Beware Market Bubbles That May Soon Bust

It’s tempting to invest in markets that are taking off, but the wisest investors find opportunities that have bottomed out or are just getting started. The fastest way to lose your money is to buy when your target is at its high point.

DailyFinance warns you to be wary of investing in the following flavors of the week:

*Gold — While it’s nearly quintupled in price over the last 12 years, gold has no intrinsic value and can slide into oblivion as quickly as it rises.

*Chinese real estate — The market is still rising, with gains of 9.1 percent this year, but since amateur speculators are getting in on the action, it’s only a matter of time until the bottom falls out.

*Alternative energy — Green stuff is trendy and popular, but the technology and feasibility of its applications leave a lot to be desired.

Click the source link for seven other potential money sinks. Which bubble do you think will be the next to pop?

10 Market Bubbles That Could Soon Burst [DailyFinance]
(Thanks, Howard!)

Comments

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  1. chaesar says:

    with the Republicans taking back Congress, fear as we know it has ended and there’s no need to keep a stockpile of doomsday gold anymore, right?

    • Sword_Chucks says:

      Maybe not on the doomsday gold, but certainly trade it in for doomsday devices, but be aware if you’re a mad scientists, there is a 3-day waiting period.

  2. Thomas Palmer says:

    Safest bet: Guns. Seriously, do you know any gun that has depreciated (when taken care of)? If you are really worried: ammo. At least if you don’t sell it, you can use it in the apocalypse.

    • Coelacanth says:

      Careful before you fall into believing Glenn Beck’s perscription for America: Gold, Guns, and God.

    • Sword_Chucks says:

      Ammo is an interesting market. I remember when my Commander-in-Chief first came to office, ammo was scarce and the price was outrageous, that was an interesting time

    • ngoandy says:

      Ammo goes bad.

      • Sword_Chucks says:

        Yes, after you shoot it, hopefully you only need to do that once to make a point… if not, at least you can reload it too

      • Thomas Palmer says:

        Maybe if you by foreign stuff and/or store it in salt water. Good ammo should be crimped well enough so that nothing gets in to ruin the powder.

        • Nigerian prince looking for business partner says:

          Absolutely, when taken care of appropriately, high quality ammunition has an incredibly long shelf life. I’ve shot many thousands of rounds of ammunition that was produced in the 60’s and 70’s.

      • Culture says:

        Even the cheapest com-block ammo last almost forever. I shoot 50 to 60 year old Romanian, Bulgarian and Yugoslavian ammo all the time, no problems at all.

    • Nigerian prince looking for business partner says:

      “Seriously, do you know any gun that has depreciated (when taken care of)? “

      Yes…

      AR-15s shot up in value between ’93 and ’94 and (pre-ban rifles) stayed high until the assault weapon ban expired in 2004. Between ’93 and ’04, you could get a lot of money for a pre-ban lower receiver. Prices also went up in 1999 and then there was a nice glut on the used market after the millennium. Prices are finally starting to stabilize.

      But you are right, guns and ammunition tend to appreciate. I don’t think I’ve ever sold a gun for a loss. But then again, I never stocked up on either when prices were peaking (1993, 1999, or 2008).

      • nova3930 says:

        The AWB and AR style rifles is a special case of artificially induced shortage followed by removal of said shortage. When you say “no more can be made after X date” you fix the supply @ whatever has been produced by X which amplifies any demand driven price fluctuations.

        If you need another example, look @ full auto weaponry. Per the Firearm Owners Protection Act of 1986, any full auto weaponry produced after May 1986 is not legal for transfer to civilians. That particular artificial supply limitation has turned a full-auto AR-15 which should be a $1200 rifle, into a $12k-$15 rifle….

        Weaponry does resist depreciation exceptionally well though. There’s a saying that goes something like “In 1890, an ounce of gold would buy you a fine Colt revolver and in 2010, an ounce of gold will STILL buy you a fine Colt revolver.”

    • NeverLetMeDown says:

      Ironically, guns were one of the biggest bubbles of the last couple years. Prices shot up after the 2008 election, and then came back down again. People were paying $1200-1500 for AR-15s, now you can get them for $700.

      http://online.wsj.com/article/SB123984046627223159.html

  3. obits3 says:

    There are no more Bubbles. This is 2010, we are better, smarter, and have computers!

  4. tasselhoff76 says:

    Doesn’t gold have intrinsic value because it is used so many applications?

    • KyBash says:

      The amounts needed for industry are tiny.

      When I was recycling computer equipment, I calculated that it’d take 14,000 add-on boards (the full-sized, ISA ones) to get an ounce of gold. Not only have the boards shrunk in size, they no longer plate that heavily.

  5. Mecharine says:

    Gold has industrial value, so it does have intrinsic value, especially to materials science and electronics.

  6. Coelacanth says:

    Phil – didn’t you just post an article recently how people *should* invest in gold?

  7. McRib wants to know if you've been saved by the Holy Clown says:

    I’m putting all my money in Crayons.

  8. Portlandia says:

    “Gold — While it’s nearly quintupled in price over the last 12 years, gold has no intrinsic value and can slide into oblivion as quickly as it rises.”

    I believe what you’re confusing is Gold OPTIONS not physical gold posession.

  9. Murph1908 says:

    I thought I just read that gold has been valuable for all recorded history.

  10. catskyfire says:

    You do realize that the Republicans only will have a majority in the House, right? That doesn’t mean full control. (It looks like the Senate will be 51 Democrat, 47 Republican, and 2 Independent, which, by definition, is still Democratic control of that body. At least, it will be the Democrats who choose the President Pro-Tem to guide them.)

    • trentblase says:

      That’s not really how control works in the senate. It’s pretty arcane.

    • morehalcyondays says:

      Republicans will have effective control by virtue of the 5-6 Dems from Republican-leaning states who won in ’06 and are trying to get re-elected in 2012. They’ll work with the Republicans.

  11. Truthie says:

    So about gold… that’s true but not exactly. Gold does have no intrinsic value more than any other commodity. The one thing that makes gold (and most precious metals) somewhat unique is that the supply grows generally quite slowly, since the amount of gold is fixed aside from the amount is mined every year (and the amount that is used up in industrial production).

    So as such gold can be a hedge against inflation.

    But when it rises as fast as it has, it’s definitely approaching bubble status since the value of the dollar hasn’t deteriorated as much as the price of gold has risen.

  12. ngoandy says:

    My 401K is heavy in emerging market indexes. I figured it was a good way to diversify outside of the US economy.

    • Jason Litka says:

      There’s nothing wrong with Emerging Markets as long as you don’t rely on them for your returns; they’re far too unstable. Even if you’re young your portfolio should have no more than 5-10% of emerging markets with no more than 40% or so total international.

      Actually, since Emerging Markets funds are typically tax-efficient, you are better off holding them in a taxable account and filling up your 401(k), Roth IRA, etc. with tax-inefficient funds that are heavy in bonds, real estate, etc.

      • AustinTXProgrammer says:

        That assumes one has enough savings to maintain both accounts. 401k’s are easy and keep your own hands off your money (I just raided my Roth, post tax money, small gains, and too damn much spending).

  13. sir_eccles says:

    If you are just hearing about a “great new investment opportunity” it’s probably too late.

  14. areaman says:

    A serious item not on the list is commercial real estate.

    A fun item not on the list, bacon.

  15. B says:

    Fortunately, my money’s invested heavily in beanie babies. That’s a boom that will never bust.

  16. smartmuffin says:

    The “experts” were telling you not to invest in the gold “bubble” back at $500 an ounce. Only in Economics does your credibility somehow go up the more often you’re wrong.

    • chargernj says:

      economist weren’t saying that. People who manage investments were. There are very rarely the same people

      • smartmuffin says:

        True, but it still applies. Look at Krugman, he hasn’t been right about anything in the last decade!

    • Applekid ┬──┬ ノ( ã‚œ-゜ノ) says:

      Well, sure, if you get in on the ground floor of a bubble and sell at it’s peak, you’ll make a good deal of money. Personally, and only if not everyone else has the same SELL SELL SELL idea.

      Doesn’t make it any less of a bubble, though, because that SELL SELL SELL hive-mind will come someday. The question of how willing one is to being left holding the bag is the same as how much risk can one afford.

  17. tinmanx says:

    Regular Americans investing in Chinese real estate? Really? I hear lots of stories from Chinese people who lost their land in China because they were not there to “defend” it. Ownership just somehow got transfered without notice and all the paperwork gets changed/disappears. Even those who speak Chinese get screwed, I don’t see how an American who doesn’t speak Chinese won’t.

    Oh yea, and one important point, China is a COMMUNIST country. People are not supposed to own anything. At any point the government can take your investment. They’ve taken my parent’s land, and countless other Chinese citizens, what’s stopping them from taking an American’s land?

    Yea, I’m Chinese and I’m bitter. It’s probably because my childhood home has turned into an apartment building.

  18. Me - now with more humidity says:

    I’m worried about the bubble bubble! What if all the bubbles burst at once and there are no more bubbles?

  19. Buckus says:

    I hear this housing run-up is a bubble waiting to burst. No way are 25% year-over-year housing gains possible.

    What? What’s that you say?

    Already burst?

    Dang.

  20. PBallRaven says:

    Dutch tulip bulbs…

    What?

  21. EverCynicalTHX says:

    Fortunately, with Republicans back in control of he House for the first time since 2007 things may finally turn around. It’s been a terrible 5 years!

  22. RandomHookup says:

    Interesting photo.

    I used to work at Fort Knox (the military installation, not the gold depository) and would call around the country gathering information. The constant questions wondering if there was really gold in the vaults never got old (or requests for free samples).

  23. OnePumpChump says:

    Buy your gold where I bought mine 10 years ago!

  24. Bohemian says:

    Education. All those high quality institutions like DeVry and ITT are going to die a quick death when they start expecting schools provide an actual usable education before they get federal student loan money.

  25. FrankReality says:

    I’m not sure commodities are in a bubble at this time. Due to the latest round of “qualitative easing” (a,k.a. printing money, increasing the money supply) has caused a significant bump in commoditiies prices due to devaluating the dollar. You have been seeing this a bit in agricultural commodities, but also recently is gasoline prices. As long as this QE is happening (and it is supposed to continue until March 2011), commodity price increases should be considered on a bubble – it’s perfectly rational.

    A bubble in the making is higher education, in particular at colleges and universities. Tuition prices are being driven sharply upward by the availability of student loans, meanwhile the economic value of those degrees, particularly in the liberal arts, has been flat or declining. The situation is escalating into where students incur so much debt, that they can’t pay it back. There is much irrationality between the cost of education vs. the economic worth of the degrees – if this irrationality continues to grow, this bubble may someday burst.

    The author is completely right about the government debt.

  26. ALP5050 says:

    If you think gold is a bubble you are mistaken.

  27. nocturnaljames says:

    Wrong. Gold has intrinsic value. The DOLLAR has no intrinsic value. It is impossible for gold to become worthless, unlike most other investments (including the dollar). Gold is high because fiat currencies are plummeting. Gold is not a bubble. Please stop giving ignorant investment advice to people on consumerist who do not know better.

    • DangerMouth says:

      ‘Intrinsic value’ starts to get a bit abstract after a while and depending upon circumstances.

      Gold has value only because people generally agree that it’s desirable (and it has been so for many thousands of years), but the only things people actually *need* to live is clean water and food. Come the zombie apocolypse, bullets may be more valuable than gold (unless you are making it into bullets).

      In my lifetime, gold has been at $100 an oz in 1976, $850 in 1980, $300 in 82, $500 in 88, $320 in 93, $410 in 96, $260 in 01, (that’s when I started buying gold), $530 in 06 (that’s when I cashed out) and $1440 today.

      That’s not exactly a stable progression. Next year it could be down to $500 again. It’s kind of like real estate in that, given enough time, it *tends* to appreciate, but it’s not set in stone that this will happen during your lifetime.

  28. AustinTXProgrammer says:

    I believe there is still a lot of room for growth in the alternate energy area. The company that comes up with solar panels that can produce $0.10 kilowatt hours over a 10 year investment is going to make a killing.

    On the other hand, I am sure trillions will be spent searching, and most of it will fail.