Hey everyone, it’s Finance Fridays. It seems like there is a lot of “bubble talk” lately, mostly surrounding Cryptocurrency… but is that the only one? Today we’re going to explore “How Many Bubbles?”
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How Many Bubbles?
Well, I’ve kind of already discussed that I think Bitcoin is a Bubble. Given my stance on that, I think if you’re planning to invest (gamble) on cryptocurrency that you should be Searching for Amazon. Basically, if we’re expecting a bubble to pop at some point, then you want to be invested in something that will survive. Additionally, it has to not only survive, but you need to believe it enough to not sell.
Remember, I consider Amazon to be the “miracle of miracles”. Even though I compared it to Ripple (XRP) in this Quora post, I don’t think there will ever be “another Amazon”. I guess we’re mostly looking for something “Amazonesque”. I invite you to read my recent answer on Quora here regarding the series of dips the crypto market has seen:
Is it the end of the cryptocurrency market or just another dip-a buying opportunity?
Most notably, I still contend that we’re still at the “early enthusiasm level” and both bitcoin (and cryptocurrency) will continue to run up for the foreseeable future. The real question is when and where it will come tumbling down.
While the current crypto market begs comparisons to the dotcom boom, there is one key difference:
During the dotcom boom, the speculation was all about investing and getting acquired, or going IPO. However, in the current crypto market, it’s almost backwards. These cryptocurrencies do an Initial Coin Offering (ICO) first, usually before any product exists. It’s almost like starting at the end with a ton of money behind you (usually too much) in order to create a product…
What are other bubbles?
Well, the student loan crisis has been called a bubble. Although I’m not sure it technically fits the bubble category, I can understand why they may consider it to be that.
There is a ton of money going into paying for a college education, with an expected pay off of a higher paying job. However, for many, these higher paying jobs may not exist, or may not pay enough to offset their student loan burden. This leads to a slippery slope where this generation can’t get out of debt. This then leads to decreased spending, decreased opportunity for home ownership, and basically just putting off a lot of the major purchases until these student loans are paid off. For some, these student loans may take their entire lives to pay off.
Here is an interesting perspective from Goldman Sachs:
GOLDMAN SACHS: There’s an attractive way to profit from the $1.3 trillion student-loan bubble
I’ll paraphrase one part — “Although student loans are in a bubble, Goldman doesn’t see them as a risk to overall financial stability.”
This worries me, as if student loans “aren’t a problem”. It’s not a problem until it’s a problem right?
Will the government be forced to bail out all the current student loan debt? If so, how?
What if the default rate on student loans goes so high that the Here’s another take from Fortune:
This Economic Bubble Is Going to Wreak Havoc When It Bursts
If student loans are in fact a “bubble”, how will it effect the world? Will there be a bailout? What will happen to the economy? to the stock market?
Are there more?
Well, ever since the housing crash of 2008, we’ve had a crazy run in the stock market. Now people are questioning a “stock market” bubble recently:
Alan Greenspan: ‘We have a stock market bubble’ – CNN Money (1/31/2018)
Is The Stock Market Bubble About To Burst? – Forbes (1/29/2018)
Is it a “bubble”?
I don’t think so, at least not to the extent that the dotcom bubble was a bubble. Although I do think that eventually this “optimism” will decline and we will see some downward trends in the near future.
However, if you believe in The Philosophy, then this doesn’t matter to you. Don’t get Stock Market FOMO.
Here’s the real question:
What if all three are bubbles?
If all three are bubbles and either all crash around the same time, or sequentially, then it could potentially be the worst economic crisis we’ve ever seen.
It might be something like having the dotcom boom go bust at the same time that the housing market crashed. However, I think as long as you’ve kept with The Philosophy, you’ll be fine in the end.
This also seeks to remind people that investing in cryptocurrency is gambling. Only invest (gamble) what you can afford to lose.
TL;DR
Just some “bubbles” for thought.
Stick to The Philosophy. Don’t get Stock Market FOMO.
Crypto is gambling. Only invest (gamble) what you can afford to lose.
I’ve written a bunch of answers on Quora about crypto recently — probably too many. Go check them out if you’re interested.
-Sensei
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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