Saturday, November 30, 2013

Roubini: There Are At Least 17 Housing Bubbles Developing

Nouriel Roubini is on target with this. He writes:
[S]igns of frothiness, if not outright bubbles, are reappearing in housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in major urban centers in Turkey, India, Indonesia, and Brazil.

Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt. In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices[...]

the global economy’s new housing bubbles may not be about to burst just yet, because the forces feeding them – especially easy money and the need to hedge against inflation – are still fully operative[...]

What we are witnessing in many countries looks like a slow-motion replay of the last housing-market train wreck. And, like last time, the bigger the bubbles become, the nastier the collision with reality will be.
It's hard not to think that Bitcoin is not part of the same bubble atmosphere---probably the leading global bubble.

8 comments:

  1. Regarding the alleged bitcoin bubble, does anyone think that part of the price rise might have something to do with the implementation of FATCA starting next year? Yesterday Bob noted that the Caymans and also Costa Rica will comply.

    So is it possible that some wealthy people are moving money out of foreign banks and into bitcoin, thus driving up prices? Their incentive would be to prevent discovery/theft of their money by government officials and so they may risk buying it at much higher prices. I'm just speculating.

    While nothing is totally secret, I suspect with proper precautions it is at least more secret than a bank openly cooperating with the IRS. And properly encrypted, they can't freeze or seize your bitcoin wallet. Which is more than I can say about a bank account.

    Full disclosure: I have never owned a single bitcoin or fraction thereof. I have no idea if buying bitcoin at any particular price is a smart move right now. My interest in it is purely as a possible means to challenge central bank and government control of people's wealth. For that reason, I wish bitcoin all success.

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    1. Are you serious? Do you really think wealthy people are putting their money in Bitcoin? And just how is Bitcoin more secret when every transaction can be traced?

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    2. If bitcoin is at 1200 and rising then yes. Rich people are buying it.

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    3. There are about 12 million bitcoins on the market, which corresponds to a value of $ 12 billions. That's a tiny and illiquid market compared to oil, bonds or forex. And every bitcoin were designed to be traceable.

      I think bitcoins are dead but virtual currencies will gain popularity.

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  2. I'm not sure if you can call Bitcoin a bubble. It's commonly thought that a bubble is the result of too much liquidity chasing too few investment which creates a highly instable equilibrium that breaks down when the liquidity stops. In the case of Bitcoin, there is not enough liquidity as Bitcoins aren't being printed or are even destroyed through police confiscation. We're looking at a major dislocation of market mechanisms without anything to counterbalance them as it's a virtual currency with little oversight/regulating levers. There is no central bank to print bitcoins as they can only be mined, and it looks like some clever thugs cornered the mining process.

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    1. You got it backwards, as I imagine you can see now that you have clicked "publish". The liquidity is the fiat currencies being exchanged for Bitcoin. Bitcoin is the investment in a "highly unstable equilibrium" (whatever that is).

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    2. Gpond, can we agree that a bubble happens when excess liquidity drive prices up ? Here we have an artificial scarcity of a desirable good. It's exactly like what happened to Volkswagen's price in 2008 when option traders broke the market. That's a market being cornered and not a bubble.

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  3. I'll speculate that bitcoin has caught the attention of momentum specialists. These are traders with algorithms that meter price, volume, and time. They place bids as mathematical patterns of these play out. If you don't have their tools, you are likely to get burned.

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