Friday, April 14, 2006

What's the Next Bubble?

Billmon in a chart and info heavy post about the nature of the zero sum US economy for most Americans over the past thirty years pointed out the escape valve --- "to encourage the creation of price bubbles in the assets most widely held by the American middle class. It may be a quick fix, but it works."

Over the past decade, we have seen a tech stock bubble albiet one generated in a time of rising wages and general economic improvement, and a housing bubble that has started to deflate over the past couple of months in the highest flying cities and regions. Before that we had localized real estate bubbles, and the S&L fuelled Sun Belt booms of the 80s. Each of these collapsed?

So what looks to be the next bubble?

I would think that oil would be the next big bubble, or a broader commodities price surge would be it. However EconBrowser makes a good case that the overwhelming majority of the price surge in basic commodities over the past couple of years are well grounded in basic fundamentals of supply and demand. Further more, looking at the US refinery market, the composition of the marginal barrel of crude (heavy and sour) versus the marginal refinery process (medium and somewhat sweet), Chinese and US demand growth etc, this is a very plausible storyline.

So what is the next bubble that we should start to see in two or three years?

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