The Strategist

Seven dangerous bubbles in markets


11/20/2017 - 04:23



Everyone was talking about the collapse of Bitcoin course by 30% literally a few days ago, but now nobody remembers it. The quotes have updated the historical maximum.



Dykam via flickr
Dykam via flickr
A small correction has traditionally followed the maximum price, and now Bitcoin is trading just below $ 8 thousand. Thus, it took the most popular crypto currency only four days to recover from the sensational collapse. At the moment, the current capitalization of Bitcoin has exceeded $ 130 billion, and the dominance index climbed above 57.5%.

The last figure, according to forklog.com, indicates that the first crypto currency is still more popular than all the altcoins combined.

Despite the incredible popularity, some still regard Bitcoin as a kind of fraud and expect that the bubble will burst someday. Yet, there are still too many skeptics at the moment, so it's too early to talk about Bitcoin’s decline.

It's possible that the bubble will burst at that precise moment when the last skeptic decides to buy a crypto currency. Besides, it may well be so that it won’t burst at all, because the crypto-currency is supported by technologies that can be widely used in business and other spheres.

Below are the 7 most dangerous bubbles in the markets today.

1. Bubble in the Australian real estate market 

Size: 4.9 trillion Australian dollars

Duration: 29 years

Increase in the market price: 510%

Evaluation: loan to income ratio 1.8 times higher than long-term average

Irrational behavior: Continued GDP growth for 26 years

Degree of risk: high

2. Bubble in the London property market

Size: £ 6 trillion

Duration: 25 years

Increase in the market price: 333%

Evaluation: Loan to income ratio 2.3 times higher than long-term average

Irrational behavior: long-term rates are lower; the "property ladder" mentality 

Degree of risk: high

3. Bubble in the Hong Kong real estate market 

Size: 20 trillion Hong Kong dollars

Duration: 12 years

Increase in the market price: 67%

Evaluation: the average cost of a house was 18.1 times higher than the average annual household income in 2016.

Irrational behavior: the inflow of money from the mainland, the belief in inelastic housing demand

Degree of risk: high

4. ETF at VIX

Size: $ 3 billion

Duration: 7 years

Increase in the market price: 705%

Evaluation: projected volatility in the market at historical low, average VIX value in 2017 is 11.4 against long-term average of 19.4

Irrational behavior: the desire to buy at a minimum

Degree of risk: high

5. Bitcoins

Size: $ 56 billion

Duration: 2 years

Increase in the market price: 1526%

Evaluation: the price is very sensitive to regulatory changes

Irrational behavior: speculation, the pursuit of new technologies

Degree of risk: high

6. FAANG (Facebook, Apple, Amazon, Netflix, Alphabet)

Size: $ 2.5 trillion

Duration: 12 years

Increase in the market price: 1363%

Evaluation: the price is not limited to the potential profit

Irrational behavior: the desire to buy at a minimum, the fear of missing opportunities

Degree of risk: high

7. High-yield emerging market bonds

Size: $ 935 billion

Duration: 9 years

Increase in the market price: 240%

Evaluation: current yield is half the long-term average

Irrational behavior: the pursuit of profitability

Risk level: medium/high

source: bloomberg.com