Key Weekly Thoughts
I am a bit tapped out tonight, so I am going to do a brief summary of the most important items from the week, a fun type post to get some reader participation, and then the Friday night entertainment.
- The Treasury's move to use the FDIC as a hedge fund is going to turn out very badly
- Bypass of Congress and backdoor funding tricks result in a rogue agency with limited controls
- Never underestimate the desire of most investors to buy stocks no matter what
- China holding the purse strings, once really understood by average Americans, will effect a new thinking about out of control spending both on a personal level and by the government
- If the government goes for a newspaper bailout the mainstream media will lose whatever credibility it has left
- Is there a record for Presidential appearances? Has Obama eclipsed that record?
- A bill should be passed in Congress banning any and all Goldman Sachs former employees from ever holding a government finance position
- Today Jamie Dimon said March was tough on banking. Tough enough to make liars of Citi, Bank of America, and Wells Fargo who not 3 weeks ago were touting how awesome things were in January/February?
Will the Next Asset Bubble Please Stand Up?
I read a post over at The Mess That Greenspan Made that had this snippet:
"There has been many a time in California's history when it seemed to outsiders to be barreling toward a cliff and to insiders as a place for unbounded optimism. A favorite Silicon Valley bumper sticker says, "Dear God, one more bubble before I die."
Is it just me or is it fast becoming conventional wisdom that we need a new bubble to take up the slack created by the bursting of the last two?
Despite the rhetorical flair of the new President on the subject of future bubbles, it seems clear to me that, given the deleterious effects of the current bubble's demise, the entire nation would jump headlong into a new bubble of any kind if some asset prices somewhere would start to rise and if job losses would ebb.
Indeed I agree.
The hard part is figuring out just what the next bubble is going to be. I for one never would have thought the housing bubble could have become so big after the Tech stock wreck that had just occurred in 2000-2002. Seems I was a bit naive then.
To find that next great chance at a lottery winner, we must first describe some criteria that have to be met for the next bubble to really take off. Here are some qualities I think would be needed:
- Exciting (E): to foster attention and participation said bubble has to have an element of excitement. Junk bonds are so boring, you know?
- Leverage Access (L): for a bubble to really get going you need access to leverage to expand buying power above and beyond that which is directly available to the buyers.
- Believability (B): the next bubble needs a believable storyline, well at least a good story. We all know beanie babies are not going to cost 1 million dollars, but a condo in North Dakota? Maybe!
- Low Entry Threshold (T): the next bubble will not be in some kind of hedge fund that requires 100 million in assets to qualify for participation.
- Displayable Results (R): like YHOO stock rolling up 30% every month or a home going up in price 20% every 3 months, there has to be some way for the masses to show their awesome investment skills off to the world.
With an eye on this criteria, lets look at some possible candidates and score (1 lowest, 10 highest) them on each category.
Candidate 1: Oil
E score: 3
Oil, while an essential commodity, is just not that exciting. It is messy. Most of it comes from countries the US does not like. While oil can be exciting as it relates to gasoline, I think it scores low here.
L score: 3
While big players can leverage up on oil futures and delivery contracts, those vehicles are complex and oil sellers would be lax to let that kind of buying go on with leveraged dollars.
B score: 8
I think oil is solid in the believable category. I mean peak oil and all that makes a compelling case.
T score: 4
While small contracts or oil producer stocks have easy access, the pure oil plays have a high threshold to entry.
R score: 8
Oil scores well again as the oil price is a common news read. Gasoline is also readily observable.
Total score: 26
Candidate 2: Real Estate
E score: 9
Not too long ago you remember all the crazy excitement housing generated. If prices could turn around, this one is a natural.
L score: 10
Home loans simply cannot be beat as far as leverage available to the average joe. While no money down may be gone (maybe not) 5% down payments still allow for a great 20:1 lever up.
B score: 9
It just happened not too long ago, so it can again!
T score: 7
While not as easy as in years past, the government is doing everything it can to get people into homes. This used to be a 10 score, but now a bit harder to jump in.
R score: 9
Again, you know how this works. My house is worth what?!
Total score: 44
Candidate 3: Gold
E score: 9
Gold is about as exciting as it gets. Shiny and never changing, gold gets the blood pumping
L score: 4
While ETF's can be bought on margin, real bullion sellers will not play too loose with the leveraged buying by all but the big boys.
B score: 9
If you think paper money the world over is backed by mostly nothing, gold sells itself. That gold has been money since the dawn of man is a solid tale.
T score: 3
A little gold is easy and cheap. Any real amount gets expensive, fast.
R score: 9
Gold prices run on most market tickers and eBay can always get you excited about how much you could auction your gold off at.
Total score: 34
These are just three examples. I wanted to do the following:
- the Dollar
- Bank Stocks
I am putting up a poll so please vote and use the comments section to flesh out any other possible bubbles. Maybe we can all strike it rich!
Friday Night Rock Blogging
After a one week hiatus, some music to start the weekend. This section gets harder every week as many music bands have entire armies of people that go out on Youtube and disable video embedding (KISS is the worst offender).
While we want a new big bubble, "Tiny Bubbles" from Don Ho is a start:
Reader Kevin had requested some Santana last week, but the Woodstock performance on Youtube had some skinny dipping folks in the intro! Enjoy instead "Smooth" with the Matchbox 20 singer:
While we play "if MBS assets were valued at 95 cents on the dollar we would not be in this mess" take a listen to Jimi Hendrix not being worried at all about "If Six was Nine":
You all know I love songs from movies! Listen to Robert Tepper's "Angel of the City" from the film Cobra:
Have a good night.