May 15, 2009|
Here comes another bubble
You must be wondering that we surely have gone nuts. Prices of most assets across the globe are falling like nine pins and here we are, trying to talk of a topic that may easily qualify as being one of the most out of place. But we beg to differ. We believe that the fall in asset prices has already led to the creation of one giant bubble. And that bubble may pop any time soon. In fact, the popping may have already begun.
Not many of us most have given this serious thought but the fact remains that the money that is lying in our bank accounts or the cash that we have stashed in our homes is an asset. We are so much used to thinking of equities, bonds and commodities like gold and silver as assets that the fact that cash or hard currency can also be called as an asset must have seldom crossed our minds. Hence, if currency is an asset then even it is subject to the same boom-bust pattern that the other assets are subjected to.
But wait! No one has ever seen currency rise in value much like equities or gold. And if it does not rise in value, how can it led to the formation of an asset bubble? The fact remains that while a currency cannot rise in value, other assets like equities or gold prices can definitely reduce. And this exactly what happened across the globe few months back and which led to the greatest recession since the Second World War that we are all witnessing currently.
Investors across the globe rushed towards the safety of cash. In other words, abandoning most of the asset classes, they piled onto the relative safety of one asset class, cash. The same cash that previously used to buy one ton of say steel and aluminium was now able to buy a lot more, thus reinforcing our earlier contention that currency is indeed an asset and can rise and fall in value in relation to other asset classes.
But this was a few months back. Slowly and steadily, other asset classes have once again started rising in value. Your cash buys a little less of quite a few assets these days as compared to say a year back. Secondly, new cash is being created by central banks across the globe and once the money multiplier comes into effect, there is likely to be a huge increase in supply. And as any basic economics textbook would suggest, greater supply eventually leads to lower price.
Although the currency cannot lower in value just as it cannot rise in value, it can definitely buy less of other assets just as it could buy more of them a little while ago. And this will definitely be not good for your purchasing power. So, the odds that the cash that you have in your possession could well be the next asset bubble to pop are indeed on the higher side from a longer term perspective.
More Views on News
Jun 10, 2017
Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.
Aug 19, 2017
Ever heard of Lindy Effect? Find out how you can use it to pick timeless stocks.
Aug 18, 2017
Buying the index now will hardly help make money in stocks even in ten years.
Aug 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.
Aug 17, 2017
PersonalFN simplifies the mutual fund account statement for you.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407