However, Canadian prices never fell. A recent Canadian Housing Affordability study says the country's home market is 10 percent overvalued.Canadian Housing
What the experts say: "I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S," said Robert Shiller.
Warning stat: The S&P 500 recently closed at an all-time high, up 135 percent from its March 2009 low.U.S. Stocks
What the experts say: "What we find is that Bernanke does not have nearly as great a track record on inflation as he thinks he has. Greenspan could not see that the housing market was an inflated bubble. Evidently Bernanke cannot see that the stock market is an inflated bubble."
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