the_unlettered_tellurian

I just made a futile attempt at reading How a bubble stayed under the radar published on March 2, 2008 in the New York Times…very boring…

One great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming.

This is not true. There were ample voices talking about the bubble. Just that enough people were not ready to examine the problem back then. Apparently a few hedge fund managers who understood it (Peter Thiel??) made a lot of money betting against the bubble too.

“I’d come to realize that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”

Excellent!!! If this is what the great Alan Greenspan has to say, we at least now know we don’t need “serious students of the markets” to hold such “responsible” positions. We just need someone who can communicate the problem “after” it has happened…err…sorry…make that “before”

If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Now, that is something worth believing…we will continue investing in any future bubble (just like we did this time) until our dear business reporters decide to finally write a story on it. Unfortunately, all this writing happened way too late.

We have so many theories that explain the bubbles – information cascades, mimetic desire, bigger fool theory – we have enough of these. what seems to be clearly lacking is our ability to use these to control the bubble.

This is so boring…isn’t there anything better to write about “bubbles”, especially when the author’s credentials indicate he is a very enlightened being!

Activity on the Olympic Bubble seems to be picking up again. I came across this post on Seeking Alpha that stresses that the Chinese Olympic Bubble is the next “true” bubble after the Nasdaq Tech bubble and the Japan Nikkei Bubble.

Talking about those two bubbles, the author says “Valuation was in the stratosphere. Participants were fully convinced on the ideas of the Technology Miracle and Japanese Miracle respectively. And resources were severely misallocated.”

He thinks the same is happening in China now “Here we have all of the ingredients for a classic bubble – massive hysteria on faulty facts.”

Don’t forget to go through the comments on the post… they are as interesting (if not more) as the post itself.

Your might also be interested in what the pro-China folk had to say (back in 2007, kind of in response to Alan Greenspan’s comment) about the possibility of a post-olympic crash in this post I made earlier.

Looks like the Chinese had put up this interview as a reply to all that talk about a post-Olympic China crash.
In the interview, Chinese economist Li Yining says strong domestic growth has ensured that China has a lot more good projects that need investment so all the talk about bubbles is just talk. He does not make any direct reference to the Chinese stock markets, nor does he directly comment on any of the problems being forecast about them.
While most of the article has a very “everything-is-fine-in-China-” feel, in response to the final question he does highlight these five problem areas as major obstacles to the country’s sustained economic growth:

1. industrial monopolies
2. slow transformation of the government’s functions
3. slow growth of farmers’ income
4. an insufficient supply of resources
5. pressure on the environment