3 Possible Market Bubbles on the Horizon

This is a guest post by The Financial Blogger: I’m working in the financial industry and I am specialized in personal finance. I’m always trying to find way to make money differently than receiving my pay check every two weeks. I recently hit a 6 figure income at the age of 28 and I am currently building my own online business while working 4 days a week at my day job.

Now that the stock market engine seems to be restarted for good (with a lot of volatility!), speculators are already trying to see which bubble will burst first! I am always surprised to see how quickly financial analysts are to predict that the stock market will crash again… I guess it is easier to predict the end of the world as sooner or later, it will happen and they could all say “I was right!”… only I was 5 years late….

So here are some of the bubbles that could burst at one point or another:

Precious metal, oh my so precious….

It’s been more than a year since we have seen gold push up from one record high to another. As many investors have enjoyed tremendous returns, more and more people are jumping on the bandwagon. I’d say that this is probably the first bubble to burst in the upcoming year. As far as historians remember (because the history of gold is way longer than any economic study), gold has always kept pace with inflation (but with much bigger fluctuations). In fact, an ounce of gold was good enough to buy a nice suit back in 2000 BC… and it is still good enough to buy a Hugo Boss today… after all this, the question remains: Do you really want to buy something that has already reached its peak? This is the case of gold in my opinion.

Canadian housing market to collapse?

As previously mentioned last week, the Canadian Government played with Canadian mortgage rules in order to reduce accessibility to the housing market. With these measures, it hopes to slow down the housing market and avoid a 2nd American nightmare…

Since the housing bubble didn’t burst in Canada back in 2007 and we are still navigating through a low interest environment for a while, the government felt the urge to modify a few mortgage rules. While they ignore the concept of bubble yet, it is very possible that making a few changes over time will slow down the housing market and calm the flurry of first home buyers. If they could threaten to increase rates significantly, this would definitely put an end to this madness. However, economics is not as simple as raising or dropping an interest rate ;-). This is why they opted for other alternatives.

Emerging markets ‒ can they hold it for long?

Since 2009, emerging markets (more importantly the BRIC) has taken the world on their shoulders and are slowly taking most countries out of the recession with their huge appetite for resources. However, they also have started to run into a few speed bumps such as 8% inflation in China and striking employees looking for better working conditions in India.

These countries could experience their own industrial revolutions as well and god knows what will become of it. There is a lot of hope invested in the BRIC but their stock markets are inefficient and not transparent at all. I guess this is why we have such risk of having the bubble burst from the “truth”.

Among the top 3 bubbles to burst, I’d put my 2 cents on gold… I really don’t like this precious metal. In fact, I don’t even like its color… I prefer silver!

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

13 comments
Fedco1
Fedco1

It be great if we could predict market tops but we must learn to make trades with hedges so when it is a market top we do not get hurt. I like trading broken wing butterflies in the gld. (GLD=etf that follows the gold market.) I also look at resistance and support levels and fibonnacci retractments. I like building positions over time with something that is very liquid but very volatile. Butterflies are the perfect strategy to sell at a credit and let time decay in your favor. Broken wing butterflies have all the risk to the bottom of risk graph and profit to the top. You can buy the embedded back and again make a symetrical butterfly with a risk free trade.

I think there are many bubbles coming are way it is the natural of the markets.

There is a good chance of a bubble in the emerging markets but when.
gold is cyclical but believe it has a way to go up yet.
I only look out 4 to 6 months out.

Inflation is on it way, but when.

Keep a sharp eye for rising interest rates. Sooner or later the U.S. Bond market is going to kill the U.S. Stock market

Watch the growing divergence between the value of the U.S Gov't bonds and the value of gold. Governments are destroying the value of their currency to create a illusion of properity. It is an Illusion.

JH
JH

Emerging markets may be in for a correction, but who knows? The company I work for is being bought by a "Chinese Investment Corporation" (read Chinese government) so that they can set up a factory in China to put more Chinese folks to work. Only problem is: they admit to having NO experience, expertise in the technology. Too much money from China is chasing poor investments. Sounds like a bubble to me...

Regulator
Regulator

Financial reform will drastically alter all sectors in the U.S. market, leading the way for other G-20 countries to follow. This will be driven by key congressional law-makers using their political retirements to force rigid reform, now free of campaign refinancing. Public campaign finance reform will effectively wipe-out the corporcracy of the special interest, dramaticaly altering capitalism for a generation. As America unwinds its military commitments in iraq and Afghanistan, the federal government will over-haul the entire legacy allie 20th century military commitments around the world. Huge savings in military reform will be redirected to highly advanced war technology creating new jobs and a smarter more effective military. Shifting emphasys to world wide energy independence and eco-friendly energy solutions will destroy the fossil fuel economy altering the stock market in the greatest bubble bursting impact the world has ever seen, but, it will be gradual and propurous.

Precious Metalhead
Precious Metalhead

Raw untapped natural resources critical to advanced technology have been recently discovered in America. Positioning the United States to out perform emerging markets with a new wave of advanced technologies driven locally by safe eco-friendly mining. Both China and India will be having a huge reset as both countries come to terms with excessive industrial polution causing an massive wave health-care expenditures and citizen dissatisfaction halting those economies at the core fundimental of cheap labor. Meanwhile the U.S. will rise on in-sourcing, tighter more transparent regulations, green technology/energy independence and health-care reform. A surge in American productivity will be seen in the larbor market combined with massive retiree volunteerism tutoring school children along with public education reform. Positioning the United States to retain the mantle as the number 1 economy for decades.

Great Guesser
Great Guesser

The commercial real estate bubble will be the next domino to fall, taking down overly leveraged medium size banks. That will have a profound effect of small business lending as a result, which will stagnate small business expansion and keeping further negative pressure on unemployment.

John Doe
John Doe

Gold is too high and so is silver, etc. In the current environment, 100 pieces of silver is equal to one piece of gold, i'm talking ounces here. I can see gold at $500 and silver at $5. There was a time once when the ratio was 12 to 1. However, silver is recycleable. Tons of it is recovered from computers that haved been junked. It is also recovered from magazines.

Tony
Tony

To me, silver has more potential for 2 reasons:

* Silver is becoming an increasingly scarce commodity, whereas gold mining is still going strong

* Silver has more industrial uses than gold, the latter having a more financial aspect to it

I'm going to say that if gold tanks, silver may lose value only because of collateral damage. Hopefully that won't happen, but ya never know.

Marc Bautis
Marc Bautis

If unemployment does not get contained I believe the next bubble to burst will be credit card debt.

Credit Girl
Credit Girl

Thanks for the info. Gold market seems to be just stagnant at this point so I don't really see a point investing in that. How do you feel about silver?

Kevin Khachatryan
Kevin Khachatryan

I know for sure the first two are bubbles, but emerging markets will definitely keep growing at their current rates because of simple geographical changes - more urbanized and developed people spend more and earn more.

Dawn
Dawn

Sooo, what IS your take on silver?

The Biz of Life
The Biz of Life

I can't comment on the Canadian Housing market, but I see emerging markets in a volatile uptrend. I would agree with you that gold has probably peaked and will be flat or down. However, I think the biggest bubble right now is government bonds with rates pushed so artificially low. There is only one direction in our future-- up-- which means bond investors are going to lose money as rates head from near zero back to 4 - 6%.

Free Classifieds Blog
Free Classifieds Blog

I don't see any near future collapse of emerging market. If there is one, that it will have global implications, far worse than the current one. The current housing bubble was only confined to USA and UK and the banks from countries that bet on the bubbles suffered the most. However, China and India was not among those countries.

In fact, except Japan and S Korea, most of the Asian countries were not directly affected by the crisis but they suffered the indirect effects and they were able to recover rapidly.