Permabubble

5 bubbles

2010-08-24T23:49:00.000-07:00

Interesting article pointing out 5 investing bubbles

The market can stay irrational longer than you can stay solvent

2010-04-07T23:17:00.000-07:00

Always helpful to be reminded of this sage advice attributed to Keynes:

"The market can stay irrational longer than you can stay solvent"

Ten Bubbles in the Making

2009-09-14T19:59:00.000-07:00

The Business Insider has identified 10 bubbles that are developing at present in this article: Ten Bubbles in the Making

1. China bubble
2. Green bubble
3. Gold bubble
4. Federal Reserve bubble
5. Trash stock bubble
6. Education bubble
7. Subprime bubble, 2.0
8. Life insurance securitization bubble
9. Commercial real estate bubble
10. Emerging market bubble

Tulip Mania

2009-08-25T22:14:00.000-07:00

Tulip mania is generally considered to be the first speculative bubble ever recorded.

Tulips were introduced to Europe in the 1600's, with the rare bulbs quckly becoming status symbols. As interest in tulips grew, markets were created in local taverns by florists or professional tulip traders which enabled speculation in tulips by the general public.

Prices for tulip bulbs rose steadily throughout the 1630's as more and more people were drawn in with promises of quick riches. Tulip mania peaked in 1636-37 with entire farms being exchanged for one single bulb. Prices had risen exponentially in the space of a few short years.

Soon after the 1636-37 peak, the tulip market crashed as buyers were no longer willing to pay the ever-increasing prices. Bulb prices returned to their pre-1630's levels, which were a fraction of the market peak, eventually a single tulip bulb had the same value as one onion.

Semper Augustus: the most expensive tulip sold during tulip mania.

A World of Rotating Bubbles

2009-08-24T03:05:00.000-07:00

Simple chart which illustrates the permabubble concept. Bubbles rotating through various asset classes over time, with each new bubble superseding the previous one.

The South Sea Company

2009-08-23T18:47:00.000-07:00

The South Sea Company was founded in 1711. It was granted exclusive trading rights to the Spanish colonies in South America in return for taking over the national debt of England, which was raised by the War of Spanish Succession.

Promoted as "a company for carrying out an undertaking of great advantage", speculation in the stock of the South Sea Company created an economic bubble in 1720, known as the South Sea Bubble.

The South Sea Company share price rose from £128 in January 1720 to over £1000 in June 1720. The rapid rise in share price caused a national frenzy, with all segments of society participating in the speculation as a variety of new joint-stock companies joined the market.

In order to ease the myriad of new joint-stock companies entering the market making fraudulent claims, the Royal Exchange and London Assurance Corporation Act 1719 or "Bubble Act" was passed in June 1720, requiring all joint-stock companies to receive a royal charter.

Shortly after the Bubble Act was passed, investor confidence began to fade and the sell off in South Sea Company stock caused a rapid collapse with the share price plunging to £150 by the end of September 1720. The company failure prompted an official investigation in 1721 which revealed widespread corruption amongst government and company officials.

Definitions

2009-08-20T22:08:00.000-07:00

Permabear: permanent bear, perpetual pessimist
http://www.doubletongued.org/index.php/citations/permabear_1/
http://en.wikipedia.org/wiki/Permabear#Bear_market

Permabull: permanent bull, perpetual optimist
http://www.urbandictionary.com/define.php?term=Permabull
http://en.wikipedia.org/wiki/Permabull#Bull_market

Permabubble: permanent bubble, perpertual bubble
http://permabubble.blogspot.com/

Permabubble

2009-08-19T22:42:00.000-07:00

To coin a phrase, a permabubble is the notion that asset/market/financial bubbles always exist in some shape or form.

For a discussion on economic bubbles, see: http://en.wikipedia.org/wiki/Economic_bubble

Bubbles have occured as long as markets have existed, however, recent history has witnessed a wave of speculative bubbles rolling though various asset classes (eg. dot-com, credit, real estate, commodities etc.). We contend that this is an ongoing feature of finance/economics and we are in a state of permanent bubbles, or a permabubble.