ACTV - The 4 Factors Causing Bubbles
2024-07-09 21:06:38 ET
Summary
- Economist, Hyman Minsky, theorized financial bubbles are caused by new technology, easy credit, amnesia about past bubbles, and abandonment of traditional stock valuation methods.
- Federal Reserve's aggressive monetary policies since 2008 have inflated balance sheets, creating a wealth effect and correlating with stock market performance.
- Excess liquidity is driving AI stocks to unreasonable valuations, reminiscent of past bubbles, prompting a need for international diversification in investment strategies.
Long before the subprime crisis of 2008, economist Hyman Pinsky theorized that financial bubbles are caused by a combination of four factors:
- The advent of a transformational new technology
- Easy credit
- Amnesia about the last bubble
- The abandonment of traditional, conservative methods of stock valuation
When I was a young international equities analyst, back in the mid-1980s, Japan was enjoying the mother of all bubbles. I learned early on that markets do get carried away sometimes, and that they can remain irrational longer than analysts can keep their jobs. How can I forget the great energy analyst at my first company who was fired for not recommending Enron?...
The 4 Factors Causing Bubbles