Not Fully Inflated

Many investments are becoming expensive. But there is little sign of the mania that accompanies most bubbles.

Mr. Shiller is not yet ready to declare a bubble in American equities, however. There is nothing like the same excitement about shares that was seen in the late 1990s; net flows into mutual funds only just turned positive this year. Another measure of public indifference is that CNBC, a television station that tracks the financial markets, suffered its lowest ratings since 2005 in the third quarter.

Some would put government bonds into the bubble category: last year, yields in some markets reached the lowest levels on record. Buying bonds when yields are less than 2 percent has in the past led to heavy losses. Again, however, debt markets do not look too frothy by other measures. There is little talk at dinner parties of the massive profits to be earned on sovereign bonds. The biggest buyers have been central banks; there may be a problem when they try to unwind their purchases, but that moment does not look imminent.

The Economist’s house-price indicators suggest that property in New Zealand, Canada and Australia is substantially overvalued (and GMO sees clear signs of bubbles in British and Swedish house prices). But Hong Kong is the only overvalued market where prices are still surging ahead — by almost 20 percent over the past year.

The Japanese stock market is up 51 percent so far this year (in yen terms), but that constitutes little more than a recovery after nearly a quarter-century of disappointment. Venezuelan equities are up more than fivefold this year (and 273 percent in dollar terms) but that is not a market many international investors are excited about.

When it comes to collectables like art and fine wine, high prices may simply reflect inequality in the developed world. Throughout history, the rich have liked to demonstrate their status by displaying luxury goods that their inferiors are unable to afford. An Old Master can add real va-va-voom to your Manhattan penthouse.

The asset with a price trajectory most like a satellite launch — until a slump on December 5 — is Bitcoin, an electronic currency. The news media had excitedly chronicled its ascent. Those buying faddish financial instruments without intrinsic value may do well to remember the adage “Up like a rocket, down like a stick.”

© The Economist Newspaper Limited, London (December 7, 2013)


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