The S and P 500 looks to have entered a bubble. However, it should be remembered “asset bubbles” are only … So, how do you ID when we’ve entered the danger zone, and should you adjust your … Speaking of previous asset bubbles, what really struck me as of late is the universal belief by a large majority of analysts, economists, and commentators, suggesting there is currently “no evidence” of an asset bubble. Scenario #2: Low Growth, High Inflation - Assets were overvalued, but not significantly. Let’s look at how the above bubble characteristics and stages were manifest in recent prior bubbles. - The asset bubble's pop will have very ugly consequences. Maybe that is true. With discipline there is a lot of money to be made in a bubble market but the player needs to embrace the fact it is unsustainable. An asset bubble is a wave of optimism that lifts prices beyond levels warranted by fundamentals, ending in a crash. So now we're looking at an asset bubble in the stock market. As we have learned over the past fifty years, excessive monetary or credit ease can come out in one of three ways. No Asset Bubble? Asset bubbles are a form of inflation. "Nobody wants to talk about this being a bubble. Major financial bubbles, from the Dutch tulip mania in the 17th century to the real estate bubble that collapsed in 2007, have often become cultural milestones after they burst and spread havoc through the economy. Quantitative easing has failed to promote economic activity as expected, but it has driven interest rates to virtually zero. This is when we should be in debt-stabilization mode. It's a nice thing to be in the middle of a bubble, and you hope it will expand even more. First, there can be outright inflation. When there are no more investors willing to pay the overinflated price, people panic and sell and the bubble bursts. It's the greatest asset inflation bubble we have seen in 20 years," Jainz said during an appearance on CNBC's "Squawk Box Europe." Recent Cases of Asset Bubbles. Japanese Asset Price Bubble (1986-1991) Japan’s bubble was characterized by rapid acceleration of real estate prices (and subsequently stock prices) and an overheated economy. Given that backdrop, “Next time” meaning on the cusp of a pop or recession. 1. The next recession we have is likely to widen the deficit … Bubbles happen when the price is not justified by the asset itself but rather by the over-exuberant behavior of investors. What makes this alarming enough to include as a bubble is that the federal government currently has a large federal deficit even during peacetime and even with a strong economy and low unemployment. In 1999, I promised myself that I’d be smarter next time. A bubble is a fast rise in an asset’s price followed by a contraction. Are today’s frothy asset classes going to join the list? Excessive monetary or credit ease can come out in one of three ways in one three. 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