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Dovre Insight: The next bubble

Spekuliantai.lt | 2012-01-24 | Kitos | perskaitė: 568
Raktiniai žodžiai: Rinkos
Dovre Insight: The next bubble Dovre Insight: The next bubble

 Money printing and zero interest rates create a fertile breeding ground for new bubbles as soon as the macro climate stabilizes. Where will the next bubble be?

The 70’s saw a strong inflow of speculative capital to make a bubble in the commodity market. In the 80’s the same thing happened in Japanese equities and property. In the 90's came the Internet stocks bubble, a decade after that U.S. housing market was hit.

There is every reason to believe that a bubble will develop in this decade as well. Such events represent unique opportunities to create large fortunes in a short time. The assumption is that you are able to position yourself ahead of time and get out in time.

China and India

The next bubble will probably be related to one of the following long-term investment themes. The first is the rapid industrialization of China and India, the world's two most populous countries. It is easy to imagine that a bubble may develop in the stock and property markets in these countries, given the mixture of high trend growth and low interest rates.

Raw material shortage

The second main theme is resource scarcity. The world's middle class is growing faster than ever, and this creates a strong increase in demand for all types of commodities. On a globe of constant size, there are limits to how much raw material consumption can increase without bottlenecks occurring.

The world's most important commodity is crude oil. If China and India will have oil consumption per capita in line with South Korea the world's oil production would need to more than double. This is impossible, that leads to a systematically rising oil price in the decades ahead. Other potential candidates for a bubble in a Malthusians world are oil and gold or commodity-related equities and farmland.

Dilemma

A third candidate for a bubble is residential property in Norway. With huge oil riches, Norway is an oasis surrounded by the quagmire in all directions. Norway is the world's best country to live in, which is reflected in record high immigration and high population growth.

The Central Bank is facing a difficult dilemma. Low inflation means that interest rates should be cut, while a red-hot housing market is pointing in the opposite direction. Market Stability cannot be combined with price stability.

If the Central Bank selects to manage solely for inflation, a bubble easily could develop in the housing market. Precisely this happened in the U.S. after the turn of the century. China's integration into the world economy led to an artificially low inflation, and Greenspan responded by keeping interest rates artificially low. There for house prices took off.

Charity

Of the remaining bubble candidates there are environmental technology and biotechnology. The commercial foundation in environmental technologies such as solar energy, however, seems still too fragile. Investments in this segment are still primarily regarded as charity.

In biotechnology there are rapid technological developments. Breakthroughs are still hardly revolutionary and unlikely that there may be a bubble.

Dovre-portfolio

• Morpol
• Subsea 7
• BW Offshore
• Sevan Marine
• Fornebu Development
• EMGS

In: -
Out: -

 

 

 

 

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