How to put your money in the next big bubble
September 7, 2008
By Bloomberg
Dotcoms? Done that. Property? Oil? Maize? Been there, got the T-shirt and nursed the losses as well. One thing we know for sure about today's global economy is that there is always an investment bubble somewhere. If you get in early enough you can make a fortune riding the boom.
So with property prices collapsing faster than a tent in a storm and with the commodity bandwagon gone, where should investors be looking for the next big thing? Five areas worth thinking about are: Old Europe, cars, stockbroking, the dollar and private islands.
In the financial markets over the past 20 years there is a common thread: something is always the flavour of the month. Investors spot a trend and everyone piles in until valuations become overextended and the whole thing collapses in a heap of bankruptcies and lawsuits.
At the turn of the millennium there was the dotcom bubble. More recently we have seen the same in property - fuelled by the availability of subprime mortgages - as well as in oil, food and other resources.
We have had buying frenzies in the much-hyped economies of Brazil, Russia, India and China (Bric). And there have been bubbles in financial instruments, such as collateralised debt obligations, that helped trigger the subprime meltdown.
We have some minor bubbles in things bought by those who made money out of the main bubbles. Look at the price of art or English Premier League soccer teams.
Of course, bubbles are never entirely ludicrous. The boom always has a basis in reality. The internet was an important new technology, and a few firms would make a lot of money from it. The dotcom boom took that truth and blew it out of proportion.
Likewise, adding China and India to the developed world is going to make commodities more expensive. Yet the resources boom took that upward-sloping graph and assumed it carried straight on into the sky.
So where are the next bubbles? You need something with a solid basis for expecting good growth, and can be puffed up into a mega-trend once some smart investment bankers get to work on it.
Bear in mind that bubbles come in five basic types: places, industries, financing, currencies and luxuries.
First, the place: Old Europe. Forget about the Brics. The next decade will belong to the FIGs - France, Italy and Germany. We have written them off for so long that we are in danger of forgetting that all three have been among the richest societies in the world for more than 1 000 years.
As the Chinese and Indian middle classes expand they will spend money on the up-market, design-led, history-rich products the FIGs are so good at making. After the credit crunch their stable, export-led, self-financing growth mix will look more attractive than the debt-fuelled British and American models.
Next, the industry: automobiles. It has been almost a century since the last gold rush in cars, so it is high time for a replay. After oil prices hit records some of the world's smartest people began looking seriously at creating cheap, non-polluting electric cars. If they crack it, hundreds of millions of vehicles will be replaced within a few years. Think of the fortune the music industry made when we replaced our vinyl records with CDs and multiply it by 10 000 or more. It sure sounds like a boom.
And the financial bubble? That will be stockbroking. It is so long since it was in fashion, there are not many stockbrokers left in business. Most are divisions of investment banks. And yet, there are thousands of firms with shattered balance sheets from the credit crunch. They need advisers, who have strong links with investors and can raise money by selling shares.
That's what stockbrokers used to do. If you are smart, shut down that hedge fund and become a stockbroker. In a few years UBS will pay a fortune to buy you out.
The currency bubble will involve the dollar. The markets have kicked it around for a long time, and yet by next year the US may well have the strongest economy. The weak dollar will spark an export boom. Pretty soon the US will be described as the new Germany - an export-led manufacturing economy, held back only by the reluctance of its consumers to spend money.
And how will the mega-rich, who make their money from those bubbles, display that new wealth? Forget about a Matisse on the wall - too vulgar. And soccer teams are just another bubble waiting to pop. The new billionaires will value privacy above all.
There is no better way than to buy part of a country. Grab a windswept Scottish isle now. Ignore the gales and you can sell it for a fortune in a few years. Just remember to get out before all the bubbles burst.
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