Tuesday, March 18, 2008

The next bubble?

Edit: Swapped the housing price graph for another one, after noticing the first one I included was a graph of the percent change in prices, not of prices themselves.

What's the next investment bubble going to be? I'm not an economist, so I don't know. (If I were an economist, I really wouldn't know.) But I have my suspicions. Let's look at a couple previous bubbles. Here's a chart of the NASDAQ, centered on when the tech bubble popped:

And here's one of U.S. median housing prices — over a much longer period, but then, real estate markets move more slowly:

What's the most striking feature of these graphs? That sudden, almost exponential rise at the end of the boom, with the trend line becoming almost vertical. In both cases this happened about the time a lot of people seemed convinced that prices would only go up, forever. Those people got a nasty shock.

Now let's look at the price of gold over the last ten years:

Hmmm. Kinda makes you think, doesn't it? I'm hearing a lot of advertisements lately that bill gold as a safe investment that can only increase in value. Think there might be another nasty shock coming?

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