Four Bubbles That Have Yet To Burst
By David Dierking
Anybody who invests their money in just about anything is in some sense taking a leap of faith. Despite all the homework and number crunching someone does, in the end we just don’t know if the price of a stock, bond, mutual fund or anything else is going to go up or down. A lot of times things work in our favor and we make money but, as some recent stock market action has shown us, the value of the securities we buy can go down and go down quickly.
Investors in technology stocks about a decade ago are well aware of how quickly the stock market can turn against you. Owners of real estate in Florida, Arizona and California learned the hard way that prices don’t always keep going up. The recessionary environment of the last couple of years has knocked a lot of the excess out of the markets but not all of it. Here are a few bubbles that have yet to burst.
You probably don’t need to look much further than the slew of TV commercials from companies offering to buy your scrap gold to know that gold prices have done very well lately. Just two years ago, gold prices were hovering around $750 an ounce. Today, it’s sitting at almost $1400 an ounce. That time period coincides almost exactly with the start of the recession and the collapse of Bear Stearns as investors were flocking to “safe” investments. This recession won’t last forever and eventually money will move back to the stock market. Gold prices can be volatile and could suffer when this happens (see where to buy gold if you are still interested).
Treasury bonds especially have benefited from the flight to quality. The Fed has kept (and will keep) interest rates near zero to try to kick start the economy and treasury bonds and notes have seen their rates hover near all-time lows as bondholders have driven prices up. Similarly to gold prices, once the economy starts to rebound you can expect the Fed to start moving rates up to a more normal level and investors to start dipping their toes into equities again. Both of those could spell trouble for the bond market.
Not all bubbles that burst have to be bad, right? College costs have been rising well beyond the rate of inflation for several years now. If there’s one thing that tech stocks and real estate prices have taught us over the years it’s that if something seems unsustainable, it probably is. At some point, we’re going to hit a point of saturation where the average American can no longer afford college if costs keep rising at their current clip. When that happens, we could see tuition costs start to normalize.
Mortgage rates continue to remain at all-time lows as housing supply continues to far outpace demand. Rates will stay low as long as is needed to stimulate the housing market but rates like this will only stick around until demand starts to pick up. When that happens, today’s bargain rates will be gone. In other words, if you’re in the market to buy a house or refinance, get these rates while you still can!
Photo credit: Reini68
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