Worries about bubbles
Investors are edgy. Even if they are making money, they’re concerned it won’t last. There are fears that any investment that has had a good run is setting itself up for a big fall. N.C. State University economist Mike Walden explains which type of investments fears are focused on.
“Recently … we had a big run-up in the housing market — prices skyrocketing, and then, of course, we have had a fall. And we also had that in the stock market, so it makes sense that investors are worried about these so-called investment bubbles that could be burst.
“Right now I think investors have four areas that they are focusing on that potentially could be bubbles, and so they are weary: One is China. China now the second largest economy in the world; it has had extremely fast growth. It has brought fears and some indications of higher inflation. And if the Chinese move to try to stem that inflation, that could bring a big decline, at least temporarily, in the Chinese market — and that could have an impact on the world and, of course, be a major bubble.
“The second are is treasury bonds. Treasury bonds — the value of those go up when interest rates go down. And people have fled to treasury bonds because their value has been going up because interest rates have been going down — and also because of their safety. Concern there: if interest rates turn around and start going up, then treasury bond values will fall and investors who have bought those bonds will suffer big losses.
“Gold is another area up 150 percent in five years, even without inflation. Historically it is a very volatile investment. Concerns: that the economy improves and worries about the economy recedes, we could have a big drop in gold.
“And then finally some agricultural commodities like cotton. We have seen prices skyrocket. Agricultural commodities: again, very susceptible to boom and bust, so people need to be weary if they are buying things like cotton or other similar commodities and prices are up they could come down.”Category: Economic Perspective