Monday, June 27, 2005

The Mega-bubble ahead?

Various commentators are discussing the potential mega-bubble the global economy seems to be in. Marketwatch has a poll on whether we are in a global megabubble, and advises a strategy of conservative or aggressive investing based on our scores. The poll is somewhat biased in definition, and selection of questions, and it is hard not to get a high score, and thereby assume one is in a mega-bubble.
The Megabubble Poll

1. Real estate bubble. Clues: Speculators driving prices. Lenders offer cheap money, short-term loans. Home-equity loans fund short-term spending. Fed chairman sees minimal froth.
2. Energy and oil bubble. Clues: Crude hits another record. Political turmoil in oil-producing nations. Consumers buy gas-guzzlers at record pace. GM, Ford in trouble.
3. Foreign-trade deficit. Clues: Monthly deficits top $50 billion. This year's deficit will beat 2004's $617 billion. Foreigners now own $2.5 trillion of America.
4. Federal-budget deficit. Clues: Federal debt now $7.8 trillion; add another $400 federal deficit this year.
5. Corporate pensions underfunded. Clues: Airlines, auto, other manufacturers heavily burdened, default to taxpayers.
6. Local government pensions deficits. Clues: A near $400 billion mess draining local taxpayer resources.
7. Weak U.S. dollar. Clues: Fear China and other foreign powers will replace dollar reserves. Warren Buffett now betting $20 billion on foreign-currency hedging.
8. Social Security deficit. Clues: No choice, cut benefits or raise taxes; politicians hate both, so it'll get worse.
9. Health-care costs. Clues: Burden shifting to employees. Costs above inflation. 43 million uninsured.
10. Medicare deficit. Clues: Going broke faster than Social Security. Prescription drug benefit added an unfunded $8.1 trillion. Long-term estimates over $36.6 trillion.
11. Personal-savings shortfall. Clues: We consume not save. National savings rate is zero, down from 8% two decades ago. Average household net worth less than $15,000, excluding home equity.
12. Consumer debt bubble. Clues: We're living beyond our means. Consumer debt at $2 trillion. At 13%, household interest as a percent of income is at all-time high. Personal bankruptcies rising.
13. War and defense deficit. Clues: Iraq and Afghanistan wars cost over $200 billion a year, $2 trillion a decade.
14. Homeland insecurity. Clues: Minimal legislation to protect ports and chemical plants. Federal budget even cut border patrol 90%. Vigilantes patrolling.
15. Class gap widening. Clues: Superrich and CEOs getting increasing share of wealth, ownership and tax cuts.
16. Congressional pork. Clues: Both parties act like teenage addicts on a spending spree with stolen credit cards. By not using the veto, the administration acts like a parent who needs Nanny 911.
17. International credibility. Clues: Image problems: Post-9/11 imperialism, WMDs, Abu Ghraib, Gitmo and more.
18. Junk mailings. Clues: Mail solicitations increasing for credit cards and hot stock newsletters.
19. New "Mad Money" cable show. Clues: Frantic, manic entertainment; 1990s irrational exuberance again.
20. Numerous key mini-bubbles. Environmental, resources, technology, educational, outsourcing, jobs, you pick!


One thought - as a contrarian, if enough people believe we are in a mega-bubble, is it time to buy?

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