The 6 Most Important Asset Bubbles In Modern Times

The six most important asset bubbles in modern times (in my opinion) are shown in Exhibit 1 and, as you can see, each of them qualifies on the 2-sigma definition, although the 1965-72 peak, known in the trade then as the “Nifty-Fifty” event, did so by a modest margin. This event fell short in providing the usual good examples of extreme investment craziness. Perhaps, though, the very definition of the Nifty Fifty as “one decision stocks” may have qualified it, with one extremely crazy theme substituting for many smaller ones, for “one decision stocks” were so named because you only had to make one decision: to buy. These stocks were generally believed then to be so superior that once bought they would be held for life. (Most, like Coca-Cola Enterprises Inc (NYSE:CCE) and Merck & Company Inc (NYSE:MRK), stood the test of time well enough, but unfortunately several then unchallengeable examples like Eastman Kodak and Polaroid went the way of all flesh, or all film.)

There is one very important event that influenced our lives, financial and otherwise: 2008. The U.S. housing market leaped past 2-sigma all the way to 3.5-sigma (a 1 in 5,000-year event!). The U.S. equity market, though, was overshadowed by the then recent record bubble of 2000, although it still made it to a 2-sigma event on some definitions. But what was unique about 2008 was the near universality of its asset class overpricing: every equity market, almost all real estate markets (Japan and Germany abstained), and, of course, a fully-fledged bubble in oil and many other commodities. The GMO Quarterly of April 2007 (“It’s Everywhere, in Everything: The First Truly Global Bubble”) started out: “From Indian antiquities to Chinese modern art; from land in Panama to Mayfair; from forestry, infrastructure, and the junkiest bonds to mundane blue chips; its bubble time.”libaba’s platforms, the giant might start to grow more slowly.

So 2008, particularly if you can imagine adding real estate and commodities, was indeed a true global asset bubble, being the most extreme collective outlier in not just 30 years, but in at least the 88 years of our data and probably forever, given the much lower correlations of earlier times.