••The next great bubble

[bsrsharma]

Where is the next bubble going to be?

It seems to be in Agriculture – land, commodities, corn etc., When I saw CNBC mentioning seed – as in seed corn, I knew where the next game will be. The Ethanol program has inflated the price of corn and is inviting a lot of speculators (who made their killing in residential real estate) into agriculture. Corn has far more federal subsidies than housing, so it also provides a fine opportunity for some governmental corruption.

[Bubblesitter]

I’m thinking it will be somewhere in the energy sector.

Oil has seen a big run-up and is currently at an all time high. Some analysts are saying that production is reaching a peak. Very interesting read on cnn money.

http://money.cnn.com/2007/09/14/news/economy/peak_oil/index.htm?postversion=2007091414

The net result of these high oil prices is more investment in other oil sources and alternative technologies. For example, oil sands were once considered too expensive to extract. It is now economically viable and alot of Canadians are getting rich on oil sands.

Venture capital money is pouring into the energy area. Vinod Khoshla, the famed venture capitalist is now focused on this area.

On the solar power front, all it takes is a technology breakthrough in silicon power conversion efficiency to make Solar much more economically viable. I always thought that SoCal + entire southwest US could one day be generating a large % from Solar. All that wasted solar energy falling on the desert. No greenhouse gases. I’m currently hunting small-cap energy firms that are working on energy breakthroughs, especially ones with defensible intellectual property.

Bubblesitter

[LA_Renter]

This is an interesting thread. I think the next great bubble is the biggest current fear with Central Banks. I am reading article after article on why the FED needs to lower interest rates, which by the way is the source from which bubbles arise. The articles never seem to mention the risk associated with such a move. I saw an interview with Martin Feldstein (Greenspan’s first choice for Fed Chair and probably THE top economist in the country) this week on CNBC. He is the biggest advocate of a 100 bps cut to avert what he sees as a disaster looming. Even if the Fed cuts he indicated we only may avert a major recession…..with a little luck. The reporter did confront him in the interview about cutting in the face of $80 oil, a historically weak dollar and $715 Gold. He acknowledged those risk which are very inflationary / stagflationary and indicated that rate cuts were the lesser of two evils. In my mind rate cuts totaling 100 bps over the next 6 months equates to a Hail Mary pass. If that injection of liquidity finds its way to energy, commodities, precious metals, AG etc and momentum builds to form a bubble that will be a disaster. If a bubble forms in these areas that just means everybody pays much higher prices which is better known as inflation. The market is anticipating a fed rate cut and we have $80 oil (and going up), a historically weak dollar (and going down) and $715 Gold (and going up), that is not a good sign of things to come. I guess we can hope Larry Kudlow is right and a rate cut will strengthen the dollar…we will see.

[jficquette]

After a credit bubble pops there won’t be any more bubbles for a long time.

Can’t have bubbles unless credit is accommodating.

John

[CarlsbadMtnBiker]

” ……………………………………………………….The American propensity to consume is not a unique talent. Any nation can emulate it so long as it finds willing lenders and suppliers. Production on the other hand is an entirely different matter. It requires free markets, limited government, the rule of law, savings, capital and hard work. The world economy will not be brought to its knees simply because Americans stop consuming. Rather it is America’s service sector economy that will collapse once the rest of the world stops propping it up.”

hippmat.. how about your unique propensity to consume other peoples time reading your long winded doom & gloom bs forecast?

(I actually only sped read the 1st & last paragraphs) Do you think anyone is actually going to read all that? You must have been Ctrl C & V’ in for days.

Move to China. The rent is cheap.

[Bubblesitter]

Rent is China is cheap in the backwater cities away from the coast, of course you’ll be dying young from all the pollution. You’ll also be dying young in “nicer” cities such as Shanghai.

Shanghai has higher rents for “western” style apartments than Manhattan. I was out in Beijing and Shanghai a few months back, there is a huge amount of money and real estate speculators abound.

I also saw a couple Lamborghini and Roll Royce dealerships. The Chinese are now fully embracing the car culture. New cars everywhere, lots of Audis, ShanghaiGM Buicks, VWs, BMWs, etc. Endless traffic jams are clogging roads big time. This is a big change from my first trip out to China in the early 90s, back then it was still mostly bicycles.

Energy sector is still my bet for the next bubble. China is on track to be a one of the largest car markets in the world. They will be consuming alot of oil, having a big impact on the demand side.

Bubblesitter

[kewp]

I think the real question is *what* the bubble is, not which sector.

I’m not sure I understand how there could be a bubble in commodities themselves, unless folks start hoarding corn and oil. Dotcom was a stock bubble and didn’t create inflation of anything except the ultimately worthless paper. The housing bubble resulted in inflation of hard assets, on the other hand.

I suspect if the next bubble is in the energy sector, it will be another stock bubble. Particularly amongst ‘green’ energy companies.

[Bubblesitter]

Good point Kewp.

I guess if you define “Bubble” as irrational increase in the price of any asset, overvalued compared to its fundamentals, then you’re right, the energy sector may not fit this definition.

If public traded traditional energy and alternative energy stocks going thru the roof, and demand never materializes then this will fit the classic bubble definition.

The fundamentals in the traditional energy sector(oil, natural gas, oil services) still seem to be strong.

[kewp]

Well, I think the problem here is that ‘bubble’ has a fairly precise definition that is getting abused in this particular thread.

A financial bubble is when something that is traded (tulip bulbs, stock, houses) experiences an excessive price run-up due to speculation and not underlying fundamentals.

This is different from a ‘boom’, which is based on a strong fundamental demand.

It would seem, however, that most bubbles are simply outgrowths of booming industries.

[Tuba]

Man that listing takes the cake. That is the definition of ROFL! Thank you for the great laugh today. The backyard photo which looks like they are showing off the crude clothes line is a classic.

[babbleon]

Well most think it’s gold, energy or international money. Since I don’t know much about any of these I’ve got a ton of research to do.

[Sandi Egan]

I think next bubble has to be something hi-tech, something that only Americans can do (at least at the beginning), otherwise there is not point.
Nanothechnology? Real alternative energy? Flying cars? Android robots?

All we need is, take a couple of recent scientific papers, popularize them and create a hype in the media. Money will start to flow in the sector, millions will start working on it… Anything remotely related will skyrocket in price.
After several years there will be some results, not as good as everyone expected, but still pretty nice. At that point the bubble will burst. What happens after that is not our problem: there will be enough blogs discussing it then.

[want a good deal]

The fact that you are already discussing something as the next bubble means that it probably has just begun to run up in value and is still a great deal.

[bsrsharma]

Ethanol’s Boom Stalling as Glut Depresses Price

NEVADA, Iowa, Sept. 24 — The ethanol boom of recent years — which spurred a frenzy of distillery construction, record corn prices, rising food prices and hopes of a new future for rural America — may be fading.

Only last year, farmers here spoke of a biofuel gold rush, and they rejoiced as prices for ethanol and the corn used to produce it set records.

But companies and farm cooperatives have built so many distilleries so quickly that the ethanol market is suddenly plagued by a glut, in part because the means to distribute it have not kept pace. The average national ethanol price on the spot market has plunged 30 percent since May, with the decline escalating sharply in the last few weeks.

“The end of the ethanol boom is possibly in sight and may already be here,” said Neil E. Harl, an economics professor emeritus at Iowa State University who lectures on ethanol and is a consultant for producers. “This is a dangerous time for people who are making investments.”

While generous government support is expected to keep the output of ethanol fuel growing, the poorly planned overexpansion of the industry raises questions about its ability to fulfill the hopes of President Bush and other policy makers to serve as a serious antidote to the nation’s heavy reliance on foreign oil.

And if the bust becomes worse, candidates for president could be put on the spot to pledge even more federal support for the industry, particularly here in Iowa, whose caucus in January is the first contest in the presidential nominating process.

Many industry experts say the worst problems are temporary and have been intensified by transportation bottlenecks in getting ethanol from the heartland to the coasts, where it is needed most. And even if some farmers who invested in the plants lose money, most of them are reaping a separate bounty from higher prices for corn and other commodities, which are expected to remain elevated for some time.

Even so, companies are already shelving plans for expansion and canceling new plant construction. If prices fall more, as many analysts predict, there is likely to be a sweeping consolidation of the industry, and some smaller companies could go out of business.

The falling price of ethanol comes in sharp contrast to the rise in crude oil prices. Lower ethanol prices help reduce gasoline prices at the pump, where ethanol is available, but because it constitutes 10 percent or less in most blends, the impact for the consumer is marginal.

Congress essentially legislated the industry’s expansion by requiring steadily higher quantities of ethanol as a gasoline blend, a kick-start that was further spurred by the proliferation of bans on a competing fuel additive used to help curb air pollution.

But the ethanol industry, which is also heavily subsidized by federal tax incentives, got far ahead of the requirements of the law, rapidly building scores of plants and snapping up a rising share of the corn harvest. Many of those plants have gone into operation in recent months, and many more are scheduled for completion by the end of next year.

The resulting ethanol oversupply is buffeting the market. Here in northern Iowa, deep in the corn belt, newly cautious farmers and ethanol executives are figuring out how to cut costs and weighing their options should the situation get worse.

“We don’t know what, ultimately, the marketplace will price ethanol at,” said Rick Brehm, president and chief executive of Lincolnway Energy, a midsize distillery here. “It could go lower.”

Since construction crews broke ground on the Lincolnway plant in 2005, the price of ethanol on the local market has fallen to $1.55 a gallon from about $2, Mr. Brehm said. Over the same period, the price of corn, representing 70 percent of production costs, has risen to $3.27 a bushel from $1.60. “We’re trapped between two commodities,” he said.

Lincolnway was once virtually alone in the region, but now a handful of new competing distilleries are operating and pouring even more ethanol onto the market, offering blenders more options to negotiate lower prices and driving up demand for corn……

http://www.nytimes.com/2007/09/30/business/30ethanol.html?ei=5087&em=&en=bd695fcc2bcabe84&ex=1191384000&adxnnl=1&adxnnlx=1191211652-WzVemflomnUdXh4L48EArw

[drunkle]

that’s funny. someone was talking about the accerated pace of bubble booms and busts these days.

water. maybe not the next bubble, but sooner or later, water will be commoditized and inflated. figure, when water becomes deregulated/privatized…

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