Beware the 4 new asset bubbles For this paper, I would be summarizing Shawn Tully’s article recently published in Fortune website last January 25, 2010, entitled, Beware the 4 New Asset Bubbles. This article is just one of the several pieces that described and predict the state of the American economy within the period of the global recession, which commenced after the real estate crisis in the United States. This article takes off after this development and listed four more dangerous areas that threaten the US economy after being severely hit by the recent housing market collapse.
These bubbles are gold, oil, stocks and government bonds markets. The fundamental reason why Tully thinks that gold, oil, stocks and bonds would prove to become investment bubbles is that, “they’ve already seen huge run-ups that put their prices far above their historic averages and far above the levels justified by fundamentals. ” (Tully, 2010) The article cited several points why the values of the four assets are overly inflated. It was pointed out that the prices for these assets are climbing steadily in recent years since people keep on investing encouraged by rise of their rates in the market.
For Tully, this trend should not fool everyone. His argument against this is that the lofty valuations of these assets would eventually reach a degree that can no longer be supported by most companies because earnings cannot be sustained or produced fast enough. The bottom line for Tully is that assets who are on the peak of the equation – those whose value far exceeded their historic averages - are doomed to fall. This, wrote Tully, is the concept of gravity at work and such understanding could help people and investors to spot a bubble. Specific details were cited by the article that provided illumination in regard to why gold, oil, stocks and government bonds values are expected to collapse - people selling gold, too much speculation on oil, stocks and bonds prices.
These examples underscore how the future appear uncertain especially in the event that the price of the assets plummet just like what happened to the dramatic fall of real estate prices. I think that Tully cited several valid points in his article.
Indeed, when one looks at the figures and compare them with the prices of each of the assets previously, one finds a disturbing trend: there is just high speculation going on assets that would eventually lead to a crisis not unlike the housing collapse that launched a financial crisis not seen perhaps since the Great Depression. Nonetheless, the experience of the real-estate crisis that hit America should offer a lot of learning opportunities for investors. While some could argue that assets in question could be stored and sold at a later time for a possibly higher price, there will still be the possibility that the opposite will happen.
With these considerations in mind, I am therefore advocating for investors a diversification of their portfolio. One should not invest in gold alone, or in stocks, oil or bonds. Diversification allows investors to minimize risks. Reference Tully, Shawn. (2010). “Beware the 4 new asset bubbles. FORTUNE Online. Retrieved 25 Jan. 2010, from http: //money. cnn. com/2010/01/25/news/economy/assets_bubbles. fortune/index. htm.