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Bubbles are everywhere
Merryn, Sundary Times (UK)
LAST year the Chinese market rose 130%. This year it’s already up another 45%. About 300,000 new trading accounts are opened every day and one-third of listed companies are valued at more than 60 times earnings.
So when Zhou Xiaochuan, governor of the People’s Bank of China, was asked a few weeks ago whether a bubble was forming in the market it wasn’t that hard for him to figure out the answer. Yes, he said.
It is hard to find a market that isn’t in bubble territory these days. Take the art market. Extreme prices are paid for mediocre art every week and, as if to signal the top of the market, a new hedge fund has just been announced. Set to launch in the summer, the Art Trading fund will buy work direct from a group of contemporary artists, among others, and hedge its exposure using derivatives.
But what of the more main-stream markets, the ones where most of us put our money? Are American and UK equity markets booming or bubbling?
Look first at the US. Here the economy is a mess. On the face of it consumption (the main driver of economic growth) looks fine, but peer behind the headline numbers and you’ll see how the spending is being financed – and it isn’t very encouraging.
(20 May 2007)
Higher and higher
Malik Gunatilleke, Sunday Times Sri Lanka
The plight of the consumer keeps getting worse with prices of gas, electricity, fuel and other items increasing day-by-day while a chain reaction has been set off by the depreciation of the Rupee.
Transport costs, food prices sharply shot up during the week with a plain-tea going up by Rs. 2.50, a string-hopper by 50 cts and an average lunch packet up by Rs. 20.
But consumers are in for more heartburn as domestic gas cylinder suppliers are haggling with the government for a further increase and the CEB also warning of a hike, citing additional costs incurred following fuel price increase as reasons.
The depreciation of the rupee as against major foreign currencies is further aggravating the situation with prices of all imported items including vehicle spares, food items, electronic items increasing in price. ..
(20 May 2007)
Financial bubble – who will say that the emperor is naked?
Jerome a Paris , The Oil Drum: Europe
This post is not directly about energy, but it is about one of the other big imbalances of our times – the giant financial bubble that has been inflating for the past few years, on the heels of the prevous bubble, the now-infamous dotcom bubble. It is about how society can be blind to trends that are obvious to many – including amongst those that are in a position to act and should know better than to do nothing.
I’m on record saying (repeatedly) that we have a huge, unsustainable asset price bubble, and that banks are doing insane things right now. And those of you that have read me previously may remember my quip that a good banker is not one who is right, it is one who is wrong at the same time as the other bankers (and thus bankers right now have no incentive not to participate to the increasingly aggressive deals one can see around).
The scariest thing is that a large number of senior bankers are aware of what I’m saying, are on the same line – and are doing nothing about it. [quote from article in the Financial Times]
It’s a bit hard to write very specifically about my role in all this and not betray any secrets, but let’s say that, while we see the very same pressures for aggressive deals, I am not yet too worried about the transactions I’ve worked on for a number of reasons set below. [Jerome a Paris is an investment banker in the renewable energy sector.]
This may sound a bit self-serving, but I can tell you that it is an appreciable luxury to have a job in finance that does not require for consumers to increase their spending (and their driving) by 2% per year for the next 15-30 years to still exist in a few years’ time, and it is even better to be able to have a job whose purpose and actual results are not in direct contradiction with the lessons read here on a daily basis. But being deep in the banking world, it means that I also see what’s happening there, and identify all the hidden assumptions (the biggerst being permanent growth) that underpin so much of our world today, driven by high finance, and do little else but watch in morbid fascination, and warn those that will listen, as the crash approaches
(20 May 2007)
Also posted at Daily Kos.
