Economics Questions

Re: How to spot a bubble?

Smiling Dave — Tue, 12 Oct 2010 00:08:07 GMT

There was a long thread about this a while back. Someone dug up Bob Murphy's criterion, which I think is this:

If many people are buying something not because they plan to keep it, but to sell to the next guy, that is a bubble.

You may ask how can we tell WHY people are buying the thing? That is an art. A person with a gift for this sort of thing can look at, say, houses or dot.com stocks and say something like "They are way overpriced, because they are not bringing in enough rents or dividends. So people must be buying them to sell to the next guy."

Re: How to spot a bubble?

nirgrahamUK — Mon, 11 Oct 2010 23:41:18 GMT

Tulipmania wasn't a bubble?

Re: How to spot a bubble?

Esuric — Mon, 11 Oct 2010 23:37:08 GMT

There really is no way to identify a bubble until it collapses. In other words, you can never know, a priori, whether any particular sector of the economy is or is not a bubble. The best you can do is make a guess based on previous historical experience/data. The bubbles are revealed as bubbles only after the fact.

Strangeloop never responded to my definition of a bubble.

Re: How to spot a bubble?

Laotzu del Zinn — Mon, 11 Oct 2010 16:50:55 GMT

Ya. Really ^ that is the point. There is always bubbles, and in reality no bubbles ever. There is only growth that is substantiated and that which is not.

Re: How to spot a bubble?

Student — Mon, 11 Oct 2010 16:22:05 GMT

bubbles don't exist, so they are easy to spot. you will find them where ever you want to find them.

Re: How to spot a bubble?

Lagrange multiplier — Mon, 11 Oct 2010 15:25:22 GMT

Anyone that claims to know when a price departs from a "fundamental value" should be able to reap large gains from arbitrage opportunities.

Re: How to spot a bubble?

Laotzu del Zinn — Mon, 11 Oct 2010 15:23:18 GMT

It would seem to me, any tradable commodity with no real substance, like dotcoms and mortgage securities, that is drawing a large amount of investment, is inevitably going to fall.

The question is when.

Re: How to spot a bubble?

djussila — Mon, 11 Oct 2010 15:08:38 GMT

If investors are saying "This ____ will go on forever!"

How to spot a bubble?

Jonathan Patterson — Mon, 11 Oct 2010 15:02:09 GMT

What are the signs that a bubble is forming in a certain industry? Obviously prices of real assets related to that industry go sky high relative to the rest of the market as well as the securities that derive their value from those underlying assets. Beyond that is there anything more specific you would look for?